When the Bubble Bursts: The Layoffs of 2022
A unicorn is a mythical creature. Beautiful, strong, mesmerising and rare.
The unicorns we know of nowadays are in the form of companies. AccordiWhen ng to cbinsights, a leading market intelligence platform, a unicorn company, or unicorn startup, is a private company with a valuation over $1 billion. As of now, June 2022, there are over 1,100 unicorns around the world. This is not including former unicorns such as Airbnb, Facebook and Google.
1,100 unicorn companies globally… This mythical creature is no longer rare, no longer a myth. It is now part of our day-to-day reality, and the number continues to grow.
Meanwhile, on the flip side, according to a layoff tracking site, layoffs.fyi, 792 companies that fall under the “tech startup” banner have laid off over 134,000 people since March 2020. And this figure is only based on the companies that published numbers.
73% of these layoffs took place in 2020, 5% in 2021 and so far, 22% in 2022…. and we’re not done yet.
What is making this year particularly interesting is we’re seeing the more established and what we believe to be successful companies like Netflix, Uber and Robinhood laying people off.
So what exactly is happening here? Well, we know a lot of businesses simply could not survive the standstill Covid brought on and this is why many shut down as soon as the first lockdown was announced. However, I do believe, pandemic or no pandemic, many of these lay-offs were inevitable. In some instances, the pandemic may have actually staved off layoffs, with leaders being able to convince their boards, they simply needed to ride out the event and all the losses would be recuperated once the economy started moving again.
But even companies like Netflix, that had massive wins during the pandemic are letting people go. In May this year, Getir, the Turkish version of Deliveroo and Uber Eats, announced their plan to lay off 4,480 employees this year, 14% of their workforce. 4,480 people will be losing their jobs. Yet just a couple of months earlier, in March, Techcrunch, Reuters and other news sources announced Getir had just closed a $768 million Series E funding round, taking the company’s valuation to just under $12 billion.
So why would they need to dismiss nearly 4,500 people? Were all those hires really needed in the first place? Considering the recent funding round, why is Getir unable to keep these people employed? It just doesn’t make sense. Something isn’t adding up.
I’m no Financial Analyst, Mathematician, Economist or Accountant by any means, but I’d like to give my perspective on what I believe is happening, and hopefully, it will help people better understand the choice they’re making when joining start-ups, scale-ups, fast-growth companies, unicorns, decepticons and so on.
I remember speaking to a couple of colleagues last year about this VC trend being on the brink of imploding. It just felt like too many companies were tripping into unicorn status and even more companies’ business models relied on VCs, not only to grow, but to survive. There’s also an issue with the way VCs decide which companies to fund. If you go back to the definition of a unicorn, what makes a company valuable is it’s “valuation”…. not revenue, not profit margin. A company’s value doesn’t just focus on the numbers, but potential.
In fact, potential seems to be the overriding factor and companies have become proficient in presenting themselves as worthy of investment. Often the rhetoric is that hiring more people will mean being able to grow and scale the business. And this is kind of true, but the concept is flawed for many reasons.
One reason is that though some start-ups need more capacity in order to grow and scale, many simply need to improve the way they currently work. Inefficiency is often patched over with more people… and eventually, those pre-existing cracks break wide open under the combined weight of inefficiencies and additional people.
Another reason is that many start-ups feel they need to show they are using all their budget on hiring. This means the growth is often not inline with the maturity of the business or even the business model. Sometimes there is no business model or real plan, and yet the business continuous to grow exponentially at the speed of light.
It’s usually the glitter and flashing lights of fast growth and huge funding, multiplied by the great marketing of these two elements that wins candidates over.
Though many companies have been able to leverage this in a way that worked positively for them and their employees, most are not. They are on the fake it til you make it train, where you keep blagging and bluffing until someone bites or buys.
Irrespective of the maturity of a business, there are no guarantees anywhere you go. Budgets can be cut, whole departments or locations can be made redundant, you may not perform well in that environment, the list goes on. That is the nature of work and business, and the risk grows when a business is a start-up or scale-up and growing very quickly in headcount, because the greatest expense for every business is PEOPLE…. and sadly, this is why this is where you will often see the biggest cuts.
So what lesson can we learn here? I think there are a couple, one is understanding the meaning of funding, and the other is understanding risk.
Whether a company has $1bn or $1m in funding, remember this is funding, not revenue. Funding is a loan, a debt that needs to show a return. Unless you have seen the P&L of a company, funding numbers mean very little. They simply provide a potential indication of how much hiring can or will take place and how well you may be paid.
Funding has no real correlation with how well the business is doing financially or whether the business model even works!
This trend of candidates and employees valuing a company based on the amount of money it can raise is misleading and can be toxic. It’s a game of poker that involves super highs for the winners and great lows for the losers.
Back in January 2021, I wrote an article called Chaos: The Truth About Start-Ups, where I shared my first experience of working in a start-up. It was both a beautiful and devastating experience.
In this article, I shared some questions people should ask themselves before joining a start-up or scale-up. Some of the questions that particularly relate to this topic are:
Most start-ups fail. What is your appetite for risk considering the odds are stacked against you?
What is your perception of Chaos?
How do you deal with failure?
Are you ready to be uncomfortable?
I’ll add a final question…
What if this doesn’t work out - is it still worth the risk?
Your answer to this question has to be ‘Yes’.
To close off, I truly believe start-ups and fast-growth companies are some of the best environments you can work in. You experience and learn so much, regardless of the outcome. Great risk can come with great rewards… but don’t kid yourself, the reward doesn’t lessen the risk.
Whatever you decide to do, I wish you all the best. Just try to have fun and learn from every experience.
