Top Reasons Why Big Tech is Going Down the Rabbit Hole of Layoffs

Big tech

Big tech A wave of layoffs has hit the big tech companies and small businesses to a large extent in recent months

There has never been a better time to find work. The unemployment rate has increased with the lowest rate of job openings in big tech sectors. It’s a completely different story in the tech sector, which accounts for a relatively small percentage of the U.S. labor market but offers some of the highest-paying positions. A wave of layoffs has hit big tech companies and small businesses in recent months. Their CEOs cite reasons such as rising labor costs, in part due to inflation, as well as business slowdowns and a shortage of funds in both private and public markets. Even industry juggernauts, including Meta and Google, have frozen hiring for some engineering positions for the rest of the year.

Since the beginning of 2022, 54 tech startups have fired thousands of employees, more than double the number of companies with layoffs over the same period last year, according to layoffs. FYI, a crowd-sourced running list of companies that have cut jobs since the pandemic began. The largest cuts this year were seen at Better.com, an online mortgage provider made famous by its CEO’s Zoom firing spree in December 2021, and Peloton, whose at-home fitness equipment gained popularity during Covid lockdowns but is losing appeal as the pandemic ebbs.

For many companies, layoffs are a course correction after growing too fast for too long. The headcount at Cameo, which sells personalized videos from celebrities, “exploded” from 100 to 400 during the pandemic, CEO Steven Galanis said. The company laid off 87 workers last week. Investing app Robinhood, which slashed 9 percent of its staff in April, grew from 700 to nearly 3,800 employees between 2019 and 2021, CEO Vlad Tenev wrote in a blog post.

 

Inflation

Inflation is at 8%, economic growth is now starting to slow, and people are just not buying as much. Inflation means the firm’s costs will rise. If the consumption of their products and services are not going up as well, as high, that could eat into their margins as a result they’re forced to slow down their growth.

 

A Decline in Tech-Heavy Stock

The decline in the tech-heavy stock index is a barometer of the tech sector, meaning the unbridled growth of the past few years is contracting sharply as well. That’s been accompanied by recent warnings from the venture capital community that fundraising would be much more challenging for founders in the foreseeable future. Already, the layoffs have begun accumulating.

 

Post-pandemic snapback

The tech sector was one of the biggest beneficiaries of behavioral shifts at the height of the pandemic. As offices shut down and people spent more time at home, investors flocked to so-called stay-at-home stocks such as Peloton, Zoom, and Netflix. As people are returning to the office, traveling, and eating out, many of these businesses have had to readjust.

 

The Israel Crisis

Many times the response in Israel to crises is late. If in the United States employees are fired by email when their objects are already waiting at the entrance to the office, in Israel the sensitivity to those laid off is higher, and many companies see this as a last resort. They will prefer to reduce welfare budgets or temporarily cut the salaries of employees and management. Therefore large waves of layoffs and company closures will come only when companies that try to raise money will run into a wall and realize that they have no choice but to significantly cut the workforce.

 

VC Portfolio Rebalancing

It starts with large institutional investors that hold a mix of assets, including public stocks and venture capital. If the value of publicly traded stocks declines significantly, suddenly those investors will find themselves with a relatively larger percentage of their portfolio in venture capital and have to rebalance by curbing new investments in VC. As a result, institutional investors may begin pulling back on venture capital funding to rebalance their portfolios. That can ripple through the start-up funding landscape, forcing companies to reduce their cash burns in some cases, which means layoffs.

 

Investor Money

In the pre-2022 era, many entrepreneurs set up companies with models relying mainly on investor money, hoping that in the long run, it would pay off. Many companies in the field of mobility, for example, still lose money on their customers, with most of the funding falling on investors. One such company is AVO, which has developed a model of fast deliveries to companies and residential buildings. Its model was built on accumulating a mass of customers in each region so that both the cost of shipping and the cost of retail products would result in a profit.