Why Are Almost All Companies Laying Off- What Happens Next

Ethan
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MASS LAYOFFS

Ever since the end of 2022, we’ve seen mass layoffs across big tech. Google laid off 12,000, Meta laid off 21,000, Microsoft laid off tens of thousands, and Amazon laid off tens of thousands. After this initial round of layoffs though, it seemed that things were finally cooling down. Fundamentals started to recover, stock prices started to recover, and layoffs became less common. 


But 2024 has seen a resurgence of fear. Layoffs, entire positions being eliminated, performance improvement plans, bonus cuts, and rampant firings. All of this would make perfect sense if companies were sinking into unprofitability, we were facing a massive recession, and the stock market was tanking. 


Everyone Is Laid Off - What Now?


This is very much the case within the VC, so it’s no wonder that startups are cutting left and right. But zooming out to the rest of the market, despite all the media headlines talking about some sort of massive recession, we haven’t exactly seen that, especially when it comes to big tech. 


In fact, at big tech, it’s the exact opposite. Microsoft has hit an all-time high, Apple has hit an all-time high, Meta has hit an all-time, and Google and Amazon have recovered extremely well. And don’t even get me started on Nvidia. They’ve literally gained a trillion dollars in market cap during supposedly one of the worst tech recessions in recent history. 


And it’s not just stock prices that have continued to go up. Fundamentally speaking, these companies are also crushing it. Microsoft for example is posting record revenue and profits. It’s the same thing with Nvidia and the rest of big tech isn’t far behind. 


But if things are actually quite rosy, why have we seen hundreds of thousands of tech workers being laid off and massive cost-cutting efforts? Well, I would argue that this has less to do with a fundamental need to cut costs and more to do with the vanilla CEOs who run these companies trying to please shareholders. 


And while this might seem like a good idea in the short term, this sort of behavior is what eventually kills giants. So here’s the truth about what happens next and the problem with vanilla CEOs. 


VANILLA CEOS

I think we all know what a vanilla CEO is. Vanilla CEOs Someone who runs a company not intending to serve customers or make a difference or build a community or any of that, but rather with the sole intention of pleasing shareholders. 


They’ll avoid all controversies, never take a stance on anything, never take too much risk, and they’ll always do exactly what the market asks them to. When the market is strong and optimistic, they’ll hire left and right and invest in all of the cool new technologies to show investors that they’re still growing and innovating. 


But, the second that investor sentiment changes, they’ll be the first to change tunes. They won’t hesitate to cut back on moonshot ideas with no revenue potential. They won’t hesitate to cut back perks and institute a cutthroat work environment. And they definitely won’t hesitate to cut as many jobs as it takes. 


This sort of brain-dead follower mindset is what led us to the current situation, and if you don’t believe me, just take a look at the numbers. 


Employees layoff graph of meta ,google and amazon


Between 2012 and 2022, Meta’s employee count went from 4,600 to 86,000. Google’s employee count went from 50,000 to nearly 200,000. And Amazon’s employee count went from 88,000 to 1.6 million. The only 2 big tech companies that haven’t seen a stupid rise in employee count are Apple and Nvidia. 


employee count graph of nvidia and apple


And wouldn’t you know, these are the only 2 big tech companies that have yet to conduct mass layoffs. Ironically, Nvidia has by far the lowest employee count of any of these companies standing at just 26,000. Yet, they’re also the ones that are working on the most bleeding edge technology with the most explosive stock growth. 



How you ask? 

Well, Jensen Huang is not a vanilla CEO. Leading Nvidia for the past 30 years, he’s seen massive booms and busts and he didn’t fall for the tech hiring hype. Neither did Tim Cook despite arguably being the most vanilla CEO. 


Ever since he took over in 2011, he’s been tapering hiring just as all these other maturing companies should’ve. So, why didn’t they? Well, if you ask them directly, they’ll say something along the lines of miscalculating growth. 


But, it doesn’t take a genius to realize that 86,000 employees are way overkill to run 3 already-established social media platforms. Something else to note is that while people like Mark Zuckerberg, Sundar Pichai, Satya Nadella, and Andy Jassy are arguably vanilla CEOs, they are also geniuses. 


So, why did they do it? Well, half of it was to create a facade of infinite growth for investors. The other half was to monopolize engineering talent. You see, when you reach the absolute top where you operate the biggest platforms, have already bought out all the competition, and dominate the market, what you should do next becomes a lot less clear. 


Of course, you can do a hail mary with the Metaverse like Zuckerberg did, but the more obvious choice is to start buying insurance. How do you do that? Well, by hiring everyone that you think is talented. It doesn't matter if you don’t have a role for them or don’t even need their skills. As long as you’re able to prevent up-and-coming competitors from hiring them by hiring them yourself, that’s a win. 


This is the mindset that much of big tech operated with for much of the late 2010s, especially in 2020 and 2021. And it’s why they had such stupidly high employee counts. VC-backed startups would fight back by raising ridiculous amounts of money often in the hundreds of millions if not billions to hand out massive compensation themselves. 


But then interest rates started to rise. Interest rates rising really didn’t do anything to cash-rich big tech companies, but they annihilated the VC space. Suddenly, hundreds of unicorns would start doing mass layoffs and even filing for bankruptcy. 


In the meantime, nothing really happened to big tech, but they no longer needed to spend billions every year on this insurance policy against underdogs. So, they would begin slashing jobs left and right and cutting expenses everywhere, leading us to where we are today. 



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WHAT HAPPENS NEXT?

Likely the biggest red flag about this overhiring and layoff spree is the fundamentals behind it. As we discussed, very little of it actually had to do with helping these companies grow to the next level or saving them from doom. 


Almost all of it was just a byproduct of playing business and shareholder politics which raises a lot of concerns regarding what these leaders are actually focused on. Are they actually interested in creating a better YouTube, a better Windows, a better Amazon, and a better iPhone? Or do they just care about the stock price? 


Well, all of their actions thus far very much suggest the latter. And the most ironic part about all of this is that the best way to boost stock growth over the long term is by focusing on the product. But a lot of these guys have gotten hung up trying to maximize stock price on a quarter-to-quarter basis. 


And the sad part is that this sort of mindset is what kills giants permanently as was the case with Cisco. In 1990, VC investors would stage a coup on Cisco’s founding couple. They would fire the wife and the husband would resign in solidarity. 


From there, investors would give an MBA businessman named John Morgridge full reins to the company and take Cisco public. Do you wanna guess what happened to Cisco over the next 10 years? Well, Cisco went to the moon. The stock would grow 1100X and Cisco would become the most valuable company in the world with a market cap of over $500 billion. 


Clearly, the founders’ innovations, which they stole from Stanford, took Cisco extremely far. But, do you wanna guess what happened to Cisco after this initial momentum wore off? Well, the stock would crash 85% and never recover, and it’s been 24 years. 


A similar story could be told about Intel. In 2005, Intel appointed Paul Otellini as their new CEO. Paul was Intel’s first CEO who wasn’t an engineer. He was actually a sales guy. Over the next 20 years, AMD and Nvidia would go vertical growing 100s of fold. 


Intel, on the other hand, is still not even able to beat its dot-com high despite insane amounts of inflation. The same thing can be said about IBM AT&T and GE and all of the other dotcom giants. While most of them are still quite big, they’re a shell of their former selves, and many of them are just living off their former glory. 


The type of people that work at these companies has also largely shifted. Back in the 1990s, Cisco and Intel were some of the most prestigious companies that you could work for. They paid the highest salaries, attracted the best talent, and were on the bleeding of innovation similar to FAANG companies throughout the 2010s. 


But, today, these companies are largely filled with entrenched workforces who are only loyal to the paycheck as they should be because these companies are only loyal to the bottom line and stock prices. For the longest time, it seemed that FAANG was different. That they actually cared about their employees and creating a great work environment and that’s because they did. 


But, the thing to note is that so did Intel Cisco IBM GE, and basically any other company that ever got big. The only reason they were able to get so big was because they had a strong and passionate workforce, but that eventually changed. 


Eventually, things become politicized and it becomes all about the numbers, and the people who make it this way are usually vanilla CEOs who are dangerously loyal to investors. This is precisely the transition that FAANG is currently going through and it’s already making a difference. 


The smartest engineers have already left to join smaller companies where they have more scope or start their own companies. And as for Generation Z? Well, they’re entering the workforce seeing mass layoffs and these companies cutting costs every way possible, and this will permanently shape how they view FAANG which brings us to the inevitable end. 



THE INEVITABLE END

All of this may have seemed a bit abrupt from an outside perspective, but this was always an inevitability, and no one knows this better than the founders of these companies. Take Larry Page and Sergey Brin, for example, the founders of Google. 


Way back in 2014 and 2015, they realized that Google was heading in the direction of becoming a soulless corporation. That’s why Larry Page wanted to refocus the company’s efforts on engineering and focus on things like Google Glass and self-driving cars that could help take the company to the next level. 


But, shareholders weren’t exactly a fan of Larry’s approach. They would paint him as some sort of disconnected billionaire who wasn’t focused on financial growth. He tried to resist them for a few years but eventually in 2015, he would throw in the towel and give investors exactly what they wanted: A CEO that would put investors first. 


At least with Larry Page, his views on Google’s direction were more subtle and you had to read between the lines to see what he really thought. Jeff Bezos on the other hand is way more direct. 





Wrapping Up

As you can see, the fall of these companies is not a matter of if but simply when. And the more that these companies get distracted away from their core products and services that made them successful, and the more they focus on pandering to investors and doing stupid stuff like overhiring and then laying off everyone, the closer that date becomes. 


This isn’t to say that any of these companies are going to file for bankruptcy in 2 years or something. But the power, control, and influence that these companies enjoy over this next wave is likely the most that they’ll ever enjoy. 


After that, they’ll enter the much less glamorous phases of stagnation and eventually demise. And now that everyone is laid off and these companies have shown their true faces, that's what happens next.

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