We asked experienced tech leaders about how 2022 tech layoffs influence smaller tech companies and startups and what should developers do in this situation. Is the layoffs in Twitter, Stripe, Lyft, and other tech companies the best time to attract tech talent?
One of the most discussed topics right now is mass layoffs in Twitter with over 50% of staff cut in one day. Other big tech companies also follow this trend. Apple and Amazon “paused almost all hiring” and announced a hiring freeze for 2023. Lyft and Stripe said they are laying off hundreds of employees.
Q: What is the real reason behind the mass layoffs? Is it the upcoming economic crisis that made the companies announce these layoffs or is it just a good moment to perform the planned cuts to reduce increased staff?
I think it's very unique to different companies. For Meta, who laid off 11,000 people, it’s the ad spending that potentially is going down. But what's probably more questionable is their strategic goal of going to the metaverse and how do you manage the transition from an advertisement company to a product company. A similar issue is happening in Twitter. They want to go from advertisement revenue to subscription-based. You can't make those changes overnight.
I'll focus on Twitter for a second. I don't think that's really indicative of the market in general. I think it’s just that they got a new owner who wanted to make a splash. And did! And in my opinion, it's not going well. In the general market, though, I don't think it's like a malicious thing that companies are like: “Oh, we can use this as an excuse now! We can get rid of people!” At least, I hope that's not the case. But I do think it's kind of a combination of factors. Companies did a lot of hiring, expecting the market to stay good and their revenue numbers will keep going up and lots of investor money will keep coming in. That started to dry up due to economic conditions and so it led to tough decisions to say: “Hey, we're not in the financial position that we were six months or a year ago. We do need to make cuts, unfortunately.”
I have some visibility of what's happening in the market. First, the stock value in the tech companies dropped dramatically. So there was a lot of capital going out from the market and that actually affects the evaluation of the companies a lot. Even if you have investments, you will probably want to hold on and try to survive. If you want to have a bigger MRR, this is how you can pass safely through this time of crisis and uncertainty. The biggest chunk of their money goes to people, so the only way to extend the runway is to do some layoffs. This is the most common scenario most startups fall into.
For big companies like Meta and similar, I think it's more related to two things. The uncertainty we have right now, as we are as close as we have ever been to World War III and that scares a lot of people. And because of the stock markets, which lost a lot of value. I've seen companies losing 80% of their stock market value and that's a lot! And the only way is to drop some costs.
During the pandemic, a lot of companies saw skyrocketing revenues. And a lot of their projections were based on that revenue growth. Unfortunately, we're seeing that revenue growth wasn't sustainable and they have to descale to meet that lack of revenue. I think also another thing is because it's becoming like a norm or maybe “socially acceptable” (if you can have layoffs be socially acceptable) for companies to take this as an opportunity to scale down. Five, six years ago, they wouldn't do that and would have tried a number of other things before.
Q: How will this situation influence smaller tech companies and startups? What is the best hiring strategy right now: freeze hiring or start hunting for the top talents who just lost their job?
I think it really depends on how much money you have. If you have a lot of money in your bank, I think it's a great time to hire and grab the best talent you can find. If you are in a situation where you don't have that much money, I would recommend freezing hiring and waiting, or giving some bread to your company, in order to survive these times of uncertainty. Otherwise, you are at risk of shutting down.
Oh, I think that you need to understand that the companies are not laying off the best developers and best engineers. It's not like emotional buying. If you are a startup and have a hiring strategy, you need to follow this strategy.
This is a general rule that no one should hire in a crisis. But anyway, I think for small and medium companies, the decision process of hiring or not hiring should not be driven by what we talked about before. Yes, we have a crisis and recession, but the show must go on and there are opportunities. We are still in a situation where the demand keeps being largely higher than the supply.
Q: How smaller tech companies and startups can attract tech talent besides offering big salaries?
I think having a great culture, good perks, a cool tech stack, and also working fully remotely. I heard in Twitter, they're forcing people back into the office and that's probably going to cause a lot of attrition. Lots of people like working hybrid but I think it's still a minority. The majority of people prefer full-time work from home.
I'm having a lot of work with attracting tech talent and here are a few things. The first one is having a really exciting product. For example, at Sagetap, the product is really promising. And people that I interviewed said they wanted to get on the ground floor of something that could really become huge and provide real value to the industry. The second one is culture: creating a culture that people want to work in. Then, remote work is a big thing, I think that resonates a lot with people. Obviously, professional development and making sure you give a space for people to grow and work on the things they want to work on. An engineer can go anywhere, so you always have to think of more than just salary.
I think it's never about money itself. Especially, the startup world just can't compete with the salary that the big companies are paying. But there is a good opportunity for those who want to take more responsibility, build something from scratch, or take leadership positions that otherwise would take them much longer or they don't have the opportunity to do in a larger organization.
For smaller startups, there is a vast difference in what companies can pay; the range is from 70k to 200k. And even if the culture isn't quite as good, you know, a 130k difference makes up for a lot of culture gaps. People aren't spending 25 years at companies anymore. You're spending two and then you're going to the next job. So most of them are saying: “I'm going to be here, culture is meh, but I'm making 130k more. Yeah, I'll do that for a couple of years, and then I'll check out the next opportunity.”
I think it's really important to gain feedback from people that you're interviewing. It's important to scale your benefits package by the employee. For instance, some employees may want annual learning budgets, stipends for a gym, and so on and so forth. I know one thing that's really important for a lot of engineers, and for a lot of employees in general, is flexibility. I think it's important to be able to, like, meet employees where they are.
Zach Stein, Engineering Manager at Holt's Cigar Company:
Money has some importance but it's not everything, I think we all agree on that. But one thing that's kind of important is how you actually do the work of engineering. I've talked to a lot of candidates, and in addition to the culture and reasonable compensation, developers want tedious tasks of their day-to-day job to be automated away, they want management to emphasize continuous improvement in processes, whether that be how you ship your code, how you interact with each other. People are asking the classic 12 questions from Joel Spolsky, the founder of Stack Overflow: Do you use source control? How do you build your software? How quickly can you ship?
Yes, for example, when you hire a senior developer and offer him a growth opportunity to a team leader, he understands that he will get a new role in two years at that company. And a team leader is more expensive on the market, so for him, this is the best choice.
Salary is not the biggest motivation factor. Like they say: a good salary motivates but the best salary demotivates. So I think that those companies who treat their staff right, pay more attention to what every person values, to their key responsibilities, key goals, and ambitions, attract the best talents.
Q: And what about the opportunities for their career growth? Is it a good strategy for companies to invest in professional development and building career paths and career progressions for their employees?
For sure, for sure! The crisis is the best time to invest in your education and professional development. As you have your staff as the greatest capital, you have to educate and invest everything you have to make this capital grow faster and bigger.
Q: How a company can avoid overpaying for tech talent?
As a software engineer who has been involved in developing HR applications for a long, long time, I could say that assessment tools are an amazingly important thing that you should use when you're hiring new people. So, when you hire staff from the market, it's like you're buying a cat in a big black bag. You never know what's inside. You can have his resume and see that he’s had big experience in Twitter or in some other big companies, but we don't know what was the reason he was laid off from that company. So, you should use assessment tools and evaluate skills. This makes you able to compare different skills and reveal the skill gap, and then it will be clear to you which skills you should develop.
Q: How will tech layoffs influence the tech job market in 2023? What should we expect?
It's a hard question. To be honest, I have a feeling that we may be living in a bubble similar to 2000. So there is a big risk that everything goes down (and there are a lot of signs that indicate that may happen), in that case, the job markets will be completely destroyed. Anyway, I think salaries will keep going up. It's kind of inevitable because, even with the mass layoffs, let's not forget that there was a huge demand and huge deficits in tech workers. Now there will be a lot of people in the market filling those gaps. So the market will still be competitive, unless everything crashes.
We've seen one of the most employee-focused markets that has ever existed in the last few years. I do see in 2023 more of a balance between employee and employer when it comes to hiring. But I do agree with Fabio that tech salaries have been going up quite significantly in the last few years. I do think they'll keep going up but it's going to kind of level off a bit more, as again people continue to fight for talent but realize that you don't have to give a 20% raise to someone to get them in the door.
Previously, "growth at all costs" was kind of like the motive for a lot of companies. But I think that you're going to start to see a lot more companies right-sizing and being more cautious about their headcount in the future. So growth at all costs is probably not going to be a thing for a while.
In-house growth of developers will be a trend because most companies from Silicon Valley are overhired now, from 20 to 80%. And I think that the next step is a more attentive hiring strategy and transparent growth strategy for in-house developers.
How to mentor developers with AI?
According to a recent report on software development trends from Exploding Topics, the tech talent shortage continues to be a major issue for engineering managers, even in the face of layoffs. In fact, 86% of companies struggle to find and hire skilled tech professionals.
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