As startup layoffs continue, some perspective
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According to Layoffs.fyi, a layoff tracker, more than 16,000 tech workers lost their jobs in May, and June is off to an equally brutal start. TechCrunch Senior Journalist Amanda Silberling and I accidentally, and sadly, started working on a weekly column about tech layoffs; what started as a tipping point at Thrasio quickly spread to startups, regardless of sector, funding stage or whether they had obvious growth tensions or not.
As layoffs continue, it may sound like the same standard story: number of people affected, roles or teams that have been reduced, details of severance pay, and a vaguely generic statement from the CEO citing the turmoil of the market as the main reason for the reduction. That doesn’t mean they’re any less newsworthy, but I’m always curious about follow-up story opportunities. So, I asked you all for some perspective, what else to ask for and include in these stories.
From Jennifer Neundorfer: I would like to see a follow up article with data on where the laid off people go next. Are specific companies/industries picking them up? Are some start-ups? Something completely different?
This question immediately made me think of the talent opportunity that emerged in early 2020 when unicorns laid off a large portion of staff in anticipation of the pandemic. Then I wrote a story about how startups were hiring groups of employees who were laid off, otherwise known as a not-so-new acquisition strategy. At one point, the majority of online mortgage company Stavvy was full of former toasters affected by the 50% reduction in restaurant tech staff.
Beyond the rise of acquired employment, I think we will see the emergence of traditional scholarships that will help people who have recently been made redundant to embark on entrepreneurship. Neundorfer’s company, January Ventures, has launched a program similar to Cleo Capital’s, which gives capital to aspiring founders to get them started.
The key here is that layoffs make people more risk averse, especially based on their socioeconomic background. That combined with the fact that Big Tech is on a hiring freeze, I don’t know what happens when a wave of people lose their jobs in a mixed-message hiring market.
But, if anyone has the data to answer this question, please send it!
From Anna Rasby-Safronova: Did those who were laid off see it coming, and how do layoffs affect the mental health, anxiety, and productivity of the rest of the team?
I’ve now spoken to dozens upon dozens of former and current employees at struggling startups, and the reaction to the layoffs has largely sounded like a whiplash for those affected.
The reason? The difference between layoffs in 2022 and 2020 is that many companies laying off today are well capitalized, named unicorns just a year ago. In 2020, the cuts could easily be attributed to an unprecedented pandemic that has complicated growth plans; while in 2022 the cuts come just after executives boasted of insane growth a few months earlier. Add to the fact that people are still being laid off in questionable ways — from severance payments appearing on the payroll to endless memos — and I can’t imagine these cuts not having an aggressive impact on internal and external morale.
International workers face additional complexities when laid off, as job loss can change visa status. Even as companies lay down spreadsheets or resume support, the increased volatility could mean talented workers are forced to leave the United States altogether to pursue a better life elsewhere. These are stories that we strive to tell but are sensitive for obvious reasons.
From Metro Luke: What fraction of the company’s employees have been hired in the past 1-2 years? I wonder how many layoff companies did massive hiring during the foam of 2021?
The reason this question is important is that it colors the way a layoff has been designed; and whether it only affects newer members, newer products, or everyone from executives to newbie recruits. If it’s the latter, it may suggest that a startup has deep-seated issues that require a massive reorganization of its resources. If a downsizing largely affects people hired in the past year, it could mean the startup needs to scale back some of its more experimental work and get back to where it’s already fit for the product market. Thanks for the tip, I’ll start asking about it!
In the rest of this newsletter, we will talk about multiplayer fintech and the world of grocery delivery. As always, you can support me by forwarding this newsletter to a friend or follow me on twitter or by subscribing to my blog. As a programming note, I’m on vacation next week, so expect an abridged Startups Weekly column, again from yours truly, but with support from Henry PickavetRichard Dal Porto and the rest of the team.
Offer of the week
A Santa Monica-based startup, Ivella wants to create banking products for couples to eliminate financial stress. CEO and co-founder Kahlil Lalji is launching a shared account product that just raised $3.5 million in funding from Anthemis, Financial Venture Studio, and Soma Capital. Other investors include Y Combinator, DoNotPay CEO Joshua Browder and Gumroad CEO Sahil Lavingia.
Here’s why it’s important: The best solution, so far, for multiplayer fintech has been joint accounts: which means two people will create an account where they – sing it with me now – join their accounts and draw from the same pool. Instead, Lalji wants to create a shared account: couples manage individual accounts and balances, but get an Ivella debit card linked to those two accounts.
With this shared card, couples can set ratios — perhaps pro-rated the percentage of each bill someone pays based on their income — and Ivella will automatically split any transactions made using the debit card. Ivella. That in itself was the biggest technical challenge Ivella faced in her early days, Lalji describes:
“The place where a lot of people fail, just like a lot of fintech fails, is that they don’t break the mold of what banking looks like,” Lalji said. “And because we’re specifically focused on couples, we want to create a product that doesn’t feel so sterile and not just like a bank.”
Delivery market drops from pandemic highs
Our own Kyle Wiggers wrote about the end of the pandemic period of rapid growth in the on-demand delivery market. As he notes, there are signs of a correction, including Instacart’s reduced valuation, the fluctuating share price of DoorDash and Deliveroo, and Gorillas, Getir, Zapp and Gopuff making layoffs while others like Fridge No More and 1520 have closed completely.
Here’s why it’s important: As I told Wiggers on Slack, the lack of profitability of the on-demand delivery market is often talked about in a “it’s so obvious” way and in broad strokes. This article got to the heart of why grocery delivery is so expensive and the more specific challenges that startups face in this market.
Here’s what Jeff Fluhr, partner and co-founder of Craft Ventures, the former CEO of StubHub, told TechCrunch; despite the fact that Craft has invested in a number of delivery companies:
“The fast-delivery space is the epitome of 2021 exuberance: Investors were pouring money into cash-hungry companies with fragile business models,” he told TechCrunch in an interview by e. -mail. “Quick delivery companies are capital-intensive. They need local infrastructure, local people and local operations that are expensive to build. As a result, all of these companies have been incinerating boatloads of silver over the past 12 to 24 months as they expand into new geographic markets. Of course, consumers love the instant gratification of a pint of ice cream in 15 minutes, so revenue grew rapidly, thanks to a great consumer experience and word-of-mouth virality. Investors followed the growth without paying attention to the potential for profitability. But the idea that a startup can profitably deliver on that promise is a pipe dream.
All week long
Seen on TechCrunch
Seen on TechCrunch+
Until next time,