“Layoffs are contagious,” Jason Calacanis tweeted. And after an initial “hmmmm” and thinking about it, the idea made sense to me. Founders, boards, and VCs look around at what others are doing and reassess their risk. It’s a flavor of social proof—it’s context. And the context in tech right now is contraction. That’s especially bad news for older employees.
Sure, strongly self-directed founders, or those whose companies are well-situated with funding or revenue may not be affected by context. They will keep their heads down and proceed as planned. But many others will reassess, especially in companies that recently had hiring pushes to fuel growth.
The world context
There’s an unsettling backdrop that’s causing much of the uncertainty contributing to the contraction—a war that may escalate, the threat of recession amidst record inflation and rising interest rates, and continued supply chain interruption. All this has caused a dramatic drop in stock prices and valuations. Founders and VCs are nervous.
Some data points paint a clear picture:
—Tech stocks are down. The Nasdaq composite, which is tech-heavy, ended April with its worst monthly performance since the 2008 financial crisis. This means company valuations and employee stockholders’ net worth are down, too.
—IPOs have stalled. According to Renaissance Capital, I.P.O.s are 80% off from a year ago.
—There’s been a pullback on VC funding. Venture funding in the U.S. fell 8% in Q1 from last year., according to PitchBook, which tracks funding.
—Large tech companies have rolled out layoffs. Companies announcing layoffs or shutting down since the beginning of the year are more than double last year, reports Layoffs.fyi, which monitors layoffs.
Hiring for growth has lost its luster
Years ago I spoke with someone with whom I was thinking of launching a startup. I was new to the startup world and asked him where the revenue was in the business model. He answered, “VCs don’t care about revenue, just growth.” He was a little right and a lot wrong. Today, profit trumps growth.
Growth can be a sexy metric but it requires people. And if you don’t hit the growth target quickly, you can get stuck holding too many employees. Which is what has happened to some startups, requiring layoffs.
The current employment landscape is complicated, though. Thanks to The Great Resignation, a record number of people are sitting on the sidelines. Ironically, context may have fueled The Great Resignation too. When everyone is doing it, the risk feels minimal. You could say turnover is contagious, too.
Now, there are also major layoffs happening. In fact, the contraction has happened so fast that I’ve seen plenty of anecdotes about having employment contracts withdrawn before the start date.
For those over 50: It’s complicated
The turn from expansion to contraction in tech has been swift. So how should you assess startup layoffs when you’re over 50? It’s a mixed bag.
On one hand, layoffs are more stressful for older employees than for others because it’s significantly more difficult to be rehired when you’re over 50. So even observing that layoffs are trending in other companies is stressful, much less a layoff itself.
On the other hand, older people have been through downturns before and many (but not all) have recovered. In general, experience brings the knowledge that “this too shall pass.” That doesn’t necessarily make it easier, but it does provide some welcome perspective.
If you work in tech, it’s a good time to assess your personal employment risk, given the context. Is your company in a position financially to weather the storm? Are the founders emotionally likely to remain stable or panic? Is your funding secure for a while? Is your role essential or are you dispensible? Is your seniority an asset or a liability? Then you can respond wisely—whether it means polishing off your resume, upskilling, or simply keeping your head down and doing the work.
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