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Tech layoffs show why managing growth can be so tricky for companies

Stephanie Hughes Nov 9, 2022
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Justin Sullivan/Getty Images

Tech layoffs show why managing growth can be so tricky for companies

Stephanie Hughes Nov 9, 2022
Heard on:
Justin Sullivan/Getty Images
HTML EMBED:
COPY

Mark Zuckerberg, CEO of Meta, née Facebook, said in a letter to employees today that the company’s cutting 11,000 jobs. That’s about 13% of its workforce. ​Zuckerberg said he’d made a wrong prediction: that the big increase in revenue growth that started at the beginning of the pandemic would continue. It hasn’t.

Other tech companies that have laid people off recently have also said they’ve grown too fast, including the fintech company Stripe and the cloud software company Twilio. So, in a country and an economy that’s focused on, well, more, is it possible to grow in a way that doesn’t eventually lead to cutting back?

When a company starts out, it generally knows what it’s selling and who will buy it. This is what people in the business world call product market fit. 

“But as you grow, that product market fit starts getting diluted, said Sunil Gupta at Harvard Business School. “Because you get a different set of customers, marginal customers who are not right in the bullseye.”

Gupta pointed to Starbucks, which opened a lot of stores really quickly in the 90s. 

“There were jokes going around that time that the new Starbucks opened in the bathroom of the old Starbucks,” he said. “By doing that, you’re just serving very different kinds of customers, and you had some customers who want to lounge around and sit down and there were some who wanted to be in a hurry.”

And that’s with coffee. When you’re a fast-growing tech firm, it can be hard to find the right talent and enough people to make the new product for the new customers. 

“Companies have struggled with this,” said Anat Lechner at NYU’s Stern School of Business. “They’ve struggled with identifying, you know, what part of the opportunity pie shell they go after, they struggled with finding the right talent for that, they struggled with onboarding people.”

And Lechner said there’s pressure from shareholders to do all this quickly.

“That FOMO, right, the fear of missing out was behind that type [of] decision,” she said.

While some employees will face a high-pressure timeline to secure a new visa in order to remain in the U.S., it’s possible others will find a moment of opportunity.

Some of those 11,000 people laid off at Meta might become entrepreneurs in their own right, said Sarah Kunst, Managing Director of the venture capital fund Cleo Capital.

“You have thousands and thousands of people who are perfectly happy inside of their well paying highly skilled tech jobs, who now all of a sudden, you know, are faced with a pretty big array of choices, right?” she said.

Like … do they start a chain of coffee shops or a fast-growing tech company of their own?

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