Not as sure proof as paying people to do nothing. Or worse, paying people who are actively working against the interests of the company, intentionally or otherwise.
Most companies employ a board of narcissists that only care about themselves and their wallet and they get paid the most so I'm not sure your analogy is hitting with me.
If I hire a bunch of construction workers expecting to sell 100 homes and suddenly the housing market collapse and I need to only build 50 homes that I have contract for, I need to fire some construction workers.
It is as simple as that.
No one can predict business cycles and that is the fundamental driver of sales and input costs. If one can successfully predict business cycles, they can be a superior macro investor and make billions.
The entire HN crowd talks about as though they never made any bad future decisions.
How many of you invested in stocks in 2021 that is down 50%? Did you cut down on subscriptions? Why don't you fire yourself for making stupid decisions?
Just like during a boom when a carpenter can charge 3x his hourly rate, pick and choose his jobs, and anyone with a pulse can walk onto a construction site and get a paycheck.
Assuming that's what you meant, let's consider the "I" in "If I hire..."
If you're hiring someone, whether it's for your home building business, or your tech company, you're not doing it unaware of the market you're operating in.
No real estate developer is ignoring potential futures. Those that do fail fast. That someone is hiring is evidence of that someone is making predictions. They're predicting at least one potential future where the person they hire helps the company achieve their goals.
Speaking from experience, when I hire people, I am most definitely thinking of the potential future that person helps steer a company towards. I'm also very aware of what will happen if I can't afford to hire someone. Sometimes it's worth risking potential market effects that'd make it so I can't afford to pay that person, but usually it's not.
> No one can predict business cycles
Happens all the time, and people frequently make accurate predictions.
> they can be a superior macro investor and make billions.
Tell me, how did the current crop of billionaires become billionaires? Certainly not by deciding that no one can predict the future.
There is also a risk of not scaling at the right time.
History is filled with failed companies that didn't scale during 2012-2022 and were conservative.
History is also filled with idiots who claimed bubble and predicting crash every year.
If I have limited ambition of staying a $10 Million company, I can absolutely play it safe and hire very conservatively.
Scaling is a Risk/Reward play.
I was a cofounder and CTO of a company that, at its peak, had a valuation in the billions. So yes.
> History is also filled with idiots
No disagreements here.
My read is a bit different, in that the board optimizes to the stock price above all, which yes they benefit from but that just means their personal interests are in alignment with the interests of stock holders. I do not blame the leaders so much as I blame the model. Leaders who do not optimize the stock price are quickly expelled. When the stock market was flush with covid stimulus cash, and even before that whilst the market was hot, the name of the game was showing growth. Companies were incentivized to show growth even at the cost of burning cash. Companies took on massive debt and in many cases, either did stock buybacks and/or hired rapidly in an effort to scale their organization for growth. When the market fundamentals changed, and money started swinging back towards safer bets (cash flow positive companies), suddenly the game had changed and leaders needed to react accordingly.
I guess in summary, hate the game not the player.
In Spotify’s case, the business not making money, and hence not having a stock price that keeps up with the market, is also a way to destroy productivity. Higher productivity people are probably not going to want to work at a charity.
I have no idea if Apple or Google are more profitable? Maybe someone can give an insight.
Have you seen the things people create in minecraft entirely for free?
Spotify is a jukebox. You put money in and music plays. It's not a new concept in the slightest capacity. If they haven't figured out how to turn a profit now will they ever?
The corporate entity Spotify will never turn a major profit, but that's by design.
Spotify made a deal with the devil to come to terms with the record labels, and is now fully baked into a "Hollywood Accounting" set of terms (https://en.wikipedia.org/wiki/Hollywood_accounting) which ensure the real money goes to the power players of RIAA cartel.
It turns out, if you have good lawyers, you can structure a set of entities such that neither the artists nor the public shareholders of the streaming service get the money, but rather, the opaque production company or record label that sits in between it all.
Warner/Sony/Universal music groups are also not opaque, they are all publicly traded companies, just like Spotify. It just so happens that they have more negotiating power than Spotify, so they can dictate more favorable terms.
Also, artists are free to make deals directly with Spotify/Google/Amazon/Apple if they want to bypass the record labels.
You ever hear the phrase 'theres no such thing as a free lunch'?
But, now they want to blame leaders when there are mass layoffs. I think the blame is misplaced. The root cause was the stock market, and better yet blame the fed. The incentive was to show growth at all costs, even at the expense of burning cash. Leaders who did not optimize to growth were fired in many cases. But the game changed when stimulus and endless money printing stopped.
Companies aren’t very upfront about over-hiring.
Who made the decision to hire more workers than the company needed? Leadership. Who made the decisions to put the company in a position where it would need to lay people off? Leadership.
Who bears the consequences of those decisions? It's not the people who made them.
It's not like the workers forced the companies to hire them.
This is the problem I have with these layoffs. The leadership who made the strategic decisions that put the company in a position to need to lay people off should face significant economic consequences before anyone else. But that is not happening. That never happens.
And this also is where I push back on people who say that investors are the ones taking the risk (and should therefor reap the rewards of business). It's the workers who take a greater risk - because they have less information, less power, and less of a buffer if something goes wrong.
Who made the decision to join a company that was seeing sudden, unsustainable growth ? Workers. Who made the decisions to place themselves in a position they maybe aren't that needed? Workers.
Who enjoyed significant salary increase due to higher demand for their skills, increasing the cost of their labours while asking for increased benefits such as flexibility, work from home, etc ? Again; workers
There are two sides to the coin here.
Workers have no choice when it comes to positions where they might not be needed. That could be true of literally any job someone might take. And workers pretty much never have the information to accurately assess for themselves whether or not they think they are needed until they are in the job. Every job a worker takes is a risk in which they are asked to trust the company hiring them not to turn around and immediately fire them.
> Who enjoyed significant salary increase due to higher demand for their skills, increasing the cost of their labours while asking for increased benefits such as flexibility, work from home, etc ? Again; workers
Work from home and flexibility are mutually beneficial. Knowledge workers perform better when they are able to do their work in the way that best fits them. This is not some benefit the company pays to hand out, it's the company structuring itself in a way that most benefits it.
As for salary, tech workers are still underpaid. Tech work is not factory work. The companies revenues are entirely generated by the knowledge, skills, and work of the workers. There's no physical machine the company is adding that allows the workers to do their work which they couldn't themselves easily acquire. The very fact that profit exists in tech companies tells you that workers are being underpaid.
The only thing capital brings to the table in a tech company is the ability to operate in the negative - to scale head count (and thus to some degree productivity) faster than revenue. That is not something any tech worker needs, and most tech companies almost certainly could have grown far more sustainably by growing along with their revenue. That is something capital pushes, hoping for outsized returns on the grown on its investment.
So, again, who should be suffering the consequences when the economy turns down? Keep in mind, paper losses of a falling stock market are not true losses for investors. As long as they hold through the fall, they'll recover everything and more, but losing a job and therefor income can be life changing for a worker.
- Information imbalance: from people I've talked to in decently senior roles at even very large companies, it might be surprising to learn that information can be poor at every level, because generally the people who are responsible for hiring at even fairly senior levels are not directly also responsible for expenditure, especially when macro-economic conditions are responsible for those financial decision. Essentially, the person who is responsible for setting the hiring targets to enable 20% growth is likely not responsible for modelling what happens if the cost of short term debt goes from 2% to 10%. Probably this is most likely in the superscalers, and it's likely hardest in the companies from 2-5k people - with a tech org of about 1k, you're likely acutely aware of the impact hiring strong people can have on your product while lacking the numbers to approach the problem analytically and with a sophisticated finance org. Basically, the number of people who could reasonably be expected to consider 'if we hire too many people, we'll have to fire them' as a significant part of their brief is smaller than you might think.
- 'There's no physical machine the company is adding that allows the workers to do their job which they couldn't themselves easily acquire'. Ignoring the focus on the physical machine bit and focusing more on the creative part of 'what does the company add, what do the people add', your claim may be true in some parts of industry and if you're in that side of industry I lament your situation, but for large parts of industry it's unequivocally false. There's a huge amount of value add that the machinery of an engineering organisation adds. In the more creative spaces, anyone who's operated in a truly high performing culture will have observed that a lot of the culture of building comes from the grouping of people who've been very, very carefully hired for, who've been carefully placed on team together, where memetic techniques have been used to proliferate certain positive behaviours, raising people up. We succeed as a team and fail as a team. You can see this over and over in so many testimonials - the stories from those who worked at Xerox PARC, stories from the MIT LISP hackers, back 50 years, all the way through hearing about the work the M1 team was doing, seeing the companies that spawn hundreds of startups from their alumni. And that's not to talk about the companies who specifically use process and ritual to ensure that engineers are consistently at the bar across massive orgs, from Google's exacting bars for code quality all the way to the consulting arms of Oracle, CapGemini etc who can approach repeated problems and get the most out of their engineers in a space where it's arguably harder to hire talent. And this is totally forgetting the huge non-SWE parts of orgs required to enable success - sales, finance, marketing, etc etc.
- Tech workers are still underpaid - think there'll be a rude awakening coming for you I guess. People across the world get paid based on how much they can get in the market (and if you're already at the company, the switching cost). There's room for places that do it differently, but not much room. If a large number of qualified people join the labour pool, you can bet that the practical market comp goes down.
- Paper losses are not true losses and you can just wait for the price to go back up: Honestly, that's wrong on like every level. Firstly, at the company level, there's a very real risk for many of these companies that they go bankrupt. Spotify has something like $2.8B in cash equivalents, has revenue of $9B and expenditure of about $9B. If their revenue dips by 20% due to e.g. a global recession, that cash supply will last them about 18 months. Before they get there, they have to raise more money. If raising via equity, they're going to be raising at their new and lower valuation, so their investors take a huge haircut. If they raise via debt, they'll be getting charged a lot on interest (because their risk of default is nontrivial). My brief but non-zero insider knowledge of some of these debt deals make it very much sound like a sellers market. A smaller company might expect to see 15% interest demanded - if you need $150M, you're in trouble. The staff who Spotify are dropping today likely represent $300M over that same 18 month period. You can bet that they'll be making this cut after scraping the barrel everywhere else.
Now, for the actual investors - if you take a massive paper loss, you're basically not getting that money back on a reasonable timeframe. https://danluu.com/norstad/risk-time/ is a good article on this topic. The simple way to think about it is that if in the good years you get 4% a year ROI across your portfolio and then you take a 50% haircut once, it will take you 18 years to make that difference back. The people who invest in tech companies are in large part not rich billionaires looking to pay for their next yacht - they're institutional investors, mutuals, pension funds who are looking to maximise returns for their members.
> Information imbalance
I have been that Director level manager responsible for scaling and hiring with out the full scope of information. When I said "people responsible" I mean, the people with the information. And yes, it is a smaller pool than many people might thing. But it is also a much more highly compensated pool. Those are the people who are ultimately responsible, and the people who should face consequences and accountability. I would include the investors (at the very least those who sit on the board and take an active role in the running of the organization) in that pool.
> There's no physical machine the company is adding
Here I fumbled my words. I should have said "capital" or the "investors". Yes, absolutely, the organization itself provides value. But that organization is almost entirely composed of workers and could be run entirely by the workers with out capital. Traditionally, in a factory setting, the value capital has been said to provide - and the reasoning for capital taking the returns - is the physical machinery necessary for workers to do their work. In a tech company, there is no such machinery.
The organization of a tech company is entirely composed of, and run by, workers. In the vast majority of cases, they don't need any physical machinery to do their work except for consumer grade electronics they probably already own or could trivially acquire. In the case of a fully distributed company, this is even more true.
NOTE: I am including management in the workers here. I'm using workers, as it is used in the context of worker cooperatives or employee owned business, as a synonym of employees. This is different from the traditional union or labor organizing context which separates "line workers" from "managers".
> Tech workers are still underpaid
In a traditional capitalist labor market, I think you can reasonably make this argument. This views workers as replaceable cogs and looks at how cheaply they could be purchased on the market.
But I'm looking at it from the perspective of "what does it actually take to produce the value the company produces". And all it takes is the workers time, skills, and knowledge. As I made in other points, capital brings very little to the table. In that case, the workers produce the entire value of the company. And from that perspective, many workers at tech companies (which, remember, I'm using as a synonym for "employee" here) are still compensated less than the value they create. In some cases by significant amounts.
> Paper losses are not true losses and you can just wait for the price to go back up
I'll grant you the wait for them to go back up point. That was a bit glib and not well formed, but also somewhat tangential to my larger point which I didn't make very clearly: which is that while those losses might hurt on paper if they represent wealth that is on paper then they have no immediate economic impact on the person losing it. There's no risk of hunger from a paper loss. No risk of homelessness. No risk of exposure to the elements.
And I will grant you, yes, there are some investors who do expose themselves that much with their investments. But they are a tiny outlier. For the vast majority of investors, their investment is surplus far above and beyond what they need to live a comfortable life to a reasonable standard of living. In other words, they can afford to lose it while suffering no unreasonable impact to their quality of life. (Note, I would consider going from "can afford a private yatch" to "have to live an upper middle class life" a reasonable impact.")
To your point about institutional investors, the vast majority of those assets (80 - 90%) are owned by the top 10%. Who are, by definition, the middle upper class and above. They are perfectly comfortable. And they can afford a loss.
My larger point is about the risk actually being taken - not in terms of paper wealth - but in terms of real impact on quality of life. Investors aren't taking much. Workers are.
Those same people will tell you how the "free money era" is over. Take a look a labors share of the economy, if capitals share is so large due to capital risk, and capital is easier to get, why didn't investors share of the pie shrink?
You can see the data here for MSFT, Google, Amazon, Meta and Spotify. Yes, other companies did not exhibit the same pattern, but the point remains.
On what basis are you to know that despite being hugely profitable, Company A is going to get rid of 28,000 employees, while Company B is instead going to cut CEO compensation by 40%? How can you be sure whether you're joining Alphabet or Apple?
There is nobody to blame for any of this but the leadership making poor decisions for which they won't face any consequences.
As a recently ex-alphabet employee: apple never went on a hiring spree.
They had restraint the last few years, with a significantly smaller workforce, and the result is (hopefully) no layoffs.
Fast money moves quickly and it might move away from you.
We should also be talking about Yelp at the start of the pandemic, who was predictably in a precarious situation. They offered to employ people part time (and still do) instead of mass layoffs. You can work as an SDE at 80% time instead, which gives you a stable (but smaller) income in a scary time, and it gives the employer a discount to save without layoffs.
Personally, I would take 80% or maybe even 60% time at my old Google job over a layoff. Everyone comments about “rest and vest” anyways, so 75% may be perceived as appropriate anyways.
I understand why Apple hasn't done mass layoffs, but I'm still stuck on how you know that during the recruiting process. If Apple tries to hire you in January 2020, how do you know they are going to be more circumspect about hiring over the next three years? Apple hired a large number of people during the last three years, just as Google did. NOW we know it was a MUCH SMALLER "large number of people," but it was still quite a few. If you're talking to recruiters from each, how do you know?
I don't blame anyone for taking a job with Amazon, Google, or Facebook. I mean, I wouldn't personally work for any of the three for my own reasons, but I don't think it's fair to blame people taking jobs there for their own layoffs.
You can't truly know. But you can vaguely see how many employees there are from news/earnings reports/etc. There's a lot of data in the moment, but you can never know how to process it until after-the-fact.
That said, it may not matter. Like you said, you can't blame anyone for taking a job, and they pay well, and part of that money is "boom/bust" cycles. Its part of the industry IMO.
You are spot on when it comes to impact of layoffs. If you want to destroy productivity, firing people is a sure proof way of doing that. To your point, I can't take any executive seriously if they're not self reflecting on their own failure. Mass layoffs should equal a new board in my opinion.