Are tech layoffs posing a recruitment risk for startups?
Since the beginning of the year, 297 tech companies have laid off nearly 95,000 workers. Four of the largest tech companies – Amazon, Alphabet, Microsoft, and Meta – have had redundancies amounting to a shocking70,000 employees, with 40,000 of these taking place in January of 2023 alone. Twitter’s CEO, Elon Musk, debuted his tenure by reducing half of the company’s employees – a decision which started a shockwave of company culture issues across the sector. Other notable companies to follow the layoff trend include Salesforce, Yahoo, Spotify, Zoom, PayPal, and Pinterest.
The scale of these layoffs challenges the tech sector’s biggest advantage; its attractiveness to recruit the most talented workers. These layoffs present a risk to that appeal as employees fear for the future of their careers within the sector. In light of this, leading tech business advisory, Trachet, commissioned a research report which unveils a staggering third (33%) of respondents state they’ve seen have seen their workplace’s headcount decrease and their workload increase in the last 12 months – seemingly causing a mass strain within the workforce.
Trachet’s data also shows 20% of respondents state their firm was slow to react and adapt to the current climate, resulting in a loss of staff. This raises a crucial question, how far will business leaders expect their employees to stretch to paper the cracks and what impact will this have on tech scale-ups?
The cost-of-living crisis has created pressure at every level for organisations as companies and staff are struggling to cope with rising costs – Trachet’s research further unveiled that nearly one in three (29%) respondents is actively looking for another job as they’re not being paid enough to cope with the rising cost of living.
For those working in startups, the cost-of-living pressure is now exacerbated by a decrease in human resource and fears of being laid off which may lead many to pursue a career in a different organisation. Data from the study shows nearly 64% of respondents would be happy to compromise their career aspirations in order to preserve their mental health, further illustrating the importance of companies keeping a positive overarching outlook.
As these organisations face critical staffing decisions, Apple has emerged as the only tech giant to avoid mass lay-offs. Where Apple only increased its headcount by 20% between 2020 and 2022, Amazon doubled its headcount and Alphabet saw a staggering increase of 60% in staffing.Apple’s product and profitability focused approach amongst other market factors serves as testament to the evolution of the tech startup/scale up model.
Companies like Alphabet and Amazon saw a surge in business activity throughout the pandemic, thus causing a recruitment surge throughout the sector as a way to cope with demand. However, as pandemic fuelled demand has receded, high inflation and increased interest rates have slashed company valuations. Now, as a result, there is increased pressure from stakeholders call for recessionary, cost-cutting policies to protect profit.
Claire Trachet comments on keeping company culture alive amidst lay-offs due to the current economic climate:
“Continuous layoff announcements serve as clear indications of market corrections we’ve been experiencing in the past year. Tech firms are choosing to focus on profitability over headcounts by investing in products over people, which consequently will mean that layoffs will continue in both big and small companies.
“However, I believe there remains a wealth of capital out there for founders to help accelerate growth, which will be more evident when the markets begin to stabilise, and inflation eventually subsides. It is very likely that H2 will be an active period of investment and dealmaking, and hopefully will result in a more secure jobs market for those in the tech sector.
“Many startup founders can attribute their success to having high versatility in playing different roles – from finance and fundraising to product management, founders take on a series of responsibilities that many would find overwhelming. Now, especially given the added strains they will be facing, the issue of company culture will likely be pushed down to the bottom of their list of priorities.
“However, with mass redundancies in the sector causing employees to fear for their financial futures, founders must do their best to ensure their offices remain positive environments where people want to work – even if that means bringing in a specialist to fulfil this role. If they fail to do this, as our research suggests, they may face an exodus of experienced staff who leave in search of better job security elsewhere.”
