Massive IT layoffs set the stage for a new startup boom

In recent months, hundreds of thousands of employees have lost their jobs at Google, Meta and other IT giants. Some, left without work, decide to create their own companies. Or promote their pet projects. Which lays a new foundation for the future of the entire industry.

Layoffs in 2022

For example, at the end of January, Google fired 12,000 employees. This is a huge figure, 6% of the total. The company was recruiting tens of thousands of new professionals in 2020 and 2021 as its business grew due to the boom caused by the pandemic. As a result, as the world began to recede and online advertising spending began to dwindle, Alphabet was forced to lay off the largest number of employees in its history. And so this year, without exception, all IT giants did it. The result is a sudden huge number of IT professionals out of work.

Wired tells the story of Henry Kirk, who was one of those unfortunate twelve thousand. He is used to working in large companies. But since Meta, Amazon and Microsoft and others are also cutting back now, I decided to try the startup atmosphere for the first time.

Kirk started his own company, and now he and six other people fired from Google are working on starting their own design studio. The advantage here was that there are a lot of laid-offs now, and it turned out to be surprisingly easy to recruit people for a new startup. Six months ago, no one would have even looked at some new studio that put up an ad. It would be necessary to either recruit employees with no experience, or offer salaries higher than Microsoft. Now – Henry Kirk just posted fast on LinkedIn. Where he told his story, talked about how he became unemployed, and invited the people to join his team or distribute his post to help the new company spin up.

As a result, this post received more than 15,000 responses in a few days. Kirk received more than a thousand messages, including those who wanted to work with him or try to organize something together.

Henry Kirk with his family, photo from his post

The team gave itself until the end of March to recruit a client base and try to set up some kind of office in San Francisco. Fortunately, prices for office real estate there are now much lower than in 2019. They say they are filled with energy and want to create something cool and big. So far, the beginning, Kirk says, is promising: they see that the public is not sitting in depression, there is still a lot of enthusiasm around IT, and people are ready to move on.

Harbor exit

Although, it would seem, it’s time for depression. According to the website, which monitors layoffs in the industry, for 2022 those. companies laid off at least 160,000 people. And here it must be taken into account that these are only open layoffs, which were reported and managed to be tracked. But this is half the trouble! In 2023, in just two months, another 108,000 people lost their jobs! If this trend continues, next year there will be no one left to fire! This January was a record one in the history of observations.

Even in the covid March-April 2020, when all companies were in a stupor and panic, this did not happen. According to the Layoffs charts, there were a lot of There are almost as many IT companies laying off their employees as they are now (mainly due to Airbnb, WeWork coworking spaces, hotel/air ticket booking startups, and so on). But the total number of laid-off people was two times lower. Plus, it only lasted a few months. And the current layoffs have been going on for the fourth quarter, and so far they are only gaining momentum.

Abbreviation charts by The blue column is the number of companies, the red column is the number of dismissed specialists

In the blink of an eye, the largest and most profitable tech companies, known for their high salaries and generous benefits, have become extremely dangerous places to work. Google, Microsoft, Amazon and others have been considered a safe haven in which to weather any storm for 20 years. Now, hundreds of thousands of IT people have to suddenly look for work, competing with each other in the absence of any other companies ready to accept them in such numbers.

Well, the salvation of the drowning is the work of the drowning themselves.

Under new sail

The advantage for the dismissed IT people is that they received good compensation. At the same Google, laid-off employees are given their salary for 4 months, plus another monthly salary for every two years of work for the company. As a result, for many, the amount came out to several hundred thousand dollars (and even for beginners, at least several tens of thousands). Which is quite enough to try to create your own small business, applying the knowledge that you have.

Kirk is part of a large stratum of workers who have decided to try something new. Instead of trying to find other positions in the IT giants, and then again fall under a wave of layoffs at any time, they decided to become their own bosses. In Linkedin and WhatsApp groups, you can often see conversations that they can now finally give in to creativity, turn on their muse and do what they want. At least another plus or minus six months, until the money runs out.

Some of these startups will inevitably take off. And investors are now looking at these sprouts with hungry eyes. For them, this may turn out to be a better choice than the same IT giants, whose shares are unlikely to ever fly into space again. For the past two years, they either stagnate or fall, so some large investment funds even tried happiness with cryptocurrencies. But it will be cheaper to invest in a number of these new projects, and the potential profit may be higher. Especially if these projects show that they can survive a recession.

Venture capital sits with a record amount cash. They were taken out of both stocks and cryptocurrencies. At best, by investing in American bonds, which are now showing records of profitability. But they are waiting for someone to show that they are really capable of something ..

So far, new startups have had too little time to somehow establish themselves. And many, expectedly, follow the trends, trying to raise capital with catchy words and big promises. If in 2013 it was a “smart juicer” and “smart toaster”, now it is a “smart chatbot”. For business, for banks, for online stores, for HR, for applications., Kasisto, Inbenta, Espressive, Pypestream, Ushur, Mezi, Leena, and dozens of others.

Y Combinator startup accelerator applications grew by 20% last year, reaching 38,000. And the number of applications in January of this year was five times higher than last January. And this is the last wave from Google has not come!

At the same time, the terms for obtaining investments have increased. New companies are much more scrutinized. The deafening failures of WeWork and Theranos, which cost investors tens of billions, are still fresh in memory. Draw a few slides, choose a high-profile name and go to collect money – it doesn’t work anymore. However, this does not stop the optimistic founders of the new generation, who are better acquainted with the technical, and not with the financial side of the issue.

In the open sea

These new founders are entering an unreliable market. The cost of new startups fell twice. The number of new unicorns has also been greatly reduced: the last year for them was the worst since 2010. As interest rates at the Fed. the reserves are growing, and the shares of IT giants are falling, venture capitalists are more carefully managing their free funds. By data Crunchbase, by the end of 2022, funding for seed stage startups was down 35% year-over-year. And recent layoffs have spawned even more new companies looking for funds.

Experts often openly refer to the current global financial climate recession. Like it or not – so far it is difficult to judge. But historically, recessions and other hard times are exactly what spawned a whole series of startups that changed the world. Google was launched in 1998, shortly before the dot-com crash. Airbnb started in 2007; Slack, WhatsApp and Square in 2009.

All four new founders, who have spoken with Wired reporters, describe the stresses of developing new skills, such as pitching and fundraising, that were not previously part of their tech and industry experience. The workload for a new entrepreneur can be unforgiving.

“It’s very tedious,” says Zheng Zhu, founder of Maida AI, a startup that automates healthcare administrative tasks. “It’s very hard to let go. There is always something important. You are so attached to results and to moving your company forward that there is no time for yourself or your personal life.

Zhu’s company is one of seven startups that received $100,000 each from Day One Ventures. They became participants in a special program where applications were accepted only from recently fired founders. These seven founders won out of over 1200 applicants.

Even those who were not formally fired seized the moment to try starting something of their own. Nish Junankar, former platform software engineer for OpenSea and Squarespace, says he left OpenSea after cuts some other members of his team. He was offered a substantial stake in order to keep him, but he realized that after such massive layoffs, he alone would have much more work to do. Instead, he decided to leave and pursue his long-standing idea to launch Feasiera site that brings together furniture listings from different stores in one place.

So far, Junankara’s startup has been running on funding from his friends and family, but he’s also gone to meetings with investors a few times. “It’s incredibly stressful,” he writes. “Meetings are very short and you have to be ready and on site. You only have a few minutes to get them interested in your presentation.”

But so far, six months later, his enthusiasm and fuse have not cooled down. He himself develops the product, writes the code, and communicates with various funds, trying to find funds to expand his startup. It takes a lot of energy, but he believes in himself. And, he says, he feels better than when he worked in the office at OpenSea, wondering if he will be next with things to go out, as happened with hundreds of his colleagues.

Whether all this will burn out – we will find out in 3-5 years. But for now, time in the industry promises to be very interesting.

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