Sizable Layoffs At Tech Companies — A Failure In Business Planning Or Over-Exuberance By Company Executives? Or Both?

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• “I got this wrong, and I take responsibility for that.” — Mark Zuckerberg, Meta CEO
• “In hindsight, I was too ambitious in investing ahead of our revenue growth, and I take full accountability for the moves that got us here today.” — Daniel Ek, Spotify CEO
• “As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing.” — Marc Benioff, Salesforce Co-CEO
• “We hired for a different economic reality than the one we face today.” — Sundar Pichai, Alphabet (Google) CEO
• “Over the past 10 years, we, along with most tech companies, became too focused on growing headcount as a metric for success. Especially in this economic environment, it’s important to shift our focus to operational efficiency.” — Brian Armstrong, Coinbase CEO
• “I grew the company size too quickly.” — Jack Dorsey, Twitter founder and former CEO.

Are you seeing a pattern from the above quotes from those CEOs, all of whom, by the way, have very big brains and who also have similarly endowed executive staff?

In short, they’ve confessed that they messed up. It’s the apology tour.

Here are some of the headlines that provide the backdrop for the mea culpas:

• Four of the largest technology conglomerates in the world — Amazon, Microsoft, Meta (Facebook) and Google — recently announced massive layoffs totaling more than 50,000 employees;
• There have been tens of thousands more that have been pink-slipped from other well-known and highly successful companies in the industry;
• One company that tracks reductions in force — layoffs.fyi — says that more than 216,000 tech workers have been laid off since the start of 2022.

As noted, those company CEOs are among the best and the brightest. They are REALLY smart. But despite their substantial grey matter, how or why did they get it wrong? Did they really think the demand for their products/services would expand indefinitely, leading to the hiring frenzy which then led to the subsequent downsizing when demand dropped off?

So yes, they didn’t exactly get it right, and employees, stockholders and communities are being hurt. One laid-off Google employee said they were “sobbing and hyperventilating” when they got the news because for many of those Gen Z digital natives, this was their first experience with being RIF’d. As a result, the industry’s image as a “great place to work” is taking a big hit.

But at the same time, most of those tech leaders have not exactly run their companies into the ground chasing unicorn-like fantasies of growth. Demand for many of those products/services did rise in the pandemic period when the world pivoted to digital. And Meta has a current market cap of $562B and Amazon is valued at $980B. These companies have made a lot of money for a lot of people and have provided goods that people seem to want or need. Or both.

Not 2000, though

This is very different from the dot.com bust of 2000 when hundreds of companies imploded and literally ceased to exist. “We’re seeing the hiring mania of the pandemic being corrected for — not the popping of a bubble,” said Andy Challenger, senior vice president of the career transition firm Challenger, Gray & Christmas.

In context, then, the recent wave of layoffs does not signal large tech firms in free fall, and the force reductions are a small percentage of their employee bases. But a question remains.

Why don’t we see much evidence of this?

And the question is this: How much of the pain could have been avoided if the companies’ leaders were engaged in more rigorous debate around the table about “what-ifs” — what if conditions change and market growth is not sustainable? What if inflation sticks around and the Fed decides to raise rates? What if…?

Were there leaders around those tables courageous enough to at least suggest an exercise in scenario planning, a fundamental cornerstone of strategic planning? Was it considered a career-limiting move to challenge the Panglossian assumptions in the heady atmosphere of go-go-go? Was anyone playing the Devil’s Advocate, suggesting at least a tablespoon of prudence when many in the room were breathlessly promoting BHAGs (Big Hairy Audacious Goals)?

Where were the risk management conversations when talking about massive investments and blank-check hiring budgets? Business Insider reports, for instance, that between 2020 and 2022, Amazon added more than 200 million square feet of warehouse space, doubling its physical footprint in the United States. When online orders slowed, the company ended up with $2 billion in unused space and another $2 billion in overstaffing.

In truth, our economic history (and the economic history of most countries, by the way) is pockmarked with boom-bust cycles. The big tech busts in 1991 and 2000 had layoffs that exceeded those of today. During the recent boom times with the cost of money at near zero and the pandemic-induced embrace of everything tech, many senior leaders in the industry and their advisors likely said, “this time is different.” And they hoped and believed it to be true.

The story hasn’t been completely written yet but it looks like this time was NOT different. There is pain and there will be more to come, depending on whether we get a “soft” or “hard” landing for the economy. What IS different is that I don’t remember in past economic downdrafts the number of CEOs who have publicly apologized and had to introduce large portions of humble pie into their diets.

Some observers might suggest that this expansion and contraction is a natural part of the business cycle and that the tech leaders were only responding to clear signals of growth opportunities. Sure, they were a bit overly exuberant with their projections and their staffing plans but no one has a crystal ball or even a Magic 8-Ball to predict the future. A tepid approach to the plentiful possibilities in that marketplace might have cost CEOs their jobs.

Well, maybe.

If this were just a natural cost of doing business, then ALL of the big tech names would have been on the long list of downsizers. But interestingly, two of the tech titans — Apple and Nvidia — have not announced force reductions as of yet. Granted, the rodeo is not over yet but those two exceptions suggest that the hiring vicissitudes are not inevitable. Perhaps some of the bloodlettings could have been avoided.

Personal attributes of senior leaders a factor?

I’d like to suggest that perhaps the missteps that the CEOs are apologizing for have less to do with a failure of intellect than with the psychological makeup of those industry leaders. In addition to industry/technical expertise and intellectual horsepower, many of the qualities that helped propel them to the top — their strengths — are abilities or traits like:

• Self-confidence;
• Optimism;
• Achievement orientation;
• Ability to influence;
• Competitiveness;
• Action orientation;
• Possibility thinking;
• Ambition.

While those characteristics typically drive executive success, putting them to work all at once can also have negative and unexpected consequences. An executive team whose members share many of those same attributes can indeed accomplish great things but can also stumble, sometimes badly. Strengths when used in excess can become vulnerabilities.

Blind spots and groupthink can arise (“When all are thinking alike, no one is thinking much at all”). FOMO (Fear Of Missing Out) can set in, resulting in knee-jerk decision-making. Similarly, what Alan Greenspan called “ irrational exuberance “ can be quite contagious and drive misguided investment decisions. Too much confidence can become arrogance.

Oh, and with stock options in play, let’s not forget the greed factor.

The Fed’s action to raise interest rates to combat inflation was the catalyst for the start of the economic slowdown. Growth stocks — notably tech stocks — feasted on cheap money to fuel their growth and when interest rates began to rise, the companies’ future earnings become less valuable so the growth slowed and in some cases even reversed. Many investors bailed.

And customers, both businesses and individual consumers, fearing relentless inflation, began to withhold some purchases, thereby putting a damper on demand.

Advanced warning…

But it wasn’t as if Fed Chairman Powell shocked the world with the unexpected news of a rate increase announcement. It was December 15, 2021, that he indicated the Fed would start raising rates starting in March 2022. So, there was plenty of time to course correct and stem the furious hiring activity. Yet, in 2022, the sector added nearly 260,000 jobs, according to a tech industry association. That was the most added in a single year since 2000.

Successfully leading a large tech company in the last few years has been hugely challenging. As I suggested in a January 2022 article, we’ve been in a “VUCA” period (Volatility; Uncertainty; Complexity; Ambiguity). Finding the Goldilocks business pathway — not too much and not too little — is insanely complicated in a world where CEOs have to somehow balance the needs of multiple stakeholders, some of whom have conflicting agendas and demands.

But, as this commentary suggests and supported by the verbatim regrets of tech CEOs themselves which opened this article, different choices could have been made by many company leaders which would have likely lessened the damage to employees, investors, suppliers, and to the overall economy itself.

There are lessons to be learned from all this. It will be interesting to see if in the next cycle of “limitless” opportunities, “ make no small plans,” and associated stock price frothiness if company leaders make different choices.

About the author: Mike Hoban is a business topics writer. He is actively working at becoming a world-class grandpa to his five young granddaughters. In addition to his 35+ years experience as a leader, consultant, and business owner he has also published extensively in Fast Company and wrote many thought leadership pieces for DDI when he was there. He also wrote a business column for 12 years. His recent commentaries — including many about leading during the COVID pandemic — can be found on his LinkedIn page: https://www.linkedin.com/in/mike-hoban-b5756b6/ He can also be reached at mjhoban99@gmail.com.

Originally published at https://www.linkedin.com.