How Do Mass Layoffs in the Tech Industry Impact Your Business?

As we enter the mid-point of 2023, the tech industry faces a sobering reality: the number of U.S. tech employees laid off this year has already surpassed 139,690. Besides, 140 000 workers in U.S.-based tech companies have already been laid off in mass job cuts in 2022. Major tech companies such as Google, Amazon, Microsoft, Meta, Alphabet, and others are leading the way in employee layoffs.

But what are the main causes of mass layoffs in tech industry? How will these layoffs affect the broader economy and businesses that rely on these companies? And most importantly, how can it impact your business?

Why are there so many layoffs?

The tech industry is known for its fast-paced growth and innovation but is no stranger to layoffs. In recent years, major tech companies have announced mass layoffs due to various factors, including technological advancements, post-pandemic changes, and overhiring. Let´s take a closer look at each reason.

Rapid advancement of AI

The rapid advancement of technology, particularly in Artificial Intelligence and Machine Learning, has reduced the need for human labor in the tech industry. As a result, many workers are being laid off. For instance, not long ago, we mentioned that Dropbox, a cloud storage company, recently announced that it would be laying off around 500 employees, equivalent to 16% of its workforce, due to the beginning of the “AI era of computing.” Drew Houston, the CEO of Dropbox, explained that the company’s decision to lay off workers is a cost-cutting measure to enable the company to invest in new areas.

Post-pandemic reality

The aftermath of the COVID-19 pandemic has had various consequences, including significant layoffs in the tech industry. For instance, Clubhouse, a popular social audio app, is a case in point. The company has laid off over half of its employees due to shifting customer habits in a post-pandemic world and the complexities of remote work. The company’s co-founders, Paul Davison, and Rohan Seth, noted that it has become more challenging for many people to connect with friends on Clubhouse and have extended conversations in their daily lives. With over $100 million in venture capital backing, the company is now focused on building “Clubhouse 2.0” with a leaner, more efficient team.

Overhiring

At the end of 2022, Stripe, a leading fintech company owned by the Collison brothers, made headlines by laying off 14% of its employees, or roughly 1,120 people, out of an 8,000-strong workforce. According to Stripe CEO Patrick Collison, the layoffs were due to a hiring spree triggered by the pandemic-induced e-commerce boom, a period of significant growth, and then an economic downturn marked by inflation, higher interest rates, and other macroeconomic obstacles. This narrative is familiar in the tech industry, where companies sometimes overestimate their capacity to grow and trim their workforce to align with market realities.

“We overhired for the world we’re in, and it pains us to be unable to deliver the experience that we hoped that those impacted would have at Stripe,” Collison wrote.

Economic headwinds

Economic headwinds are challenges or obstacles that negatively impact the overall economy, such as economic downturns, inflation, and higher interest rates. These factors can cause a decline in business growth and revenue. These conditions usually lead companies to make cost-cutting measures, such as layoffs, to adjust their operations and remain competitive.

For example, Amazon has massive layoffs due to economic headwinds, which has led to companies scaling back their workforces. Specifically, the company cut more than 150,000 positions in 2022, and Salesforce recently announced cutting around 10% of its workforce.

What are the effects of massive layoffs?

The effects of mass layoffs can be both positive and negative for the companies that apply it. The most significant are:

• Impact on the employees both financially and mentally. Apart from the loss of income, employees who have been laid off may encounter difficulties in finding new jobs. On the mental side, employees might have depression. According to Dr. Saumya Mudgal, a Senior Consultant in Psychiatry at Max Hospital in Gurugram, there has been a significant rise in the number of patients seeking treatment from multinational corporations.
  
  “These patients are usually presented with the issues of panic anxiety and panic disorder with agoraphobia and there is quite an increase in such patients. Some of them are already taking medications and the requirement of medication has gone up and the severity of symptoms has gone up.

• Layoffs can also create a sense of fear and uncertainty among the remaining employees, which can negatively impact the company’s culture and morale.

• It can convey a message to its customers that the business is going through a difficult time or facing some crisis.
• Layoffs can result in losing valuable skills and knowledge, leading to reduced productivity and innovation.
• From positive impact can be cost savings or a renewed focus.

How mass layoffs can shake up business partnerships

When it rains, it pours. The effects of mass layoffs can extend beyond the company’s employees, as they can also affect the company’s relationships with partners, suppliers, vendors, investors or stakeholders, or they can come together with some company´s issues. Such layoffs may signal financial instability to investors, making them reluctant to invest in the company. Stakeholders may interpret such layoffs as a management failure, leading them to lose confidence in the company’s leadership. Let’s explore recent instances where companies implemented mass layoffs while simultaneously addressing other pressing issues.

Shopify layoffs 

Along with mass layoffs in 2023 (20%), Shopify has announced the sale of its logistics business Deliverr, to Flexport for approximately 13% in stock. Shopify had been investing heavily in the logistics side of its business, evident from its previous investments in Flexport and the acquisition of logistics startup Deliverr. However, Shopify’s CEO Tobias Lütke referred to the logistics business as a “side quest” that was distracting the company from its primary operations. Lütke believes that larger companies tend to accumulate distractions and side quests, making them less agile and efficient, especially during economic change.

Meta layoffs

The mass job cuts are part of a broader restructuring effort at Meta, which CEO Mark Zuckerberg refers to as the “year of efficiency.” Speculation about project and team cuts: The layoffs may affect projects and teams within the Facebook app and Reality Labs, focusing on augmented and virtual reality experiences. However, it is mentioned that those working on developing games might be relatively safe, as Meta aims to market its metaverse concept to traditional gamers.

Meta has also invested significant resources into its social VR platform, Horizon Worlds, which is part of its vision for the metaverse. However, the platform has not gained substantial traction, with only about 200,000 monthly active users reported by the end of last year. This lack of success may also be one of the factors contributing to the strategic shift and potential layoffs within Meta.

GitHub layoffs

GitHub, a developer platform owned by Microsoft, has laid off a significant portion of its engineering team in India. The layoffs affected over 100 jobs in the South Asian market. These measures are part of GitHub’s streamlining effort, with the company aiming to reduce its workforce by approximately 10% by the end of March.

It significantly impacted India’s developer market as India is known to be one of the world’s largest developer markets and serves as a crucial engineering hub for numerous large companies. The layoffs at GitHub, a prominent developer platform, have implications for India’s local industry and job market.

Salesforce layoffs

Besides recent mass layoffs in the company, there is a considerable lack of clarity on the layoff strategy: it is unclear why Salesforce is conducting the layoffs staggered. This lack of transparency leads to feelings of unease and frustration among employees, as expressed in employees’ LinkedIn posts. Moreover, the company has faced persistent challenges from five activist investors in recent months, which has put pressure on them to implement cost-cutting measures. Despite a remarkable quarter, the company has proceeded with layoffs. CEO Benioff expressed his enthusiasm about the company’s performance to Swisher, claiming it was one of the best quarters ever for a software company.

On another note, the Wall Street Journal previously highlighted a $10 million contract between Salesforce and actor Matthew McConaughey. Benioff clarified in a recent interview with Barron´s that the contract was unrelated to the layoffs. However, some argue that the $10 million could have been allocated more wisely. As a result of these challenges, the company’s stock experienced a decline during early trading.

Bottom line

As we can see, mass layoffs in the tech industry can have significant and far-reaching impacts on your business too. Such layoffs can create challenges and opportunities, affecting your operations, talent acquisition, market dynamics, and industry trends. On the one hand, mass layoffs may result in an increased pool of available talent, providing potential hiring opportunities and access to specialized skills. 

On the other hand, the influx of experienced professionals into the job market can intensify competition for top talent, making recruitment more challenging. Additionally, mass layoffs can influence market dynamics, leading to shifts in pricing, product availability, and customer demand. Industry trends and partnerships may also transform as companies restructure and adapt to new market conditions. Nevertheless, businesses should try to monitor and foresee the impacts of mass layoffs, strategically navigate the changing landscape, and proactively adjust their strategies to mitigate risks and capitalize on emerging opportunities.