STANDING AT THE PRECIPICE

We are witnessing a tectonic shift in skills and talent. In January and February of 2023, tech layoffs have totaled 120,253 jobs from 424 different companies. They include companies as diverse as Google, Microsoft, Spotify, Lyft, Salesforce and so many more. Other than November 2022, which saw 52,135 workers downsized, that’s by far the largest number of layoffs since the middle of 2020.

The lofty valuations of tech stocks, crypto stocks, and even adjacent tech-driven industries like EVs, have finally been toppled. EV players Tesla, Lucid and Rivian have all had their value cut in half. Many observers predicted 2021 was the peak year of the tech hiring bubble and 2022 would be the year of the burst. They were right.

These forces are setting the stage for the most significant disruption since the dot-com bubble burst in 2000. Many of us technology fanatics have been saying that the current bull run is nothing like the dot-com era because this one has massive earnings and disruptive innovation behind it. We now need to admit we are starting to see more similarities than differences.

TECH SECTOR BUBBLE MEETS THE INFLATION TSUNAMI 

For the past decade, low interest rates pushed investors into riskier assets that offered higher returns. Those investors valued fast growth over profits and rewarded companies that took big risks. The tech sector was not prepared for a tsunami-scale increase in interest rates, which dramatically reduced the valuations of companies whose profits would arrive in some distant future fantasy. The discount rates that go into valuations increase with the interest rates.

In recent years, tech companies responded to the flood of cash from investors and a rapidly growing business by pouring money into hiring and expansion via sales and marketing, acquisitions and more. The excess capital drove companies to staff up, adding fuel to the war for talent. Increasing head count became a path for many managers to advance their careers.

At the same time, we predict that 2023 will be the beginning of a new age of innovation and the creation of a whole new generation of product and service innovations the likes of which we haven’t seen since the creation of the Internet.  The end of the “BIG TECH” monopolies will unleash a perfect storm that will drive many new and novel solutions over the next decade.

There is evidence of this all around us. Whether it is the implementation of the European Digital Market Act (proving once again there is no effective universal right to decide the source of your apps on your own devices even if Google and Apple disagree) or the emergence of distributed technologies, such as blockchain and automated ledgers with their ability to authenticate and decentralize information. The impact will be the return of at least some of the power of the large platform players like Amazon and Facebook to individuals.

Will all of this happen instantly or smoothly? We think not. At least not entirely.

But there’s another way of looking at all this change.  Even if most big tech and software execs are caught up in the free fall of their business valuations and all the noise about layoffs, under the surface of this story there are large combinatorial developments that you may not be able to see or point to directly, but which, when fused with other similar forces (like unexpected inflation), literally drive historical changes.

If you pull on that thread even a little bit, it’s not hard to see that the days of large tech company dominance are coming to an end. These shifts will put an end to the hijacking by the big technology companies of app developers who do not decide how, through what channels, or under what conditions they distribute their own products (at the risk of being excluded). This will generate a renewed flow of innovation and the creation of new products and services outside the constraints of the suffocating policies of the big tech gatekeepers.

created by Roger Lee, Layoffs.fyi

THE RISK OF IMPLEMENTING A 2015 STRATEGY BY 2030

How will these forces manifest in traditional (aka “old economy”) companies? The historic differences between so-called high technology companies and the remaining product and service businesses that utilize the innovations that tech-focused developers provide is fading away. In one form or another, every company is becoming a technology developer which is forcing businesses to re-think how they approach growth.

B2B hardware, services and equipment players have been trying to re-create the “platform” and similar business models the tech sector has enabled in the B2C world for quite some time, but the track record has been abysmal. It’s logical to assume that B2B companies will eventually learn how to build platform business models and data-driven ecosystems that generate high-margin recurring-revenue businesses and create distinct competitive advantages.

However, with the changes occurring in the tech sector that we are describing here, the biggest risk traditional B2B players face is attempting to implement a 2015 “big tech” strategy just as the dominance of the tech sector is shifting and the “rules” of tech-driven growth strategy are dramatically changing. Honestly, it will likely take the rest of this decade for most traditional B2B players to implement a poor facsimile of a vintage 2015 big tech platform or SaaS or similar strategy.

Relatively few people really understand how dramatically technology-driven solution development is changing and how these changes will impact both old economy and tech sector businesses.

When telephones first came into existence, all calls were routed through switchboards and had to be connected by a live operator. It was long ago forecast that if telephone traffic continued to grow in this way, soon everybody in the world would have to be a switchboard operator.  Of course, that has not happened, because automation was built into the systems to handle common tasks like connecting calls. We are quickly approaching analogous circumstances with the scale and diversity of application requirements users and customers want to address.

The emergence of low-code/no-code development tools and new generative AI development tools like ChatGPT underscores the significance of new automation tools for software development and how new app development capabilities combine with new deployment tools and cloud management technologies to force everyone in the industry to completely re-think software development.

These new tools represent a completely new approach to automating development and workflows – one where open-source software development tools and libraries are modular and interchangeable and where automation of software development and re-use of software components can be realized in a variety of flexible configurations.

Ultimately, all of this will drive a new software development model—including the fundamental notion that I need hundreds or thousands of over-priced “poets of code” working in my software business. Next-generation software tools will enable developers to build scalable software by allowing them to focus on business tasks, rather than worry about writing, piecing together, and maintaining fragmented code and building blocks. This will change the nature of the skills and capabilities businesses will require to development new solutions, change the recipes for hiring digital and tech talent as well as radically change the economics of developing digital offerings.

created by Roger Lee, Layoffs.fyi

OLD ECONOMY SEES A DIGITAL FUTURE

In the past, tech workers could quickly change jobs and land on their feet if they were cut because of the scale of tech sector hiring, but those days are over now. Where are all of these tech workers who are being laid off going? Are they transitioning to other industries and domains?  Many of these coders, engineers, data scientists, designers, and architects who started flocking to Silicon Valley around 2010 are now facing a very different job market. In a time of diminished tech prospects, higher costs of living, an economic slow-down and labor-market turbulence, big tech may be contracting, but as of now, the rest of the economy is still hiring.

Amid the drumbeat of layoff announcements, clever old economy companies and investors see an opportunity. They are quick to point out that well-known successes of the last decade — companies like Airbnb, Uber, Dropbox — were created in the aftermath of the Great Recession.

We believe that the current layoffs have created a great opportunity for traditional companies. By recruiting and hiring from the former ranks of the world’s leading digital companies, they can gain access to new talent in a less competitive market. This talent can help turn their stagnant business models into digitally-driven models and help them prepare for increasingly turbulent business environments.

Those who are laid off will likely find roles in industries like banking, retail, manufacturing, health care, public service and non-profits which are all undergoing the digitization of their operations. So, there are diverse opportunities, though they may require a bit of outside-the-box hunting and, in general, a reset in thinking regarding what’s included within the tech profession.

The recently dismissed employees offer a wide range of highly sought-after skills. Companies like Amazon and Twitter laid workers off with a wide range of digital skills, including artificial intelligence, automation, data science and machine learning. These skills can be migrated to new roles including:

• Analysis and optimization of customer buying behavior
• E-commerce and automated customer “self-service”
• AI-driven insights to improve sales efficiency
• Improving supply chain management, and more.

How should traditional companies be thinking about this opportunity?

• Clean up your image and sweep up talent
• Hire and train to create lasting domain-fluent talent
• Acquire struggling tech companies

CLEAN UP YOUR STALE B2B IMAGE

B2B and related brick-and-mortar companies have an image problem. Many tech-fluent young people view these companies as just about anything other than vital. This is probably an exaggeration. Technological advances are now changing traditional B2B players at an accelerating rate. AI and automation are becoming pervasive. Digitization has eliminated many of the bureaucratic tasks associated with older economy companies. But in the end B2B players need a makeover to be able to attract new talent.

Many tech employees are used to the spoils of the tech-hiring boom – free lunches, game rooms, unlimited time off and time to work on personal projects, among many others. Most of these perks will never come back, but B2B companies should take note. Perks such as hybrid working, flexible schedules, generous PTO, good health benefits and matching 401Ks matter a lot in attracting talent.

HIRE AND TRAIN TO CREATE LASTING DOMAIN-FLUENT TALENT

Old distinctions between white-collar workers, who did the thinking, and blue-collar workers, who did the doing, are outdated. Today’s workplace requires a fresh breed of new-collar workers who are constantly learning and possess the intelligence and knowhow to thrive in increasingly complex domains across the economy.

The term ‘new collar’ was first used to describe a new generation of staffing at high tech companies. These workers acquire their skills, knowledge and qualifications on the job, rather than through formal academics and degree programs. The concept was first developed by the head of IBM, Ginni Rometty, as she faced the challenge of hiring user interface designers and cloud computing technicians before those subjects were being taught at university. It requires a shift from recruiting based on degrees, to recruiting based on skills or the ability to acquire skills.

ACQUIRE STRUGGLING TECH COMPANIES 

This is also an opportune time for traditional organizations to acquire tech companies and buy assets at fire-sale prices, especially those firms that are struggling to raise funds to sustain operations. Some acquisitions can take the form of acquisitions to gain talent. Some start-ups possess patents that turn out to be valuable resources for the acquirer. Some start-ups have developed new business ideas or even created an upcoming brand but lack the financial and marketing muscle to launch them on a big scale. Companies can now acquire those valuable assets at discounted prices to unlock their value.

History has shown us time and again that downturns and challenging times create winners among those that capitalize on the opportunities and acquire the right assets, customers, talent, and competencies at the right prices.

ABOVE ALL, AVOID THE “SKY IS FALLING” MENTALITY

It’s easy to look at the sheer number of tech layoffs and think that they herald a massive economic recession. But it isn’t that simple. Tech companies’ values have been inflated for some time. Their staffs have been bloated and spending has been untethered. What we are witnessing is a course correction that will likely place other types of companies in more equal footing, including B2B product and services companies.

If you’ve been avoiding a digital transformation, now is the time to make moves. And for smaller, lean innovators, the path could be clearing for you to hire talent and compete in the market. ♦

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