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Historic tech layoffs mirror investors’ confidence slump

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The total number of workers laid off in the global tech industry so far this year is over 95 percent of the total number lost in the whole of 2022, a development, experts say, indicates that confidence is yet to return to the beleaguered space.

Data from Layoffs.fyi, a website that tracks layoff activities across the tech industry, show that 155,462 workers have become unemployed as a result of job cut decisions announced by 539 companies between January 1 and March 29, 2023.

The data did not capture job cuts by companies in Nigeria; for example, Cellulant cut more than 90 jobs, OnePipe laid off 10 employees, and 54gene’s sacked 25 percent of its workforce. It also does not consider layoff announcements made in March, which could be carried out in subsequent months. For example, Disney, on Monday, said it would begin layoffs this week, the first of three rounds before the beginning of the summer that will result in about 7,000 job cuts, a memo from Bob Iger, the company’s CEO, showed. Accenture also disclosed in its quarterly report to the Securities and Exchange Commission that it plans to cut 19,000 jobs over the next 18 months.

In comparison, the total number of workers laid off by 1,214 companies in 2022 stood at 161,411, making it the largest number of layoffs the industry has seen since Layoffs started compiling the data in 2020. However, the number of workers already lost in the first three months of 2023 means the 2022 figure will be surpassed, if not doubled, should investors’ confidence continue to falter. It is also the most job cuts seen in a quarter.

“The reputational damage that big tech has caused with their layoffs, with both employees and prospective hires will haunt them for years,” said Dare Obasanjo, lead product manager, Horizon Worlds/Metaverse Platform at Meta.

Investors are increasingly hesitant about signing off cheques to tech companies. Tech startups in Nigeria, for instance, have seen the slowest funding season so far in 2023. The 2022 funding report by Partech, a venture capital company, put the total funding for startups in Africa at $6.5 billion, representing a combination of equity and debt deals, across 764 rounds. Equity deals accounted for $4.9 billion across 693 deals. However, the data found that total equity funding on the continent fell 6 percent from $5.2 billion in 681 rounds in 2021.

According to Emeka Ajene, a tech expert who has monitored funding activities, it is now three weeks in a row with no announced equity fundraises in Nigeria or South Africa. But Ajene said layoffs were not caused by investor confidence directly.

“What’s happening is a rationalising of businesses. The name of the game right now is efficient, sustainable growth – and part of that efficiency is cutting costs and decreasing burn. What’s true is that the bar for funding has risen, and investors are focusing more on sustainability and pathways to profitability rather than pure user or revenue,” Ajene said.

The implication is that the factors that moved venture capital firms and equity firms to sign big cheques are no longer sufficient today, thanks to the reset orchestrated by the rising interest rates and a slowdown in global economic growth in the post-COVID-19 era.

The low investor appetite affects all areas of technology.

“This isn’t the 2021 bull market. VCs are no longer pumping money into the crypto space like before, projects are no longer hiring, and very few Web3 companies have found PMF/are profitable,” said Harri Obiefule, head of marketing at Cassava Network.

For some experts, the mass layoff, which they believe will continue, represents an opportunity to set the market on a sure footing rather than one that is driven by hype. Many tech startups that raised a lot of money are said to have hired more people than they could cater to. Hence, the companies are adopting layoffs as a strategy to reset the balance of scale.

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Apart from overhiring, many tech companies also jerked up salaries as a measure to keep their best people from being poached by big tech companies with much better offers. As a result, salaries hit record levels as competition for top talent rose to a frenzy.

A report by 365 Data Science also shows that tech companies had overestimated the impact of the pandemic and how long it would last. Layoff statements from Google, Amazon, and Meta also showed they had all gone on an unrestrained hiring spree as revenue from the COVID-19 pandemic period (2020-2021) skyrocketed. These three companies now account for nearly 40 percent of the total layoffs already conducted in 2023. Smaller tech companies such as 54gene were also pummelled by the drop in revenue after making huge talent investments on the back of the COVID-19 pandemic.

Whatever the consensus is on why the layoffs are happening, some experts say layoffs are bad for business. Aside from making people more likely to leave the company voluntarily, layoffs ruin the morale of the people left behind and could likely lower their productivity.

This effect is worse if those layoffs happen slowly and without clarity from management, as is the case with Meta’s latest round. If companies need to conduct layoffs, they should let everyone know upfront and offer retention bonuses for those who stay through their layoff date, said Robin Erickson, vice president of human capital at Conference Board, which studies companies behave in a crisis.