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Its soo hard to comprehend that our economy is soo fragile. I understand, cashflows are tight in restaurant and tourism industry. But honestly, you shouldn't ru

Its soo hard to comprehend that our economy is soo fragile. I understand, cashflows are tight in restaurant and tourism industry. But honestly, you shouldn't run a tech company, if you cannot burn through a quarter.

e40 7y ago
So true. We're going to find out which ones were transferring revenue to executive salaries, stock buybacks and dividends.
- deusexepsilon 7y ago
  The other ones were moving it, changing that income and changing that profit, including the stock market. In practice, we've never discovered an effective way money can't be spent. I could have set out a way to do an accounting experiment that gives us the best of outcomes. The fact that we are spending so much means if we look for a number of reasons, it could be a good one for us. If the money is being invested, we also don't just invest that money, we need a new metric.
meritt 7y ago
Laying people off isn't necessarily a sign of distress. It may also be aptly observing the marketplace (e.g. the article suggests the layoffs were mostly in recruiting roles), and taking preemptive action. There are many of us who think this recession is going to last a hell of a lot longer than a single quarter, and if we're going to make cuts, earlier the better. "Management teams that cut expenses first are advantaged as it is an area under the curve problem. The earlier the cuts, the less deep they have to be and the better positioned the company is for the recovery. Bad management teams cut late and deep, which leads to them really suffering in the upturn." [1] [1] https://medium.com/@gavin_baker/thoughts-on-navigating-a-bear-market-65cb719b4843 https://medium.com/@gavin_baker/thoughts-on-navigating-a-bea...
- geofft 7y ago
  I mean, I think that is a sign of fragility. If I carefully make sure my laptop is far from the edge of the table every time I put it down, it's a smart, rational, well-advised response to knowing just how fragile my laptop is. The interesting point to me is that we have an economy which, when the going gets tough, can afford to employ some 75-85% of the people it ordinarily does, and that when we've been close to 0% unemployment, it's been because of unstable luck and not underlying robustness. It's somewhat surprising to me that we don't live in a time where we can comfortably afford to employ >>100% of the people in the system. (Well, either that, or we do live in such a time but our economy doesn't know how to allocate resources in a way to make it work.)
  - hhsuey 7y ago
    Unless, the definition of fragility for a laptop is different than that of say a basketball. The former is expected to not be dropped, while the latter requires it.
  - kartickv 7y ago
    I agree. I'd think that salaries could keep fluctuating up and down, like in the oil market, rather than the number of people employed in the economy as a whole. After all, better to make 60% of your earlier salary than zero, for most people. I'd also think that a job may not be worth doing at a given salary but worth doing at a lower salary. Isn't hiring just an ROI decision, which should theoretically make sense at a lower salary?
- WilliamEdward 7y ago
  This is easily pointed out, almost to the point where it's a lazy counter-point. In this case layoffs are a clear sign of distress and all those who have been laid off will have a hard time getting new jobs, which is something we should also feel bad about.
chrisco255 7y ago
Cash flow is everything. That's lifeblood of every business. Only businesses with deep cash reserves will survive this: not many.
ProAm 7y ago
> But honestly, you shouldn't run a tech company, if you cannot burn through a quarter. Everyone knows this pandemic is going to last WAY longer than a quarter. Probably a year+
- kalleboo 7y ago
  18 months for a vaccine, and then another year to actually distribute it to everyone
- streetcat1 7y ago
  Not true. Once the R is reduced below 1 (even to 0.99) the pandemic will disappear in weeks (an exponential reduction).
  - manigandham 7y ago
    Why would it just disappear? There are reports of secondary waves of infection and long-term health impacts for those who managed to recover. Also public health is separate from the economy which is on the edge of another great depression with 10M unemployment claims in the US alone.
  - deleted 7y ago
    [deleted]
  - umanwizard 7y ago
    Exponential decay is exponential growth in reverse, so for example, if the R were 2 during the growth phase, and the R is now 0.5, you would expect it to take the same amount of time to decrease as it did to build up. If the R were reduced to 0.99 it would take years to go away. To give you an idea, after 10 rounds of people getting infected, spreading it onward, and recovering, the number of cases would only have decayed to around 90% of its peak value (0.99 ^ 10 = 0.904)
  - vadym909 7y ago
    yup- just like Trump predicted- a Miracle!
lacker 7y ago
If you think about it, this doesn’t really make sense as a criticism of layoffs. You shouldn’t run a company with less than three months of salaries in the bank? Well okay, in that case if there’s a downturn and you only have four months of salaries in the bank, you need to lay people off to stay above that line. The result is the same, in a big downturn you may need to make layoffs. The goal of a company is not to minimize the chances of a layoff. If layoffs can increase the company’s chance of survival, they might be a good strategy.
- hhsuey 7y ago
  That's ridiculous. With that logic, if you're supposed to save X months of cash, then the very first cent you take out of that X months of cash savings, you already fucked up, b/c now you have less than X months of savings. Suppose you wanted to overcome this. So then you decide to start working a second job so you never have to touch the emergency savings. Then that defeats the entire point of the emergency savings, which is to be used when there is an emergency. The company could also be said to be fucking itself over if it can't have enough cash to prevent layoffs of necessary employees. If it doesn't have enough cash at hand, it will need to lose talent and be forced to try to rehire when the economy rebounds. A competitor with a good savings account could instead leap past b/c they could simply dip into their savings and continue to build for the rebound, with all their engineers on board.
  - rwmurrayVT 7y ago
    That's very similar to the argument about the capital buffer banks are required to have for the market downturn. Matt Levine wrote about it. It's turtles all the way down.
- WilliamEdward 7y ago
  The whole point of you saving for 3 months is specifically to avoid the downturn scenario you described in your own post, so you obviously wouldn't have to lay people off because you specifically prepared for it by saving money.
alecbenzer 7y ago
The whole world sometimes feels like it's held together with duck tape. I think people invest in things until they're just barely not falling apart.
- techslave 7y ago
  duct
  - DonHopkins 7y ago
    Maybe that's the problem: using Duck Tape [TM] instead of Duct Tape. https://www.duckbrand.com/ https://www.duckbrand.com/
nilkn 7y ago
Layoffs sometimes signal an abrupt change in strategy rather than imminent collapse. For instance, if the business was on a sharp upward growth trend for years and hired aggressively to expand into a new market, but then that market disappeared over night and isn't expected to reappear for a few years, then it may be easy to see that the investment in this new segment might be better redirected into existing verticals. Doing so may require layoffs even if the immediate health and survival of the company is not at stake. With all that said, there's no doubt many of these companies were uncomfortably on the edge of stability and success even in one of the strongest economic periods of modern US history.
manigandham 7y ago
What's interesting is that most VC startups have minimal to no cashflow. That's a completely different context from a typical business surviving on operational revenue. I don't know if Angelist is still this way but it strikes me as odd to see so many pre-revenue startups claiming financial distress with million-dollar capital raises and no product/market fit or any business model.
- wutbrodo 7y ago
  Why is this strange? Expected future revenue would decline, no?
  - manigandham 7y ago
    How can you expect anything without a product/market fit or tested business model? Their costs should actually go down and runway extended because great talent is now cheap and available.
    - lmeyerov 7y ago
      current round becomes last round b/c unlikeliness of hitting growth numbers. customers won't pay $0.80 for $1.0 when they have no job or their budget is frozen, and investors can't invest high multiples on growth when it isn't there. ("business is sound; we can switch to profitability whenever we want, we just prefer growth now" shown false, and investors don't want to look dumb when there are other fish in the sea or they can just wait). ironically, for startups with discipline or strong fundamentals, this is bargain season for them + stronger investors. but most VC's are slowing dealflow b/c they're used to in-person and (it sounds like) are weak around their LPs or think like those in the first group, so not taking advantage of it.
    - wutbrodo 7y ago
      How can you have funding if there's literally no expectation of future revenues? What you're describing is a high-variance expectation, not the absence of one. High variance distributions are still capable of having their mean lowered.
ichirotakahashi 7y ago
Going out and getting a loan from a bank or anything else is fine. That's what people do to invest.
rvz 7y ago
There you go. There are some so-called 'tech companies' out there that focus on too much head count and sometimes hype around on Twitter or blogposts pretending to scale like Google or Facebook with 'products' that generate close to no revenue. By the time they start frequently raising capital straight past their series D on a 6 month basis, you can tell their burn rate is too high which is an early red flag for layoffs and cost-cutting like this. I would not go to any company that isn't pandemic-proof which is the new theme of this recession. Just take it slowly, ignore the engineering hype and focus on generating revenue with less capital with a quality product.
rjvir 7y ago
A pandemic is indefinitely shutting down most of the country. This is hardly evidence that the economy is "fragile". That would be like calling your iPhone fragile if it breaks after throwing out the window of a skyscraper.
ReptileMan 7y ago
Can you guarantee that the whole madness will be over in a quarter? While I agree that a sanely run business should have a nice chunk of liquidity on hand, what happens if analysts expect 6 months of shutdown and 12 months of recovery?

e40 7y ago

So true. We're going to find out which ones were transferring revenue to executive salaries, stock buybacks and dividends.

deusexepsilon 7y ago
The other ones were moving it, changing that income and changing that profit, including the stock market. In practice, we've never discovered an effective way money can't be spent. I could have set out a way to do an accounting experiment that gives us the best of outcomes. The fact that we are spending so much means if we look for a number of reasons, it could be a good one for us. If the money is being invested, we also don't just invest that money, we need a new metric.

meritt 7y ago

Laying people off isn't necessarily a sign of distress. It may also be aptly observing the marketplace (e.g. the article suggests the layoffs were mostly in recruiting roles), and taking preemptive action. There are many of us who think this recession is going to last a hell of a lot longer than a single quarter, and if we're going to make cuts, earlier the better. "Management teams that cut expenses first are advantaged as it is an area under the curve problem. The earlier the cuts, the less deep they have to be and the better positioned the company is for the recovery. Bad management teams cut late and deep, which leads to them really suffering in the upturn." [1] [1] https://medium.com/@gavin_baker/thoughts-on-navigating-a-bear-market-65cb719b4843 https://medium.com/@gavin_baker/thoughts-on-navigating-a-bea...

geofft 7y ago
I mean, I think that is a sign of fragility. If I carefully make sure my laptop is far from the edge of the table every time I put it down, it's a smart, rational, well-advised response to knowing just how fragile my laptop is. The interesting point to me is that we have an economy which, when the going gets tough, can afford to employ some 75-85% of the people it ordinarily does, and that when we've been close to 0% unemployment, it's been because of unstable luck and not underlying robustness. It's somewhat surprising to me that we don't live in a time where we can comfortably afford to employ >>100% of the people in the system. (Well, either that, or we do live in such a time but our economy doesn't know how to allocate resources in a way to make it work.)
- hhsuey 7y ago
  Unless, the definition of fragility for a laptop is different than that of say a basketball. The former is expected to not be dropped, while the latter requires it.
- kartickv 7y ago
  I agree. I'd think that salaries could keep fluctuating up and down, like in the oil market, rather than the number of people employed in the economy as a whole. After all, better to make 60% of your earlier salary than zero, for most people. I'd also think that a job may not be worth doing at a given salary but worth doing at a lower salary. Isn't hiring just an ROI decision, which should theoretically make sense at a lower salary?
WilliamEdward 7y ago
This is easily pointed out, almost to the point where it's a lazy counter-point. In this case layoffs are a clear sign of distress and all those who have been laid off will have a hard time getting new jobs, which is something we should also feel bad about.

chrisco255 7y ago

Cash flow is everything. That's lifeblood of every business. Only businesses with deep cash reserves will survive this: not many.

ProAm 7y ago

> But honestly, you shouldn't run a tech company, if you cannot burn through a quarter. Everyone knows this pandemic is going to last WAY longer than a quarter. Probably a year+

kalleboo 7y ago
18 months for a vaccine, and then another year to actually distribute it to everyone
streetcat1 7y ago
Not true. Once the R is reduced below 1 (even to 0.99) the pandemic will disappear in weeks (an exponential reduction).
- manigandham 7y ago
  Why would it just disappear? There are reports of secondary waves of infection and long-term health impacts for those who managed to recover. Also public health is separate from the economy which is on the edge of another great depression with 10M unemployment claims in the US alone.
- deleted 7y ago
  [deleted]
- umanwizard 7y ago
  Exponential decay is exponential growth in reverse, so for example, if the R were 2 during the growth phase, and the R is now 0.5, you would expect it to take the same amount of time to decrease as it did to build up. If the R were reduced to 0.99 it would take years to go away. To give you an idea, after 10 rounds of people getting infected, spreading it onward, and recovering, the number of cases would only have decayed to around 90% of its peak value (0.99 ^ 10 = 0.904)
- vadym909 7y ago
  yup- just like Trump predicted- a Miracle!

lacker 7y ago

If you think about it, this doesn’t really make sense as a criticism of layoffs. You shouldn’t run a company with less than three months of salaries in the bank? Well okay, in that case if there’s a downturn and you only have four months of salaries in the bank, you need to lay people off to stay above that line. The result is the same, in a big downturn you may need to make layoffs. The goal of a company is not to minimize the chances of a layoff. If layoffs can increase the company’s chance of survival, they might be a good strategy.

hhsuey 7y ago
That's ridiculous. With that logic, if you're supposed to save X months of cash, then the very first cent you take out of that X months of cash savings, you already fucked up, b/c now you have less than X months of savings. Suppose you wanted to overcome this. So then you decide to start working a second job so you never have to touch the emergency savings. Then that defeats the entire point of the emergency savings, which is to be used when there is an emergency. The company could also be said to be fucking itself over if it can't have enough cash to prevent layoffs of necessary employees. If it doesn't have enough cash at hand, it will need to lose talent and be forced to try to rehire when the economy rebounds. A competitor with a good savings account could instead leap past b/c they could simply dip into their savings and continue to build for the rebound, with all their engineers on board.
- rwmurrayVT 7y ago
  That's very similar to the argument about the capital buffer banks are required to have for the market downturn. Matt Levine wrote about it. It's turtles all the way down.
WilliamEdward 7y ago
The whole point of you saving for 3 months is specifically to avoid the downturn scenario you described in your own post, so you obviously wouldn't have to lay people off because you specifically prepared for it by saving money.

alecbenzer 7y ago

The whole world sometimes feels like it's held together with duck tape. I think people invest in things until they're just barely not falling apart.

techslave 7y ago
duct
- DonHopkins 7y ago
  Maybe that's the problem: using Duck Tape [TM] instead of Duct Tape. https://www.duckbrand.com/ https://www.duckbrand.com/

nilkn 7y ago

Layoffs sometimes signal an abrupt change in strategy rather than imminent collapse. For instance, if the business was on a sharp upward growth trend for years and hired aggressively to expand into a new market, but then that market disappeared over night and isn't expected to reappear for a few years, then it may be easy to see that the investment in this new segment might be better redirected into existing verticals. Doing so may require layoffs even if the immediate health and survival of the company is not at stake. With all that said, there's no doubt many of these companies were uncomfortably on the edge of stability and success even in one of the strongest economic periods of modern US history.

manigandham 7y ago

What's interesting is that most VC startups have minimal to no cashflow. That's a completely different context from a typical business surviving on operational revenue. I don't know if Angelist is still this way but it strikes me as odd to see so many pre-revenue startups claiming financial distress with million-dollar capital raises and no product/market fit or any business model.

wutbrodo 7y ago
Why is this strange? Expected future revenue would decline, no?
- manigandham 7y ago
  How can you expect anything without a product/market fit or tested business model? Their costs should actually go down and runway extended because great talent is now cheap and available.
  - lmeyerov 7y ago
    current round becomes last round b/c unlikeliness of hitting growth numbers. customers won't pay $0.80 for $1.0 when they have no job or their budget is frozen, and investors can't invest high multiples on growth when it isn't there. ("business is sound; we can switch to profitability whenever we want, we just prefer growth now" shown false, and investors don't want to look dumb when there are other fish in the sea or they can just wait). ironically, for startups with discipline or strong fundamentals, this is bargain season for them + stronger investors. but most VC's are slowing dealflow b/c they're used to in-person and (it sounds like) are weak around their LPs or think like those in the first group, so not taking advantage of it.
  - wutbrodo 7y ago
    How can you have funding if there's literally no expectation of future revenues? What you're describing is a high-variance expectation, not the absence of one. High variance distributions are still capable of having their mean lowered.

ichirotakahashi 7y ago

Going out and getting a loan from a bank or anything else is fine. That's what people do to invest.

rvz 7y ago

There you go. There are some so-called 'tech companies' out there that focus on too much head count and sometimes hype around on Twitter or blogposts pretending to scale like Google or Facebook with 'products' that generate close to no revenue. By the time they start frequently raising capital straight past their series D on a 6 month basis, you can tell their burn rate is too high which is an early red flag for layoffs and cost-cutting like this. I would not go to any company that isn't pandemic-proof which is the new theme of this recession. Just take it slowly, ignore the engineering hype and focus on generating revenue with less capital with a quality product.

rjvir 7y ago

A pandemic is indefinitely shutting down most of the country. This is hardly evidence that the economy is "fragile". That would be like calling your iPhone fragile if it breaks after throwing out the window of a skyscraper.

ReptileMan 7y ago

Can you guarantee that the whole madness will be over in a quarter? While I agree that a sanely run business should have a nice chunk of liquidity on hand, what happens if analysts expect 6 months of shutdown and 12 months of recovery?