7 ms·

I've got a burning question on my mind and I'd really appreciate some insights. From what I can tell, the recent wave of startup layoffs seems largely driven b

• matt-smith 3y ago
  I would agree. Interest rate hikes generally take a while to actually work through the economy. This current hiking cycle is the fastest we've raised rates, especially considering the interest payments required for our debt. I don't think it'll be a soft landing.
• tmpz22 3y ago
  Startups aren’t a great signal - especially if you’re only looking at Silicon Valley startups. For one they employ way fewer people (while garnering a disproportionate amount of tech headlines). For the bigger public companies their data is available through yearly SEC filings. Just look it up. They’re making record high revenues. Layoffs for them are an optimization not existential. They could’ve been fine laying off fewer people but it protects them from their growing competitors and longer term global trends. Doomsaying will always be popular but is often misguided. You’re basically relying on a broken clock being right twice a day.
• alberth 3y ago
  I’m no expert, but how I understand it - it seems the economy is very fragile at the moment. Things aren’t good, or bad. But all economic signals point to it potentially turning very bad, quickly.
• n4r9 3y ago
  I don't think it's necessarily so bleak. Another interpretation is that big tech companies had a recruitment drive over the pandemic when revenue was high. Now that revenue growth has slowed, they're trimming the fat.
  • WesolyKubeczek 3y ago
    Also: hey, those pesky coders and other white collars got way too expensive, let’s lay them off in droves to make it the employer’s market and rehire some back, but on our terms and not theirs (cheaper, no perks, but they will be glad to land a job anyway). Source: a little bird told me some companies do such rehiring, and for many H1B holders it is an offer they can’t refuse.
    • lucidone 3y ago
      Had a friend laid off and saw his job posted not a month later (with the stereotypical #hiring LinkedIn corpojargon). Many employees make a big hubbub of the org being employee-centric, people driven, blah blah blah. I almost joined their org because of how my friend talked it up last year. Despicable.
      • WesolyKubeczek 3y ago
        > Many employees make a big hubbub of the org being employee-centric, people driven, blah blah blah. It never is. If anything, tech corporations that have been hot startups two decades ago are shedding their larval teletubby skin and transform from sheltered colorful environments suited for men-children into... well, just your average run-of-the-mill ruthless capitalist businesses your boomer parents/grandparents know and loathe. The thing is, if they mention they are people-driven casually, they likely know the notion — you can expect some respect for employee rights (provided you do your own homework, can haggle like a used car salesperson, and can tell decision makers from HR personnel); if they emphasise it so much it reminds you of a cult, or if they don't mention it at all, but are instead brimming with descriptions of the company's grandeur, run — if you have anywhere to run these days.
• TexanFeller 3y ago
  I think you're right, I believe we're in a recession, just not all experiencing it at the same time. I'm planning for it to "trickle down" soon.
  • scrum-treats 3y ago
    Agreed. We're in a recession. It's is one of the only things that does "trickle down." Haha. We've all been experiencing recession since last year, when food and gas prices started to increase. While some regions are more impacted than others, the price of everything has increased. For those who make over a certain amount (i.e., $100K/year) it's less noticeable than for those making under that. Because budgeting. Bezos himself warned of this back in November 2022: https://www.msn.com/en-us/news/technology/why-jeff-bezos-is-warning-people-about-what-not-to-buy/ar-AA149n3Q https://www.msn.com/en-us/news/technology/why-jeff-bezos-is-.... When ultra-rich tell you it's going to be bad, probably best to plan for that. Also, where is the government in all this? Why are ultra-rich still not paying taxes? It's quite an alarming and vulnerable position for majority of people in the United States right now.
• specialp 3y ago
  Startup layoffs are very much related to the funding environment. I work for a startup that laid off half our staff. There have been very few series C and later this year. So if you are a startup you need to decrease burn now and get to having good MRR. You can't aggressively grow at a loss and expect to get more funding for that with few exceptions. When VC money was much more plentiful people hired a lot without the pressure to become more sustainable. For further funding rounds they had to show that they were growing in some way. SVB collapse was huge in the startup world not just due to the people who had deposits there. With larger companies like Meta, their multiples are also based on growth. So even though large tech shows no signs of being financially insolvent, they will have to still deliver growth in profit with flat to declining revenue. So the focus then is to decrease expenditures in lieu of revenue. There was a ton of hiring the last few year along with the tail wind of tons of money out there. Now it needs to rebalance.
• throw1234651234 3y ago
  Note that by the time "normal people" really felt the 2008-2009 recession, the stock market was already bottomed out and going back up. Just something I keep in mind.
  • jiveturkey42 3y ago
    What are "normal people"?
  • rchaud 3y ago
    In other words, the stock market went up when governments instituted ZIRP and the enormous multiplier effect of the bailouts kicked in.
• mark_l_watson 3y ago
  +1 for asking the correct questions! Of course leaders of companies understand the current economic downturn and they to some degree can predict future economic problems better than the average citizen. While hiking yesterday I was talking with a friend about history, and how all great empires turn to “looting” as their influence wanes. There is plenty of data for this point of view: USA, England, France, Middle Ages powers, Romans, etc. Just as elites in a declining power will naturally “loot” as much as they can to ensure the long term economic well being of their family, doesn’t it make sense that corporate leaders will cut staff, and generally extract as much profit as they can short term?
  • robertlagrant 3y ago
    > all great empires turn to “looting” as their influence wanes. There is plenty of data for this point of view What's the data? Be interested to read about this correlation.
    • mark_l_watson 3y ago
      I may have been in error on my opinion. I just did manual web search, and asked ChatGPT+Web and Bing+ChatGPT and could not find much to support my opinion. I will keep looking. Anyway, thanks for challenging my opinion - I am likely changing my mind on this.
      • robertlagrant 3y ago
        No worries. I am not a great student of history, but I have found a recent surprisingly strong wave of people appearing who are entirely cynical about the history of the West, and will believe any negative statement about it. Obviously some of the negative statements are true, but it's always worth a little prod to see :)
    • red-iron-pine 3y ago
      Imperialism, Colonialism, the Gilded Age, etc.
• neom 3y ago
  If the Fed raises rates too high or keeps them high for too long, it will push the economy into a deep deep recession. As we're always using lagging indicators, economists are generally unsure where we are in the cycle, some folks believe it's been pushed to far for too long, and further pushing is going to cause either a deep recession or, even worse, stagflation. I'd love to know what Volcker thinks about our current situation.
  • onlyrealcuzzo 3y ago
    > If the Fed raises rates too high or keeps them high for too long, it will push the economy into a deep deep recession. They'll just bring back out their bazooka and lower rates again and cause more inequality. Tale as old as time.
  • nstj 3y ago
    > I'd love to know what Volcker thinks about our current situation. Volcker is dead.[0] [0]: https://en.m.wikipedia.org/wiki/Paul_Volcker https://en.m.wikipedia.org/wiki/Paul_Volcker
    • neom 3y ago
      ... hence I can't know what he thinks.
  • tmaly 3y ago
    I they are only staring at lagging indicators, then it seems they would likely overshoot on keeping interest rates too high for too long. I am surprised they have not come up with better models given the technology and data available.
  • dahwolf 3y ago
    Don't know about the FED but the ECB has openly stated that they will keep raising rates as long as necessary to get inflation back to ~2%. It doesn't seem to be working, for very obvious reasons: demand for energy and food (main cause of inflation) isn't that elastic. Further, there's no unemployment, so people spending and will spend only more because of inflation itself. The one thing that could motivate people to stop spending, raising bank savings interest rates to something meaningful, is oddly not in the playbook.
• maxlamb 3y ago
  That’s just an excuse the CEO’s are using to avoid blame. They over-hired during 2020 and 2021 “because everyone was doing it” and now they realize they have 10’s of thousands of employees with nothing to do and huge salaries so it makes no sense to keep them.
  • evantbyrne 3y ago
    I can't speak for Meta specifically, but mass layoffs don't generally correlate with worker productivity. At the end of the day it is all about CEOs making shareholders happy so they get rewarded with juicy bonuses. Shareholders see their stonks going down so they want cost cutting. People making decisions are not always aligned with the long-term interests of the companies they manage.
    • specialist 3y ago
      Further Yes and: Cutting costs, versus investing, means the PHBs have decided the ride is over. In other words, the combo of layoffs and corporate buybacks is about profit taking (while they can). Every business, market, etc, has a lifecycle. Social media, and Meta in particular, has definitely entered the Computer Associates phase of its lifecycle. So now it's time to cut to the bone, extract as much blood as possible. Such is life. It was a fun grift while it lasted. Hopefully, adjacent malignancies such as digital advertising and freemium will plateau as well. That'll be a relief. They can join informercials, shopping networks, and supplements in the backwaters of human culture.
    • maxlamb 3y ago
      If it were as simple as “layoffs/cost cutting make stock go up” then CEO’s would have never had hiring surge during Covid. The CEO’s job is always to maximize long term profits. Layoffs make stock go up only when it’s clear profits won’t change much with the layoffs. And if layoffs won’t decrease profits, why were these employees there in the first place?
      • skinnymuch 3y ago
        During market growth stages, laying off would be something that would be a red flag. You only focused on a small part of the person’s comment. The comment also said when stock is going down, lay offs help. They likely aren’t talking in absolutes anyway Were there hiring surges for companies whose valuations were not going up?
• knallfrosch 3y ago
  The Economist says that the layed-off workers were bloat: "So far techies themselves have been mostly spared, observes Tim Herbert of the Computing Technology Industry Association, a trade body. Instead, the axe has fallen mainly on business functions such as sales and recruitment. These had grown steadily as a share of technology-industry employment in recent years, a telltale sign of bloat." https://www.economist.com/business/2023/03/27/where-have-all-the-laid-off-tech-workers-gone https://www.economist.com/business/2023/03/27/where-have-all... The reality is that noone knows whether there's going to be normal growth, stagnation, or a recession, but one thing is for sure: The tech boom of the pandemic has ended along with the pandemic. So these companies don't have proprietary magic insights and can reliably forecast a recession (as was your question), they're simply responding to the end of the boom and rising interest rates.
  • thethimble 3y ago
    A related point would be Meta is exposed to revenue risk as customers pull back from advertising in a recessionary environment. This appears clearly in Meta’s financials. An unrelated point would be that layoffs usually target the lowest-performing segment of the workforce and offer legal protection to the company against unlawful termination. Of course not all laid off workers are poor performers but there is obviously a correlation here.
• indymike 3y ago
  > But if that's the case, are we basically still in the early innings of this crisis? We might be, but more likely is that Meta is facing a reality that all huge companies eventually face: there isn't a play for megagrowth anymore once you are the size of big tech companies. You'll grow a little faster or slower than CAGR. So, since you can't grow the top line, you start looking at the bottom line and becoming more capital efficient. Laying off overpaid people is the start of the process.
• weare138 3y ago
  Wall St. is just a game of smoke and mirrors and all it takes is one crisis to expose this. They're not anticipating a crisis, they're not prepared for one. The system isn't built for long term stability, it's built to maximize short term gains. Wall St. has long since figured out there are no consequences to causing economic instability for short term gains because the government will just bail them out with our tax money anyways and they still get to keep their ill gotten gains. The consequences of their actions do not affect them and that is the problem.
• the_doctah 3y ago
  The "upcoming economic downturn" has been on the horizon for over a year now.
  • r3trohack3r 3y ago
    “The house can stay irrational longer than you can stay solvent”
• DebtDeflation 3y ago
  >the recent wave of startup layoffs seems largely driven by companies bracing for a potential economic downturn and using their own customer data to anticipate seriously bleak scenarios It's not just startups though. It's big tech. It's financial services. It's big and small non-tech non-financial companies as well. Everyone has been predicting a recession for well over a year now. We're living in a very unusual economic situation where some parts of the economy are getting crushed and others are doing fine. No one knows the answer to your question, but yes, one possible answer is that this is just the early phase of the downturn and it's just taking longer than usual to move to the next phase.
  • enriquec 3y ago
    what part of the economy is doing fine?
    • DebtDeflation 3y ago
      Most non-tech B2C stuff? GDP growth has slowed but it's still positive overall.
    • jonathankoren 3y ago
      Pretty much every part.
• laratied 3y ago
  I just found out the gym I go to is closing. The email said it was a lease dispute but there is no way it is just that. I suspect they remodeled and bought new equipment on variable rate credit and are getting absolutely squeezed with interest rates going up plus inflation plus lower demand post covid. Pretty sure we are in a slow moving car crash with the knock on effects of rates having gone from 0 to 5% just starting to slowly take effect in the broader economy.
  • dahwolf 3y ago
    The twisted thing is that this is the plan, it's intentional. The rapid rise of interest rates is to curve demand, which tames inflation. It's a really nice word for what is effectively targeted economic destruction. Job losses and bankruptcies are the casualties. And that's not all of it. In my country, aggressive plans to build lots of new homes are imploding. Buyers suddenly face an interest rate 5 times what it was before and opt-out. Builders stop building because nobody is buying.
• fairity 3y ago
  > Logically, the domino effect would mean that step two involves companies closing up shop and going belly up, right? Right, but there's a time lag effect between when capital dries up and companies go belly up. Many cash-guzzling companies had 12 months of runway. After layoffs and pivots to profitability, 12 months may get extended to 18-24 months, but ultimately, the traunch of businesses without real business fundamentals will shut down after cash runs out. The capital constriction really started in Q32022. Here's a graph: https://techcrunch.com/wp-content/uploads/2023/03/Screenshot-2023-03-28-at-9.06.04-AM.png https://techcrunch.com/wp-content/uploads/2023/03/Screenshot... So, my guess is a significant wave of startup bankruptcies will begin Q3 of this year, and peak several quarters later (assuming markets stabilize around current levels).