It seems like there’s news every week about a new wave of layoffs in different companies. This comes as a surprise to many as the tech industry seemed to be largely untouchable over the past few decades.
Indeed, there will be even more reliance on technology over the next few decades as well to solve many of the world’s crucial problems. At the same time, there have been quite a few issues with the type of technology companies over the two decades.
These issues that have compounded over time with the rise of many different startups has now met a new economic reality and is leading to contraction.
Let’s take a look at the past and where we are now.
Post Dot Com Boom and Bust
There was an initial rise of dotcom companies from the 1980’s to 2001. It was an era of excitement and skepticism about the new technologies that were arriving.
Companies like Microsoft, Apple, Google, and Amazon entered the scene in this timeframe. A host of other companies also jumped into the fray, raising money and hoping to ride the wave to IPO. Many of these companies failed because of poor business models, lack of product market fit, and burning a great deal of cash as they tried to achieve a positive outcome.
Those who had decent business models, practiced patience, and minimized their cash burn were able to survive and even thrive over time. In addition to those that were mentioned above, firms like Cisco, 1-800- Flowers.com, Agilent Technologies, Akamai Technologies, Bankrate.com, Expedia Group, were able to go public around that time. These firms still survive today.
The dot com bust arrived and bankruptcy and restructuring lawyers had a field day. Technology stocks went down from inflated values and even significant companies like Microsoft, Google, Amazon, and other stocks saw significant declines. The extremely good times ended and layoffs arrived.
Here we are a few years later and layoffs are back on the table.
The Next Era
The next era of technology companies would include Facebook, Twitter, Uber, Doordash, and other firms. One common theme that many of these firms share is the rate of cash burn.
That might have been feasible in a time where money was flowing easily and where investors would likely see higher rates of growth on their cash by investing in technology. But now, individuals can expect higher yields on their cash by placing it government bonds.
In essence, cash is not trash anymore. So, don’t burn cash.
That means that investors don’t need to speculate in Gamestop, NFTs, Dogecoin, or other similar insane themes. At the same time, they would have to be more careful in the companies that they choose to invest in with their time or their cash. You may be more inquisitive about how the company operates, cash on hand, and other relevant details when looking to work at startups.
Leaders of top firms are feeling pressure from investors if they see that cash is being misallocated and is not as productive. This is why firms like Meta, Google, and other firms are slowly reducing their headcount.
Many firms over hired and thought that times would continue as they did for the past decade. That has led to bloat in many organizations. This bloat combined with lower demand will force more companies to adopt a more fiscally conservative approach.
It appears that more firms will strive to become lean over the next year.
How Will These Layoffs Impact Local Economies?
One critical question that comes to mind is how these layoffs will impact everything from the housing market, to business earnings, and more. At the same time, it is important to note that firms like Google did increase their workforce over the pandemic.
If they are conducting layoffs to get closer 2019 workforce levels, then it has an impact but may not be as significant. If these firms feel that it is necessary to reduce their workforce even more, then the consequences may be much greater.