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Tech companies keep falling for the forever fallacy
- blueboo 3y agoYep, this is a problem in tech. Anyway I'm just going to pop out to the A&P after stopping by Borders and Sears while wearing my Lehman Bros fleece
- tschellenbach 3y agoIf you can predict boom and bust cycles you can become very rich trading on the stock market.
- Dalewyn 3y agoSome additional context, hidden six paragraphs down to enable the clickbait: >I call it the "forever fallacy." It's really quite simple. The forever fallacy is the belief that the circumstances that led to extraordinary growth will continue indefinitely, even when they obviously aren't. It's the idea that growth, no matter how irrational, will continue because the change in circumstances that caused it is permanent.
- hackernewds 3y agocall it the pandemic + massive money printing example. a lot of companies have their reckoning coming
- nine_zeros 3y agoOh, they all know it's not going to last. But they cannot say it out loud. Why? Because the stock price will be punished and because someone's empire building promotion will be blocked if they don't agree. Until they keep rewarding bullshit management practices, nothing will change. If the incentive system asks managers to build empires to get promoted, that is exactly what they will do. No manager is asked to be thought leaders. No manager is rewarded for making good calls. Management in tech is quite literally babysitting engineers.
- justinclift 3y agos/keep bullshit management/stop bullshit management/ yeah?
- juunpp 3y agoI don't know, seems like a weak article. It just names the obvious examples of companies ("tech"!) that over-hired and all that. Others still celebrated the increased demand but also planned ahead, and not everyone has laid off. Guess they don't talk about those.
- not2b 3y agoThe companies that celebrated the increased demand but planned ahead did not fall for the forever fallacy. They took advantage of the increased demand but didn't overhire to nearly the same extent. Apple did a much better job at this than Google and Meta.
- renewiltord 3y agoInteresting, so it appears that you advocate expanding contractors and then firing them over full-time employment like with Apple.. I think it's likely we'll move to that environment naturally.
- gtirloni 3y agoI was thinking the same thing. How does one's "plan ahead" doesn't include firing people they overhired?
- iepathos 3y agoYeah, also doesn't mention the super low 3.4% unemployment rate the US still has. Most of the people being laid off are being re-hired within a very short timeframe. The Fed has wanted unemployment back up to ~6% for over a year and can't get it.
- gtirloni 3y ago> The Fed has wanted unemployment back up to ~6% for over a year and can't get i Why is the Fed interested in that and why does it want that number to be higher?
- tjpnz 3y agoHow do you achieve infinite growth on a planet with a finite population and resources? It should be obvious to most, yet the supposed "smartest guys in the room" are the first to stumble through it.
- kibwen 3y agoNobody ever got rich by questioning the wisdom of "line go up".
- LapsangGuzzler 3y agoThe Big Short guys would vehemently disagree with this.
- majormajor 3y agoMost of us aren't in the position to make that bet. The most I can afford to do usually is "leave this role because even though the press and investors are still on board, I don't think it's a good bet anymore." I've done it a few times, I've even been right about whether they'd make a good ROI on those new funds... and so I made modestly more in the new role than I would've by vesting more pointless options or whatever... but I couldn't really short those startups or subdivisions to make a fortune by them failing. While their founders/CEOs made a (small) fortune by failing, but in a big enough way.
- paulpauper 3y agoOne overhyped counterexample out of countless failures. major survivorship bias. Few short sellers make money.
- shuckles 3y agoHow many tons of coal do we burn when we take advantage of an invention like language?
- deleted 3y ago[deleted]
- LapsangGuzzler 3y agoThey did exactly what any company would do in their position as publicly traded companies. This finger-wagging from a free market magazine is dripping in hypocrisies. If the author didn’t like how companies over-hired and built unsustainable labor forces, then they should criticize the market that creates these incentives. Of course, the day that Inc magazine becomes socialist is the day that Hell freezes over. Don’t hate the player, hate the game.
- WalterSear 3y agoHate them both: the game is a reason, not an excuse.
- LapsangGuzzler 3y agoThe real problem that author doesn’t call out is that at the end of the day, the people in charge don’t get hurt from these irresponsible boom and bust hiring practices. These companies knew the growth wouldn’t last, nothing lasts forever. They all maintain control while the little people suffer. The dream is to become insulated from the economic storms like they are.
- notho 3y ago“Hurting” the elite has always been up to the public. Teacher strikes and unionization efforts have been winning; the financiers know nothing about self sufficiency. They know they rely literally on someone else to grow the food, kill the steaks. The white collar public have a credibility problem; they want to be served and not serve themselves. There is zero reason for most tech workers to login tomorrow; the vast majority will never move the needle. Yet they’ve learned helplessness and don’t know what to do. We carry on about ills of LLMs hallucinating while westerners hallucinate the they can just do data entry work and someone else will wear out their bodies procuring food. Our AI is more like us than we want to admit, which is why they’re so terrible.
- whitemary 3y ago> Teacher strikes and unionization efforts have been winning Citations needed
- LapsangGuzzler 3y agoAmong the urban working class in cities like Chicago, union interest has been rising rapidly across a variety of sectors. Retail, education, warehouse labor, museums are all seeing increases in union activity. The mayor-elect is a former union organizer. Chicago is certainly one of the more pro-labor cities in the US, but they’re not the only ones seeing growing interest in organized labor. The Democratic Socialists of America membership grew from 6,000 to 90,000 in less than 10 years. https://chicago.chalkbeat.org/2023/5/11/23720181/chicago-deputy-mayor-education-teachers-union-chief-of-staff-jen-johnson?_amp=true https://chicago.chalkbeat.org/2023/5/11/23720181/chicago-dep... https://www.afscme.org/blog/workers-at-another-chicago-institution-are-forming-a-union-with-afscme https://www.afscme.org/blog/workers-at-another-chicago-insti... https://chicago.suntimes.com/business/2023/5/8/23715750/rei-outdoors-retailer-staff-union https://chicago.suntimes.com/business/2023/5/8/23715750/rei-... https://chicago.chalkbeat.org/2023/5/12/23720406/chicago-public-schools-principals-union?_amp=true https://chicago.chalkbeat.org/2023/5/12/23720406/chicago-pub...
- gabrielsroka 3y ago2022
- notho 3y ago[dead]
- paulpauper 3y agoI call it the forever fallacy. It's really quite simple. The forever fallacy is the belief that the circumstances that led to extraordinary growth will continue indefinitely, even when they obviously won't. It's the idea that growth, no matter how irrational, will continue because the change in circumstances that caused it is permanent. The financial media writes this exact same type of article every time there is a correction, like in 2020, 2022, 2012, 2016, 2009, etc. And then as always, when least expected, prices come roaring back. Meta stock is up more than 130% from the lows of 2022. Same for Netflix, also up huge. Or NVidia. It generally pays to be optimistic and stay invested. It's always the same pattern. Price fall fast but then recovers so fast too. Yeah, maybe extraordinary growth will not continue indefinitely, but so what.
- gamerDude 3y agoI feel like the author here is not thinking through the opposite. What happens to the CEO if they plan for the market to stagnate and then it doesn't? Then they look like fools as their competitors take market share and then they get replaced. The incentives just aren't designed to plan for decline.
- jm20 3y agoI think you’re right. It’s irresponsible/dangerous for a business not to try to grow as fast as it can, especially in as cutthroat a market as tech can be. Just how the system works, for better or worse. However the “poor CEO gets fired with only a $10MM golden parachute” angle doesn’t play as well with the average reader
- lmpdev 3y ago>The incentives just aren't designed to plan for decline. I wonder how managed printing service companies deal with this I brokered a five year deal earlier this year, and all vendors put a 7% yoy decrease in print volume I wonder what it looks like at the top of these companies like Fujifilm or Ricoh for printing sales people - are they diversifying or trying to converge on a sustainable level of revenue?
- parlortricks 3y agoThey are moving print to digital
- Thorrez 3y agoApple hasn't done layoffs.
- batmenace 3y agoYour comment supposes that it has to be extreme -- rapid growth or stagnation. Why do you think a responsible CEO / management team cannot plan for a 'moderate growth' pathway that sees steadier levels of hiring and firing more akin to what the rest of the industry shows? I wonder if for tech companies part of the answer is also that moving people around is an 'easy' way to play with numbers. You go to the market / to your investors and say ''Hey, we've hired 1,000 people over the last 12 months, we must be doing so well [give us money]'', and likewise ''We're gonna lay off 1,000 people soon so we're all good here [give us money]''
- beefman 3y ago(July 2022)
- ftxbro 3y ago> "Just the law of large numbers says that eventually you reach all of the people who are likely to be your customers and you stop growing" is that what the law of large numbers means
- slopbop 3y agoThis stuck out to me too, glad someone else noticed it. Just in case people aren't aware, the law of large numbers is a phenomenon related to repeated random experiments, saying that the incidence rate of any particular event will tend towards the probability of that event. Referencing it in this context is a total non-sequitor.
- ftxbro 3y agoI think they are using a big brain generalization of the law of large numbers, where it now means any limit involving a stochastic process
- alberth 3y agoIsn't it much simpler. Given that Tech, compared to other industries (Mining, Energy, etc) is still in its early years - most tech companies optimize for Growth. While more established industries optimize for profitability / stability. What's happening now in Tech is that companies are beginning to graduate to these later years where they run into natural total address market plateaus where they need to shift from Growth to Profitability/Stability. (Think Netflix). And this transition from being a Growth company, to a matured business - is a hard transition for any company.
- zer0tonin 3y agoTech has been around for more than a century. IBM was founded in 1911.
- renewiltord 3y agoIdeally, then, perhaps the laid-off workers should not be hired. It is better that they are jobless today lest we hire them only to fire them tomorrow.
- irjustin 3y agoI disagree w/ the premise of the article. It's oddly assuming that leaders of these huge tech companies have no knowledge that the pandemic would end. Effectively calling them dumb. It's just wording. I think reworded in the spirit of the article is "Leaders should _do_ better" and be more steady/stable with their project and hiring practices. But it's simply good capitalism. You should grow and shrink with the times all while building a massive store of cash. The problem is, good capitalism makes people get used/burned and ignores... well people.
- knallfrosch 3y agoEveryone laughs at an empty factory and a warehouse full of products that won't sell. However the damage from two factories that didn't get built and an empty warehouse that can't deliver more product can be even larger, even though it's usually hidden to outsiders.
- thriller 3y agoThe problem I have with some layoff articles like this, is that they ascribe mass hiring during the pandemic to a CEO or single 'throat to choke'. My experience is hiring decisions are primarily political in nature. Head of a team and salary/revenue ratios are solid? Better make a convincing but ultimately flimsy business case to get more heads. Otherwise, your fellow empire builder in another department will be more than happy to take that headcount. Multiply this by a few hundred teams and you see the magnitude of the problem. Once you've played the game, grown your team with no real appreciation of thinking like an owner, you can ruthlessly mow down 10 percent of your team or seek that new role while Rome begins to burn.
- berkethegrizzly 3y agoThe article is missing a huge point. The companies mentioned in it did not lose anything at all, or an amount that is negligible. They took advantage off the boom and made more money than they could in a normal situation. They did not lose anything (at least the companies mentioned in the article) in my point of view. They already knew they were going to fire the staff they hired. But they also knew that they had to hire more staff to take advantage of the situation.
- gtirloni 3y ago> They already knew they were going to fire the staff they hired. But they also knew that they had to hire more staff to take advantage of the situation Exactly. People keep either saying CEOs are playing 5D chess or that they are fools... when reality is much simpler.
- berkethegrizzly 3y ago[flagged]
- singpolyma3 3y agoSo much this, they didn't "over" hire, they hired who they needed at the time. That they don't need them anymore does not mean they didn't need them previously.
- zanderz 3y agoAgree. Hindsight is 20/20. A conservative CEO who pulls back and doesn't lean into a growth cycle will be criticized even more for leaving money on the table. Whether the entire economy should be structured to incenivize all this instability is a separate question. Don't hate the player, hate the game!
- ImHereToVote 3y agoBut I do hate the game. Why are we letting natural selection control our societies?
- auggierose 3y ago> Just the law of large numbers says that eventually you reach all of the people who are likely to be your customers and you stop growing (see Netflix). That has nothing to do with the law of large numbers. That's just discrete and strictly monotonic growth hitting any upper bound eventually. What a bullshitter.
- permanent 3y agoAgreed. Truly despise when otherwise smart tech bloggers use jargons (incorrectly) to appear authoritative
- deleted 3y ago[deleted]
- stavros 3y agoAhh, the Baader-Meinhof phenomenon.
- vrc 3y agoDid you mean monotonic growth or actually tedious/lacking in variety? Both hold once the growth machine hits steady state.
- auggierose 3y agoThanks, updated it.
- dboreham 3y agoTo be fair, I've heard the term mis used like this numerous times on business news tv (CNBC for example). So it's possible in that context they've appropriated the term for a new meaning (basically they're talking about a logistic curve).
- staunch 3y agoIn the great tradition of correcting someone only to be corrected ;-) > ... strictly monotonic growth ... Their growth is hardly "strictly monotonic" since their growth can fluctuate up and down, as can their subscriber count.
- ChrisMarshallNY 3y ago(2022)
- deleted 3y ago[deleted]
- photochemsyn 3y agoInvestment capitalism is a pretty flawed economic model - the shareholders will always want more, more, more. In the tech world, once the market is saturated their only options are to (1) degrade quality of service but cutting costs in 'non-growth sectors' like customer service, or (2) cut labor costs by offshoring or importing cheap labor, or (3) merge competing companies for form monopolies that can set prices well above what a healthy competitive market would converge on. The executives will do all they can to game the system by investing in stock buybacks to raise stock prices (because that's the metric that controls their bonuses), rather than investing in R & D or similar. This is the result of the wholesale financialization of the economy under the rubric of neoliberal policy over the past 40 years. The outlook is not very good.
- lasereyes136 3y agoIt isn't a fallacy, it is due to incentives. The stock market reacts to the stories companies tell them and well received stories lead to higher stock prices in the short run so executives cash out during the good times, either by selling stock or demanding higher compensation. As always, incentives matter.
- ta988 3y agoReminds me of the infinite attention fallacy, where you show a video while someone is trying to read your article.
- julienreszka 3y agoThis website is unusable on mobile
- shever73 3y agoAgreed. I’m so grateful to whoever posted the archive link. The site is a god awful mess of pop up videos, scroll hijackers and overlays.
- bell-cot 3y agoFWIW - does anyone know of a tech employee who took this fallacy into account when making a career decision? Say, they looked at a company, concluded that it was over-hiring during a boom, and would likely be cutting heavily during the inevitable bust. So - they didn't apply, or told the recruiter "sorry", or rejected the job offer, or made a career move to a more-stable ship?
- the_only_law 3y agoMaybe not in the past, but I sure as hell as now.
- giraffe_lady 3y agoI know people who accounted for this but took the offers anyway. For mid-level engineers during the pandemic the jumps in pay were absurd. So I definitely had friends who took a 40% bump knowing a layoff was possible/likely in a couple years but figuring it would still be worth it.
- neonate 3y agohttps://archive.md/P28Wb https://archive.md/P28Wb