Why are tech companies sacking people? - Grey Ring - The Best Global IT Recruitment Agency

Mutterings of tech investment slowdown at the end of 2021 have erupted into wholesale industry upsets in 2022 as established super companies and tech unicorns undergo rapid, and rather shocking staff downsizing.

From sudden hiring freezes to complete team culling, the tech recruitment and employment sector is having a bit of a negative moment.

The reasons why, as we discuss below, are myriad and varied, but incredibly impactful almost universally across the globe. No matter the sector, no matter the size of the company, and no matter the seemingly endless growth of some brands, a wave of downsizing has hit everyone, equally.

  • “​​In fact, as of late June, more than 22,000 workers in the U.S. tech sector have been laid off in mass job cuts so far in 2022”
  • “Tech start-ups across Europe have been making layoffs as they struggle to deal with the changes in the industry. Fintech start-up Nuri, for example, announced on Wednesday that it was making layoffs due to the “start-up ecosystem experiencing extreme shifts”.
  • “Southeast Asia’s tech companies are laying off workers as they brace themselves for a tougher fundraising environment.

Naturally, these announcements create snowball effects in other sectors and serve as prescient reminders that even growth-first unicorns can suffer from talent and workforce disruption in our post-pandemic world.



Why are tech companies downsizing?

There are a variety of impacts on tech workforce retention and the more recent flip to rapid downsizing, from venture capital nervousness to the impact of the pandemic of workforce retention (IE. the great resignation), to inflationary pressures on wages and disrupted supply chains.

Venture Capital is drying up.

  • Startups have faced declining valuations and the slowing flow of venture capital dollars”.
  • While 2021 was a record-breaking year for VC funding and startup incubation, 2022 is markedly different.
  • VCs – often the powerhouses behind unicorn enterprise expansions and the establishment of brands into household names – have pulled the plug on investment as the stock market crumbles, and long-term startup funding models (basically profit-less vehicles with long-held beliefs in sustainable growth and debt structuring) have come home to roost.
  • The “worry about profit later” attitude that was so prevalent pre- and mid-pandemic is now no longer viable.
  • “The financing options aren’t great. Investors will be seeking much better terms across fewer deals. Softbank CEO Masayoshi Son, synonymous with the era of big bets on start-ups pushing them to unicorn valuations, said last week it may reduce investments by up to 50%”.

Stock drops.

  • Tumbling tech stock valuations have consequences. The selloff is pushing management teams to rethink their old ways of chasing growth with profligate spending”.
  • Although it’s a bit of a chicken and egg situation between stock drops and VC funding encouraging the other to fall off a cliff edge, a poorly performing stock market has a legitimate, tangible effect on the labor market.
  • This is most succinctly summarized in the phrase belt-tightening. Companies that need to redirect shrinking profits into staying afloat tend not to take on the expensive task of hiring new staff.

The wider “economy” and a lack of agility.

  • Much has been said about inflation, rising interest rates, “fat” trimming, lean management and building strategies of resilience post-pandemic. But how does any of it impact recruitment? Why are so many job offers being rescinded?
  • The simple fact is that as economies contract, the companies that survive are the ones who pivot their struggling business into new, or neglected, markets, almost reinventing their tech product or service and remaining growth-oriented.
  • This sort of drastic business rearrangement requires hard conversations with teams which may be a touch staff-bloated with talent that is not necessarily required, or with departments that aren’t performing to standard and require streamlining.

Leave your thoughts