this post was submitted on 25 Jan 2024
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Lots of tech companies saw huge growth during covid thanks to everyone having extra money to spend (see crypto and NFTs if you want clear examples that we just had too much laying around).
Many of these companies then saw their revenue and userbase increase month-after-month and thought the growth was going to continue forever (or, more cynically, they knew it was going to crash but acted like it was going to continue). This led to a bunch of hires to "drive growth."
But obviously, pandemic spending habits have mostly stopped, and the money faucet is being turned off. Companies can't afford all the workers they hired, so they're "let go due to market downturns."
TL;DR Companies either thought they were going to have unrealistic growth and made dumb hiring decisions, or knew the growth was going to end and thus made cruel hiring decisions.
The correction I would make is that they can afford the workers. But the leadership needs to continue the growth. All they have left is to cut expenses, and the easiest way to do that is layoffs.
Add something about the federal funds rate exceeding 2.5% for the first time since 2008 and you’re on the right track. I think interest rates affect startups more than Google so bigger tech firms were hoarding talent to prevent new competitors from having those workers.
Definitely. Google has lots of cash already, whereas startups are often in need of more money.
The other thing that's happened recently is that businesses used to be able to write off (deduct in their tax return) all their R&D expenses in the year they were incurred, whereas now they need to be amortized over five years. This has a huge impact to startups because a lot of their initial work is R&D, and now they have much larger tax bills than they used to have. https://www.axios.com/2024/01/20/taxes-irs-startups-section174