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Every single CEO seems to have made the same mistake. I can't believe that they didn't see this coming. My businesses also grew intensely during the pandemic, b

Every single CEO seems to have made the same mistake. I can't believe that they didn't see this coming. My businesses also grew intensely during the pandemic, but if I thought that rate would last, I would have considered myself the stupidest leader on the ground. This is just so short sighted from Jack and other such CEOs.

lbriner 4y ago
I kind of agree but, of course, the elephant in the room is the whole culture that these companies exist in: Raise large amounts of money Grow exponentially Have a sweet exit for the investors Nothing that happened is surprising in this light. Even with a "nice" CEO and generous layoff terms, the simple issue is that the market for any given company can only ever be so big and the CEO doesn't get to choose "less growth" with investors breathing down their necks.
- Apocryphon 4y ago
  Perhaps now that the tide has gone out, it’s revealed that the entire industry was swimming naked.
- fatnoah 4y ago
  > ..and the CEO doesn't get to choose "less growth" with investors breathing down their necks. Investors in private and public businesses demand growth, so naturally executives will optimize for that. I'm currently at a Series B company that has a product, growing customer base, strong revenue, etc. and we're starting the Series C process. We've crafted a plan for responsible organic growth by investing in efficiency and growing lines of business with a lower cost to serve, but even in this environment, a significant number of investors are still looking for a "pump in the cash and grow fast" story.
tschellenbach 4y ago
You could have been really rich trading on that insight in the stock market
- Apocryphon 4y ago
  If you were Janet Yellen, perhaps
ClarityJones 4y ago
He never said it was a mistake. In acknowledging that hires were made on the basis of temporarily cheap money and a temporary opportunity, the CEO seems to be acknowledging that they never intended to maintain that level of staffing. This is a common part of the boom-bust cycle of many corporate firms. They use cheap money and labor to reposition / grow / etc., then when the work is done and wages start increasing, they cut back on staffing and reap the profits of their new position with a skeleton crew.
jawns 4y ago
Not a mistake. A calculated risk that didn't pan out. The letter says that the takeaway at the executive level is a greater emphasis on building an all-weather business. But frankly, investors often don't want an all-weather business. Lattice is a venture-backed startup. Having an all-weather business means being more risk-averse than you otherwise could be, which limits growth in the good times. Investors want a company that can quickly shed excess weight during a recession and then quickly grow again when conditions are favorable. That's how you get the high growth that attracts VCs. Something tells me that most CEOs who commit to running an all-weather business during this period of contraction will conveniently forget about it when times are better. In fact, they may use similar justification, that their hands are tied. During the downturn, it's "We had to lay these people off to make sure the larger organization can survive," and during a bull market, it's, "We had to grow rapidly to secure additional funding, which is necessary to make sure the larger organization can survive."
- KerryJones 4y ago
  "Investors don't necessarily want an all-weather business." This may be true for some investors, but the largest hedge fund in the world Bridgewater) is famous for their all-weather fund. That means that those investors do exist. If you take that into account, that means that they chose investors who do not want an all-weather company, and thereby gambled not only with their own personal well-being, but with other people's career's and incomes on a risky bet -- as the top comment said, it was obvious that these rates wouldn't stay the same.
  - dahfizz 4y ago
    VC investors don't want an all-weather business. And you don't see very many risk-averse investors who are willing to dump their money into startups.
    - KerryJones 4y ago
      I think that's largely true but not absolutely true. What all investors want is return on capital, what VCs are gambling on is that 1/10 (or 2-3 in a 100) are going to be moonshots, they're taking higher risks and hoping for higher rewards. The dichotomy of "higher risk vs higher reward", however, isn't as real as people feel it is. There are low-risk & high rewards style investing (it's the base premise of value investing, whether focused or not). VCs do not want you to lose their money, and so doing something that is predictably bad is not what they want. They do want you to go for moonshots... but again, this is predictably bad. I think you'll be harder pressed to find a company that has continued to do well by over-hiring through pandemic times.
shadowgovt 4y ago
When so many generally-smart people make the same mistake, I always wonder what the incentives are that put them there. Was it fear of being left out of the free-money-on-the-table if they didn't keep telling everyone growth would last forever, thus justifying investing more money in them to capitalize on that growth? I always have to keep in mind that public statements companies make are at least equal parts fire-for-effect as declaration of truth; they are bound by law to make some true statements, but they also pepper statements heavily with words chosen to illicit the desired behavior in investors (current and potential) and competitors.
- notpachet 4y ago
  > When so many generally-smart people make the same mistake, I always wonder what the incentives are that put them there. "Money, it's a hit; Ah, don't give me that do-goody-good bullshit; I'm in the high-fidelity first class travelling set; And I think I need a Learjet" https://www.youtube.com/watch?v=cpbbuaIA3Ds https://www.youtube.com/watch?v=cpbbuaIA3Ds
- pm90 4y ago
  It might make more sense to think of these folks, not as smart people operating independently, but as part of a larger social ecosystem. They claim to be purely data driven, but generally that's not really true. A lot of decision making comes down to social conditioning and peer pressure. In particular, I would say its not malicious, but just how society works. If you see your peers (other CEO's), the people you respect and report to (VC, investors) all saying similar things and nudging you to go in a specific direction, its easier to think you're on the right direction, easier to ignore signals that might point to the fact that your decision making is flawed. The unfortunate truth is that they have the "excuse" that everyone around them was caught by surprise, so its "not their fault" (i.e. they're still a good leader) and investors will buy it. The people that lose out are the affected employees; they just need to be nice and polite, apologize profusely and move on, while its the employees that lose the most.
  - Apocryphon 4y ago
    Would be interesting if there was a way for corporate boards to be more accountable for their mistakes in situations like the current tech layoffs. It is somewhat understandable if in a lot of these cases the CEOs are just cat’s paws of the will of the boards. I suppose activist investors who pushed for aggressive growth strategies because of the FOMO environment will be losing a lot of money, but that's little comfort to the people losing their jobs.
pavon 4y ago
Yes everyone knew it would end, but nobody knew exactly when. Choosing not to expand when there was cheap capital and increased customer demand would have been a pretty bad decision as well. Many of these companies expanded by like 3-5x and are now having to downsize by like 10-20%. That doesn't seem like a reckless overshoot to me.
gardenhedge 4y ago
Agreed - is there something we're missing and that they're not saying? How could they all get caught out by this.
mattgreenrocks 4y ago
It is easy to point the finger at the CEOs and say, "you should have seen this coming." (In fact, I did that exact thing yesterday, check my comment history.) However, I don't think all of these choices were made in a vacuum. I suspect some of these started as 'suggestions' from the board/investors. I quoted that because it has the same connotation as a suggestion from your boss: power imbalances skew the optionality of it quite a bit. There seem to be some resemblances to religion here: the downturn indicates that the gods are angry, and must be appeased through sacrifices. The CEO acts as high priest, carrying out the sacrifice, absorbing the blame generated by it. That may seem like a far-fetched analogy, but there's a certain liturgy to the whole process. It illustrates the popularized image of CEO as fully-realized alpha male who answers to no one is naive at best. Almost everyone has to answer to someone. And that definitely impacts how they make decisions.

lbriner 4y ago

I kind of agree but, of course, the elephant in the room is the whole culture that these companies exist in: Raise large amounts of money Grow exponentially Have a sweet exit for the investors Nothing that happened is surprising in this light. Even with a "nice" CEO and generous layoff terms, the simple issue is that the market for any given company can only ever be so big and the CEO doesn't get to choose "less growth" with investors breathing down their necks.

Apocryphon 4y ago
Perhaps now that the tide has gone out, it’s revealed that the entire industry was swimming naked.
fatnoah 4y ago
> ..and the CEO doesn't get to choose "less growth" with investors breathing down their necks. Investors in private and public businesses demand growth, so naturally executives will optimize for that. I'm currently at a Series B company that has a product, growing customer base, strong revenue, etc. and we're starting the Series C process. We've crafted a plan for responsible organic growth by investing in efficiency and growing lines of business with a lower cost to serve, but even in this environment, a significant number of investors are still looking for a "pump in the cash and grow fast" story.

tschellenbach 4y ago

You could have been really rich trading on that insight in the stock market

Apocryphon 4y ago
If you were Janet Yellen, perhaps

ClarityJones 4y ago

He never said it was a mistake. In acknowledging that hires were made on the basis of temporarily cheap money and a temporary opportunity, the CEO seems to be acknowledging that they never intended to maintain that level of staffing. This is a common part of the boom-bust cycle of many corporate firms. They use cheap money and labor to reposition / grow / etc., then when the work is done and wages start increasing, they cut back on staffing and reap the profits of their new position with a skeleton crew.

jawns 4y ago

Not a mistake. A calculated risk that didn't pan out. The letter says that the takeaway at the executive level is a greater emphasis on building an all-weather business. But frankly, investors often don't want an all-weather business. Lattice is a venture-backed startup. Having an all-weather business means being more risk-averse than you otherwise could be, which limits growth in the good times. Investors want a company that can quickly shed excess weight during a recession and then quickly grow again when conditions are favorable. That's how you get the high growth that attracts VCs. Something tells me that most CEOs who commit to running an all-weather business during this period of contraction will conveniently forget about it when times are better. In fact, they may use similar justification, that their hands are tied. During the downturn, it's "We had to lay these people off to make sure the larger organization can survive," and during a bull market, it's, "We had to grow rapidly to secure additional funding, which is necessary to make sure the larger organization can survive."

KerryJones 4y ago
"Investors don't necessarily want an all-weather business." This may be true for some investors, but the largest hedge fund in the world Bridgewater) is famous for their all-weather fund. That means that those investors do exist. If you take that into account, that means that they chose investors who do not want an all-weather company, and thereby gambled not only with their own personal well-being, but with other people's career's and incomes on a risky bet -- as the top comment said, it was obvious that these rates wouldn't stay the same.
- dahfizz 4y ago
  VC investors don't want an all-weather business. And you don't see very many risk-averse investors who are willing to dump their money into startups.
  - KerryJones 4y ago
    I think that's largely true but not absolutely true. What all investors want is return on capital, what VCs are gambling on is that 1/10 (or 2-3 in a 100) are going to be moonshots, they're taking higher risks and hoping for higher rewards. The dichotomy of "higher risk vs higher reward", however, isn't as real as people feel it is. There are low-risk & high rewards style investing (it's the base premise of value investing, whether focused or not). VCs do not want you to lose their money, and so doing something that is predictably bad is not what they want. They do want you to go for moonshots... but again, this is predictably bad. I think you'll be harder pressed to find a company that has continued to do well by over-hiring through pandemic times.

shadowgovt 4y ago

When so many generally-smart people make the same mistake, I always wonder what the incentives are that put them there. Was it fear of being left out of the free-money-on-the-table if they didn't keep telling everyone growth would last forever, thus justifying investing more money in them to capitalize on that growth? I always have to keep in mind that public statements companies make are at least equal parts fire-for-effect as declaration of truth; they are bound by law to make some true statements, but they also pepper statements heavily with words chosen to illicit the desired behavior in investors (current and potential) and competitors.

notpachet 4y ago
> When so many generally-smart people make the same mistake, I always wonder what the incentives are that put them there. "Money, it's a hit; Ah, don't give me that do-goody-good bullshit; I'm in the high-fidelity first class travelling set; And I think I need a Learjet" https://www.youtube.com/watch?v=cpbbuaIA3Ds https://www.youtube.com/watch?v=cpbbuaIA3Ds
pm90 4y ago
It might make more sense to think of these folks, not as smart people operating independently, but as part of a larger social ecosystem. They claim to be purely data driven, but generally that's not really true. A lot of decision making comes down to social conditioning and peer pressure. In particular, I would say its not malicious, but just how society works. If you see your peers (other CEO's), the people you respect and report to (VC, investors) all saying similar things and nudging you to go in a specific direction, its easier to think you're on the right direction, easier to ignore signals that might point to the fact that your decision making is flawed. The unfortunate truth is that they have the "excuse" that everyone around them was caught by surprise, so its "not their fault" (i.e. they're still a good leader) and investors will buy it. The people that lose out are the affected employees; they just need to be nice and polite, apologize profusely and move on, while its the employees that lose the most.
- Apocryphon 4y ago
  Would be interesting if there was a way for corporate boards to be more accountable for their mistakes in situations like the current tech layoffs. It is somewhat understandable if in a lot of these cases the CEOs are just cat’s paws of the will of the boards. I suppose activist investors who pushed for aggressive growth strategies because of the FOMO environment will be losing a lot of money, but that's little comfort to the people losing their jobs.

pavon 4y ago

Yes everyone knew it would end, but nobody knew exactly when. Choosing not to expand when there was cheap capital and increased customer demand would have been a pretty bad decision as well. Many of these companies expanded by like 3-5x and are now having to downsize by like 10-20%. That doesn't seem like a reckless overshoot to me.

gardenhedge 4y ago

Agreed - is there something we're missing and that they're not saying? How could they all get caught out by this.

mattgreenrocks 4y ago

It is easy to point the finger at the CEOs and say, "you should have seen this coming." (In fact, I did that exact thing yesterday, check my comment history.) However, I don't think all of these choices were made in a vacuum. I suspect some of these started as 'suggestions' from the board/investors. I quoted that because it has the same connotation as a suggestion from your boss: power imbalances skew the optionality of it quite a bit. There seem to be some resemblances to religion here: the downturn indicates that the gods are angry, and must be appeased through sacrifices. The CEO acts as high priest, carrying out the sacrifice, absorbing the blame generated by it. That may seem like a far-fetched analogy, but there's a certain liturgy to the whole process. It illustrates the popularized image of CEO as fully-realized alpha male who answers to no one is naive at best. Almost everyone has to answer to someone. And that definitely impacts how they make decisions.