5 ms·

Seeing layoffs like these everywhere, including from companies that were hiring as recently as two weeks ago. How did these companies overestimate demand so mu

Seeing layoffs like these everywhere, including from companies that were hiring as recently as two weeks ago. How did these companies overestimate demand so much? Surely they could have seen that the demand from the pandemic years was an anomaly and not a sustainable "new normal"?

anthropodie 4y ago
People like to overestimate their abilities and usually are out of touch with reality.
rvnx 4y ago
Negative interest rates = you get paid to borrow and spend money. This means that these companies expected they would get a constant inflow of fresh cash. You have 1000. You borrow 1000, you pay back 990, now you have 1010 and your capacity to borrow has increased. You borrow again. Infinite money glitch. However, 1 month ago, the glitch was fixed. So, the "crisis" comes.
- fennecfoxen 4y ago
  Real interest rates are still negative. A mere half-point rate hike doesn't "fix" that. Two rate hikes are likewise insufficient. The Fed's target is at 0.75-1.00% and inflation's still over 8%.
  - _njyk 4y ago
    I agree, the rate hikes are still very shy, and the supply-chain issues are not going to improve prices. Estonia (where I live in Europe) has 20.3% inflation, it's insanely bad and the ECB is a snail to react to the situation and still claiming "this is transient, don't worry".
    - puranjay 4y ago
      Most institutions are very slow to react by and large since there is a big lag between on-ground reality and financial data. This is why you'll often see experienced investors and fund managers often defer to their "gut instincts" and talk a lot about subjective experiences ("I feel") vs just hard data.
      - rvnx 4y ago
        It's very refreshing to hear such :)
- pjc50 4y ago
  Who was actually able to borrow at negative nominal rates? As far as I can see even the US government only briefly hit negative nominal rates. I can see an argument for taking advantage of near zero real rates to hedge inflation: borrow 1000, buy assets, sell assets for 1080, repay 1001.
  - rvnx 4y ago
    Banks did, and they can issue loans at 1:9 leverage (at least in Europe). So what to do then with this money ?
    - pjc50 4y ago
      And did Bird actually borrow any of this money and at what rate?
      - rvnx 4y ago
        Yes but indirectly, and the nominal rate of borrow doesn't matter as long as the rate is less than the expect potential growth of the long-term value of Bird stock. At its core, Bird creates hype by creating a product or a service, this hype has some value. Investors believes they can increase and benefit from this hype so they decide to bring new cash. This new cash is supposed to be used generate new revenue, which in turn is increasing the hype, and this hype helps to bring new cash. At the end of the cycle, the point of fast growing private equity fund is to carry and grow hype until a potential IPO which is the time the retail investors or the general public are going to be left holding the bag (Airbnb, Uber, Coinbase) or to the point where the company becomes profitable and distributes future earnings (e.g. Microsoft). Which means, as long as there is hype, there is new money coming in. The reason money comes so much is because investors are nudged to spend their cash (e.g. negative interest rates also means that people who have cash and not equities are punished, as they have to pay interests!). Also, the retail investors have had this incentive but don't anymore. Remember, during the corona, a lot of people didn't know what to do with their money because no restaurants, no travel, etc. So playing with cryptos and stock market on Robinhood. -> The expected inflows of cash are going to decrease because retail investors that will hold the bag eventually won't be so keen to invest as they need their money (higher inflation). -> The cash is more expensive, so there is a mechanical reason for the decrease. -> There is uncertainty Overall: -> We need the company to survive so the pyramid doesn't collapse. -> Rationalizing by reducing our cost base is the most reasonable solution to protect all the investors and the employees who invested their time and sweat. I hope it makes sense.
pid-1 4y ago
Demand of what? This is an electric scooter company, it is supposed to do well when folks are not locked at home. The issue is low interest rates + helicopter money -> high interest rates + fed sell off. Bird did not overestimate consumer demand, they overestimated how easily they could finance a cash flow negative company.
- lm28469 4y ago
  > Demand of what? This is an electric scooter company, it is supposed to do well when folks are not locked at home. Many people stopped taking public transportation in favour of these alternatives
  - imustbeevil 4y ago
    The LTV of an electric scooter is negative, so more people using the service is actually bad for Bird.
    - FerociousTimes 4y ago
      Could you please elaborate more on this?
      - rvnx 4y ago
        They show good metrics "we are profitable for each ride sharing from a hardware perspective", but if you look at financial statements you see things huge lines like "General and administrative expenses". As a result, 2021 income: 205M, expenses: 425M Essentially, this is the business of selling for 0.50 USD something that costs 1 USD to produce.
dig1 4y ago
I've noticed that many startup-like companies are on the margins, living from month to month. Hiring is for inflating value and showing numbers to VCs. If the company is susceptible to even small inflation moves or cannot sustain 6-7 months without income, I'd reconsider its business model. Sadly, a considerable number of companies out there belong to this circle.
- puranjay 4y ago
  I'm also seeing very bloated headcounts for startups. Startups that haven't even hit product-market fit now have 500+ people. I've been out of touch with the startup world the last few years, but something seems to have changed where otherwise mature companies with low-mid four-digit employee counts still work as "startups" (complete with the lack of profitability).
fnomnom 4y ago
>including from companies that were hiring as recently as two weeks ago. hiring new people is often decided at the department level. hiring freeze and big layoffs come from the very top. two weeks ago the department heads had probably no idea
Nextgrid 4y ago
A lot of companies had their true purpose of riding the VC wave and living off their money by dazzling them with ever-increasing numbers. They would never have been profitable in a good day, let alone in the current storm. The VC wave is over, and so is "growth & engagement". Now the only way to survive is to actually make money from selling your product/service and saving that money instead of burning it on expanding the engineering playground where complexity was considered a feature.
Proven 4y ago
UncleMeat 4y ago
It does seem odd, but I think there is a different root cause. VCs often tell companies to hire like mad. The idea is that revenue growth is more important and will catch up. Additional runway is found with more and more funding rounds. So you can happily grow at ridiculous rates and lose money for years and years all the way to IPO. This strategy stops working in a dramatic way if you cannot keep raising VC money. Suddenly, the funding round isn't coming to save you and your bank balance is draining fast. The only solution is to slash costs.

anthropodie 4y ago

People like to overestimate their abilities and usually are out of touch with reality.

rvnx 4y ago

Negative interest rates = you get paid to borrow and spend money. This means that these companies expected they would get a constant inflow of fresh cash. You have 1000. You borrow 1000, you pay back 990, now you have 1010 and your capacity to borrow has increased. You borrow again. Infinite money glitch. However, 1 month ago, the glitch was fixed. So, the "crisis" comes.

fennecfoxen 4y ago
Real interest rates are still negative. A mere half-point rate hike doesn't "fix" that. Two rate hikes are likewise insufficient. The Fed's target is at 0.75-1.00% and inflation's still over 8%.
- _njyk 4y ago
  I agree, the rate hikes are still very shy, and the supply-chain issues are not going to improve prices. Estonia (where I live in Europe) has 20.3% inflation, it's insanely bad and the ECB is a snail to react to the situation and still claiming "this is transient, don't worry".
  - puranjay 4y ago
    Most institutions are very slow to react by and large since there is a big lag between on-ground reality and financial data. This is why you'll often see experienced investors and fund managers often defer to their "gut instincts" and talk a lot about subjective experiences ("I feel") vs just hard data.
    - rvnx 4y ago
      It's very refreshing to hear such :)
pjc50 4y ago
Who was actually able to borrow at negative nominal rates? As far as I can see even the US government only briefly hit negative nominal rates. I can see an argument for taking advantage of near zero real rates to hedge inflation: borrow 1000, buy assets, sell assets for 1080, repay 1001.
- rvnx 4y ago
  Banks did, and they can issue loans at 1:9 leverage (at least in Europe). So what to do then with this money ?
  - pjc50 4y ago
    And did Bird actually borrow any of this money and at what rate?
    - rvnx 4y ago
      Yes but indirectly, and the nominal rate of borrow doesn't matter as long as the rate is less than the expect potential growth of the long-term value of Bird stock. At its core, Bird creates hype by creating a product or a service, this hype has some value. Investors believes they can increase and benefit from this hype so they decide to bring new cash. This new cash is supposed to be used generate new revenue, which in turn is increasing the hype, and this hype helps to bring new cash. At the end of the cycle, the point of fast growing private equity fund is to carry and grow hype until a potential IPO which is the time the retail investors or the general public are going to be left holding the bag (Airbnb, Uber, Coinbase) or to the point where the company becomes profitable and distributes future earnings (e.g. Microsoft). Which means, as long as there is hype, there is new money coming in. The reason money comes so much is because investors are nudged to spend their cash (e.g. negative interest rates also means that people who have cash and not equities are punished, as they have to pay interests!). Also, the retail investors have had this incentive but don't anymore. Remember, during the corona, a lot of people didn't know what to do with their money because no restaurants, no travel, etc. So playing with cryptos and stock market on Robinhood. -> The expected inflows of cash are going to decrease because retail investors that will hold the bag eventually won't be so keen to invest as they need their money (higher inflation). -> The cash is more expensive, so there is a mechanical reason for the decrease. -> There is uncertainty Overall: -> We need the company to survive so the pyramid doesn't collapse. -> Rationalizing by reducing our cost base is the most reasonable solution to protect all the investors and the employees who invested their time and sweat. I hope it makes sense.

pid-1 4y ago

Demand of what? This is an electric scooter company, it is supposed to do well when folks are not locked at home. The issue is low interest rates + helicopter money -> high interest rates + fed sell off. Bird did not overestimate consumer demand, they overestimated how easily they could finance a cash flow negative company.

lm28469 4y ago
> Demand of what? This is an electric scooter company, it is supposed to do well when folks are not locked at home. Many people stopped taking public transportation in favour of these alternatives
- imustbeevil 4y ago
  The LTV of an electric scooter is negative, so more people using the service is actually bad for Bird.
  - FerociousTimes 4y ago
    Could you please elaborate more on this?
    - rvnx 4y ago
      They show good metrics "we are profitable for each ride sharing from a hardware perspective", but if you look at financial statements you see things huge lines like "General and administrative expenses". As a result, 2021 income: 205M, expenses: 425M Essentially, this is the business of selling for 0.50 USD something that costs 1 USD to produce.

dig1 4y ago

I've noticed that many startup-like companies are on the margins, living from month to month. Hiring is for inflating value and showing numbers to VCs. If the company is susceptible to even small inflation moves or cannot sustain 6-7 months without income, I'd reconsider its business model. Sadly, a considerable number of companies out there belong to this circle.

puranjay 4y ago
I'm also seeing very bloated headcounts for startups. Startups that haven't even hit product-market fit now have 500+ people. I've been out of touch with the startup world the last few years, but something seems to have changed where otherwise mature companies with low-mid four-digit employee counts still work as "startups" (complete with the lack of profitability).

fnomnom 4y ago

>including from companies that were hiring as recently as two weeks ago. hiring new people is often decided at the department level. hiring freeze and big layoffs come from the very top. two weeks ago the department heads had probably no idea

Nextgrid 4y ago

A lot of companies had their true purpose of riding the VC wave and living off their money by dazzling them with ever-increasing numbers. They would never have been profitable in a good day, let alone in the current storm. The VC wave is over, and so is "growth & engagement". Now the only way to survive is to actually make money from selling your product/service and saving that money instead of burning it on expanding the engineering playground where complexity was considered a feature.

Proven 4y ago

UncleMeat 4y ago

It does seem odd, but I think there is a different root cause. VCs often tell companies to hire like mad. The idea is that revenue growth is more important and will catch up. Additional runway is found with more and more funding rounds. So you can happily grow at ridiculous rates and lose money for years and years all the way to IPO. This strategy stops working in a dramatic way if you cannot keep raising VC money. Suddenly, the funding round isn't coming to save you and your bank balance is draining fast. The only solution is to slash costs.