The Tech layoffs…again

The news these past few weeks have been a bit depressing in Seattle as Amazon annouced it was laying off 18,000 employees and Microsoft followed a couple of weeks later saying it will be laying off 10,000. Google, who has a large presence in Seattle announced they will be laying off 12,000. To be clear not all layoffs are in Seattle, just a little over 3000. It is always hard to take this type of news, especially when people you know are getting let go. The driving force is diving economies, fueled by events beyond any indiviuals control. As humans we are programmed against uncertainty (though I would argue that is when you have great opportunity), it makes people anxious, we do not like that. It takes both a physical toll and mental toll. Lost sleep, stress etc..It is not just Seattle, as the economy dives companies like Goldman Sachs are laying off people. With all the doom and gloom, specifically on tech it is easy to fall prey to dystopian scenarios, but to be clear all is not lost.

It is hard to believe but I have now been over 30yrs in the tech industry and during that time I have now seen several periods of “bust” and econmoic uncertainty. Starting with sitting in a hotel with my wife and 1 yr old child in Sante Fe, New Mexico and watching CNBC as the entire market went bust, including Microsoft stock and my net worth dropping by 50%. The dotcom bubble had burst. The scenario in this one was a overhyped new world order under the guise of the Internet. Honestly the sentiment was not wrong it was just too early for the tech that would eventuallly power the web. The following month would watch many people and companies in a daze as retirenment plans were put on hold, big purchases postponed and too many internet startups went bust. The industry and the time had to do a reset, luckily for many who lost their job in the startup community the big boys were still hiring and many who I had watched leave Microsoft all of a sudden returned.

Looking back on the dotcom “bubble”, there were a number of Wall St gurus hyping stocks that had no real business model (Charles Gasparino’s book “Blood on the Streets” is a excellent source on this topic). Inherently Wall St is a very emotional entity and gets caught up in its own hype quite easily . At that time online trading was fairly new and it brought in a lot of new particpants, who got caught up in the hype. First stop: the tech workforce. It was a crazy time. As a Microsoft employee some of the startups I worked with gave me stock (before Microsoft cut the string on this activity..dang Jeff Raikes). For a brief while I could have sold those stocks at a 150k profit….I learned a lesson as I made less than 20k. But in the end the dotcom bubble would be a minor set back and valuable learning as the future would provide more grim reminders, but in between these “tidal” events the tech industry was doing fantastic.

The next fail was not one of hype but one of false economic expectations. Capatalism is a beautiful thing and in many ways perfect, but that perfection is not just wealth creation but wealth destruction. It is also controlled by humans, who in their greedy lust do very damaging things. In 2008 that came to fruition. The financial institutions in an effort to expand their market created new financial vehicles in an effort to spread risk. Providing loans to people where they could buy a house and not start payments for six months (just one example). All of a sudden you had people buyimg real estate investments, where based on their current level of income realistically they could not afford. Seem obvious that it was a bad business model. But as I said Wall St gets caught up in its own hype. When the bubble finally burst we had a huge issue of capital flow, when a market has no capiltal it ceases to become a market. Fear gripped the United States and quickly went global. That is a vey high level overview and a lot of great books have covered the subject better than I (One of many I recommend is Andrew Ross-Sorkin’s “Too Big to Fail”.). The fear in created was very real.

At Microsoft, as we met with customers time and time again we all heard in the sales force, “I need to do more with less”. All of a sudden the standard Microsoft Enterprise Agreement, instead of having a annual true up where the customer pays for more licenses we were being asked to true down as they wanted to pay for less licenses. Companies did not need more copies of Microsoft Office, they needed less as they no longer had 10,000 employees they had 7,500. At Microsoft annual company meeting Microsoft COO Kevin Turner tried to calm the troops by sharing a favorite Sam Walton Story (Kevin came to Microsoft from WalMart). Sam had said, “In times of econmic uncertainty there are those that participate and those that do not. The latter always gains marketshare”. I thought at the time Microsoft was going to use its large cash reserve to ride the wave, invest in our customers during the downturn and come out stronger on the other end. How wrong I was. The next day travel was cut as budgets were slashed. At Microsoft we had to do more with less. We were participants.

It led to what was a first at Microsoft; layoffs. When it was announced it was hard to believe it was happening. It was something that was unfathomable. In hindsight it probably should have been foreseen, the employee count at Microsoft was well over 100,000 and Microsoft was struggling with its own gitrth. It probably would have had to happen anyway, the financial crisis just accelerated the path to layoffs. I missed the first round of layoffs but was not so lucky in the second. It happened ironically on Nov 4, 2009. I started on Nov 4, 1991. I wil not go into all the details but you can read about that day here . When this happens it is a frightening experience especially when you have three young sons. I would land at another job in 8 months. The thing about econmoies and tech in particular is they always rebound, not to be a financial advisor but I would always have money saved up to survive a year as these cycles repeat themselves.

Every recession has its own motion. The current one for technology folks is interesting in that it comes out of a pandemic. Many companies sufferred during the pandemic (did anyone go to Disneyland?). However for tech it was a boom period as everything was done remotely and online. How many Amazon delivery trucks did you see during the pandemic? Where schools struggled as they had to move classes to remote, in tech it was simply an email “you will not come into the office but work from home”. Where many industries were struggling, tech was accelerating. The cloud was growing, streaming services like Zoom and Microsoft Teams were thriving. It seemed the Googles and Amazons of the world would cruise through the pandemic no problem. One issue: geopolitics.

The dotcom bom/bust and financial crisis were largely Wall St created events. The current crisis of inflation and rising interest rates are more the result of global events. Vladimir Putin has a very Russian sence of history and we all know he lamented the downfall of the Soviet Empire. On February 22, 2022 he set in motion the Russian attack on Ukraine. Russia being a major supplier of oil on the global markets (second only to the United States) sent energy prices sky rocketing. This set in motion a cascade of events as prices began to rise and the Federal Reserve to combat rising inflation increased interest rates. For the first time in a long time a big impact was on food prices. When food and gas prices increase you have to make decisions about purchases and things begin to slow down. When they slow down companies are forced to make decisions: layoffs.

So here we are again. The giants all laying thousands of people off. A lot of uncertainty about the future, which leads to fear. Having now been through 3 cycles (and who knows I could still get laid off during this cycle) I am not as worried as before as every time it has happenned the tech sector has come back stronger. One thing that was ingrained upon me early in my career by Bill Gates was if you are doing 9 things right and one thing wrong, what are you doing wrong? Even though we commanded 90% marketshare we were always fearful of what was around the corner. What big opportunities are we missing? If you look at Microsoft’s big competitors they operate the same way. It just takes a technological breakthruogh to wipe away a business unit or destroy a company. The iPhone destroyed Windows Mobile and crushed Blackberry (does anyone own this device anymore?). Google right now is stressed about OpenAI and Chat GPT. When these moments happen they pull the industry to new heights, which means new jobs and new opportunities.

Right now if you are out of work, enjoy time with family, friends and reflect on your past while you position yourself for your futture. It is ok now and then to have a pause from work and assess life and what are the values that are most important to you. With each passing year I become more bullish on the tech sector as we continue to tackle new problems and new challenges. We create new innovations, most of which will fail. But those that do not will be part of reshaping the industry. With every change comes new opportunities. There will be incremental changes and big changes. Right now AI is rapidly evolving and down the road we will have Quantum computing. These are just a few things to think about during your not self determined time-out. Enjoy it and remember the future is so bright you gotta wear shades.

Good Night and Good Luck

Hans Henrik Hoffmann Jan 25, 2023

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