A lot of high growth companies simply hire too many people because too many people is usually better for maximizing growth rate than too few people. (If a company's focus shifts from maximizing growth rate to, e.g., optimizing for cash flow or profit instead of growth rate, the equation shifts and lay offs happen)

Having extra people on staff who aren't needed can be good as long as you expect to need them in the near future. That obviously creates the risk of needing to terminate the positions if the need for the person never materializes.

It takes 2-3 months to hire someone after opening a role, and 6-9 months to onboard them. So 8-12 months to fill a role with someone fully up and running. That's a really long time which is why so many high growth companies fill roles they don't actually need right now.

Also, in a company that's growing 30% every year, hiring "10% too many" people at any given moment is an extra 4 months' of pay for 9.1% of your payroll, or about a 3% mistake in a 30% growth environment.

In a company that's growing slowly or not at all, hiring "10% too many" people is a much larger error, possibly even a disaster as it could be a full year or more worth of extra hiring in a slow growth company.

They bet on projects but those projects didn't pan out, every company does this, every hire is a gamble. Even a cafeteria that hires a new person assumes future demand will keep up or increase, if that prediction was wrong the person will not be needed and will be laid off, that is just how business works.

This is much better than the "you get what you use" resource allocation where organizations never shrinks, we want them to shrink when they don't have any useful work to do.

Big tech clearly overhired during the pandemic. The layoffs over the last 12-24 months are a return to the mean.

It actually feels like a semi-coordinated effort to push down wages. With high inflation, workers would have demanded raises, but with the specter of layoffs, they keep their heads down.

Musk bought Twitter in April 2022, had huge layoffs and then rest of tech followed in Nov 2022 onwards.

Prior to current trends was it common to announce great earnings and then announce layoffs?

Nothing seems coordinated.

Musk made layoff palpable to investors, ZIRP ended, the industry is correcting for over hiring when assuming the 2020s growth would continue forever.

Just a bunch of things that happened. As always.

“We didn’t start the fire”

We went from 0% interest rate to a whole lot real quick. It used to be there was literally no overhead for over hiring if it moved the bar at all. Thats not true anymore.

If it was really over hiring, and the end of ZIRP, why have their financial results been so strong? It’s not like profits dipped to losses from these “headwinds” — companies have been strong and AI is increasing demand for cloud services, chips, etc.

In the states it’s a new tax thing going live.

Funny you should say that because H1B's have shot back up to pre-pandemic rates.

I've never understood why people would believe this overhired narrative, have you ever worked for a company that correctly understood it's own hiring capabilities or measurements? I haven't 15 years in.

It's cost cutting, not demand for labor. A large headcount used to be a status symbol for a public company (to juice the stock), now if anything it's the opposite.

If the company is rudderless and unable to allocate effective work to employees, it won't be doing well. This is about companies that are doing well. At least, that's the premise of the article.

Not necessarily. Companies can be rudderless and have some kind of industry capture or brand recognition and still be doing great. In other words, at one point they had good leadership or built up during times of low regulation or economic prosperity and now are just living off those early successes. A lot of large tech companies are like this.

Yeah. The Google Graveyard really shows how far this can go.

https://killedbygoogle.com

The punchline is that in addition to hundreds of failed hobby projects, their stock is doing great. Monopoly rents are a helluva drug.

I never understood the complaints about this. Why shouldn’t a company try and do new things?

Monopoly rents happen at the expense of other economic participants. For every tombstone on that page, I wonder how many mom & pop diners died due to CAC math.

Yeah, not sure if it would be better if Google put all those people to work on their main products like most other companies. Google maintains their ability to launch new products by those constant launches, they are like constant small exercises, sure they usually aren't new billion dollar products but at least they still know how to launch new products fast unlike many other companies.

A company probably should try new things if they have enough extra money. A company definitely shouldn't develop a reputation for abandoning every new thing they try shortly after launch. Why would any company risk depending on a new Google offering for something they actually care about?

This is essentially assuming that competence translates directly into high monetary value.

That is not true either at the individual level, or at the level of companies. It is particularly untrue with tech behemoths who enjoy near-monopoly status, massive network effects, and/or huge mindshare.

At the very simplest level, it is not at all uncommon for good decisions made previously to allow an organization to "coast" for a significant amount of time after it starts making bad decisions. This is part of why bad CEOs are so frequently not held accountable for their incompetence: they take over, and for 3 years, everything's going great! It's only after the accumulated "soft" resources (customer goodwill, employee loyalty, lack of technical debt, etc) are burned away that the bad decisions actually start being reflected in the balance sheets.

Not to mention that those bullshit jobs that don't really impact the company's earnings initially tends to include stuff like fixing the IT systems and handling customer issues within an acceptable time frame...

^This. It isn't easy to say, in the short-term, what the costs of cutting those jobs is. You might be underinvesting in future products, or in satisfying current customers. None of that will be immediately reflected.