MASS LAYOFFS: Ever since the end of 2022,
we’ve seen mass layoffs across big tech. Google laid off 12,000, Meta laid off 21,000,
Microsoft laid off 10s of thousands, and Amazon laid off tens of thousands. After this initial
round of layoffs though, it seemed that things were finally cooling down. Fundamentals started
to recover, stock prices started to recover, and layoffs became less common. But 2024 has seen
a resurgence of fear. Layoffs, entire positions being eliminated, performance improvement plans,
bonus cuts, and rampant firings. All of this would make perfect sense if companies were
sinking into unprofitability, we were facing a massive recession, and the stock market was
tanking. This is very much the case within the VC, so it’s no wonder that startups are cutting left
and right. But zooming out to the rest of the market, despite all the media headlines talking
about some sort of massive recession, we haven’t exactly seen that, especially when it comes to
big tech. In fact, at big tech, it’s the exact opposite. Microsoft has hit an all time high,
Apple has hit an all time high, Meta has hit an all time, and Google and Amazon have recovered
extremely well. And don’t even get me started on Nvidia. They’ve literally gained a trillion
dollars in market cap during supposedly one of the worst tech recessions in recent history. And it’s
not just stock prices that have continued to go up. Fundamentally speaking, these companies are
also crushing it. Microsoft for example is posting record revenue and profits. It’s the same thing
with Nvidia and the rest of big tech isn’t far behind. But if things are actually quite rosy,
why have we seen hundreds of thousands of tech workers being laid off and massive cost cutting
efforts? Well, I would argue that this has less to do with a fundamental need to cut costs and
more to do with the vanilla CEOs that run these companies trying to please shareholders. And while
this might seem like a good idea in the short term, this sort of behavior is what eventually
kills giants. So here’s the truth about what happens next and the problem with vanilla CEOs.
VANILLA CEOS: I think we all know what a vanilla CEO is.
Someone who runs a company not with the intention of serving customers or making a difference or
building a community or any of that, but rather with the sole intention of pleasing shareholders.
They’ll avoid all controversies, never take a stance on anything, never take too much risk,
and they’ll always do exactly what the market asks them to. When the market is strong and optimistic,
they’ll hire left and right and invest in all of the cool new technologies to show investors that
they’re still growing and innovating. But, the second that investor sentiment changes,
they’ll be the first to change tunes. They won’t hesitate to cut back on moonshot ideas
with no revenue potential. They won’t hesitate to cut back perks and institute a cutthroat work
environment. And they definitely won’t hesitate to cut as many jobs as it takes. This sort of
braindead follower mindset is what led us to the current situation, and if you don’t believe me,
just take a look at the numbers. Between 2012 and 2022, Meta’s employee count went from 4,600 to
86,000. Google’s employee count went from 50,000 to nearly 200,000. And Amazon’s employee count
went from 88,000 to 1.6 million. The only 2 big tech companies that haven’t seen a stupid rise in
employee count is Apple and Nvidia. And wouldn’t you know, these are the only 2 big tech companies
that have yet to conduct mass layoffs. Ironically, Nvidia has by far the lowest employee count of any
of these companies standing at just 26,000. Yet, they’re also the ones that are working
on the most bleeding edge technology with the most explosive stock growth. How you ask? Well,
Jensen Huang is not a vanilla CEO. Leading Nvidia for the past 30 years, he’s seen massive booms and
busts and he didn’t fall for the tech hiring hype. Neither did Tim Cook despite arguably
being the most vanilla CEO. Ever since he took over in 2011, he’s been tapering hiring just as
all these other maturing companies should’ve. So, why didn’t they? Well, if you ask them directly,
they’ll say something along the lines of miscalcluating growth. But, it doesn’t
take a genius to realize that 86,000 employees is way overkill to run 3 already established
social media platforms. And something else to note is that while people like Mark Zuckerberg,
Sundar Pichai, Satya Nadella, and Andy Jassy are arguably vanilla CEOs, they are also geniuses. So,
why did they do it? Well, half of it was to create a facade of infinite growth for investors. The
other half was to monopolize engineering talent. You see, when you reach the absolute top where you
operate the biggest platforms, have already bought out all the competition, and dominate the market,
what you should do next becomes a lot less clear. Of course, you can do a hail mary with
the Metaverse like Zuckerberg did, but the more obvious choice is to start buying insurance. How
do you do that? Well, by hiring everyone that you think is talented. It doesn't matter if you don’t
have a role for them or don’t even need their skills. As long as you’re able to prevent up
and coming competitors from hiring them by hiring them yourself, that’s a win. This is the mindset
that much of big tech operated with for much of the late 2010s and especially 2020 and 2021. And
it’s why they had such stupidly high employee counts. VC backed startups would fight back by
raising ridiculous amounts of money often in the hundreds of millions if not billions to
hand out massive compensation themselves. But then interest rates started to rise. Interest
rates rising really didn’t do anything to cash rich big tech companies, but it annihilated
the VC space. Suddenly, hundreds of unicorns would start doing mass layoffs and even filing
for bankruptcy. In the meantime, nothing really happened to big tech, but they no longer needed
to spend billions every year on this insurance policy against underdogs. So, they would begin
slashing jobs left and right and cutting expenses everywhere, leading us to where we are today.
WHAT HAPPENS NEXT?: Likely the biggest red
flag about this overhiring and layoff spree is the fundamentals behind it. As we discussed,
very little of it actually had to do with helping these companies grow to the next level or saving
them from doom. Almost all of it was just a byproduct of playing business and shareholder
politics which raises a lot of concerns regarding what these leaders are actually focused on. Are
they actually interested in creating a better YouTube, a better Windows, a better Amazon,
and a better iPhone? Or do they just care about the stock price? Well, all of their actions thus
far very much suggest the latter. And the most ironic part about all of this is that the best
way to boost stock growth over the long term is by focusing on the product. But a lot of these guys
have gotten hung up trying to maximize stock price on a quarter to quarter basis. And the sad part is
that this sort of mindset is what kills giants permanently as was the case with Cisco. In 1990,
VC investors would stage a coux on Cisco’s founding couple. They would fire the wife and the
husband would resign in solidarity. From there, investors would give an MBA businessman named
John Morgridge full reins to the company and take Cisco public. Do you wanna guess what happened to
Cisco over the next 10 years? Well, Cisco went to moon. The stock would grow 1100X and Cisco would
become the most valuable company in the world with a market cap of over $500 billion. Clearly,
the founders’ innovations, which they stole from Stanford, took Cisco extremely far. But,
do you wanna guess what happened to Cisco after this initial momentum wore off? Well,
the stock would crash 85% and never recover, and it’s been 24 years. A similar story could be told
about Intel. In 2005, Intel would appoint Paul Otellini as their new CEO. Paul was Intel’s first
CEO that wasn’t an engineer. He was actually a sales guy. Over the next 20 years, AMD and
Nvidia would go vertical growing 100s of fold. Intel on the other hand, is still not even able
to beat their dotcom high despite insane amounts of inflation. The same thing can be said about
IBM and AT&T and GE and all of the other dotcom giants. While most of them are still quite big,
they’re a shell of their former selves, and many of them are just living off their former glory.
The type of people that work at these companies has also largely shifted. Back in the 1990s,
Cisco and Intel were some of the most prestigious companies that you could work for. They paid the
highest salaries, attracted the best talent, and were on the bleeding of innovation similar
to FAANG companies throughout the 2010s. But, today, these companies are largely filled with
entrenched workforces who are only loyal to the paycheck as they should be because
these companies are only loyal to the bottom line and stock prices. For the longest time,
it seemed that FAANG was different. That they actaully cared about their employees and creating
a great work environment and that’s because they did. But, the thing to note is that so did Intel
and Cisco and IBM and GE and basically any other company that ever got big. The only
reason they were able to get so big was because they had a strong and passionate workforce,
but that eventually changes. Eventually, things become politcized and it becomes all about the
numbers, and the people who make it this way are usually vanilla CEOs who are dangerously loyal
to investors. This is precisely the transition that FAANG is currently going through and it’s
already making a difference. The smartest engineers have already left to join smaller
companies where they have more scope or start their companies. And as for generation Z? Well,
they’re entering the workforce seeing mass layoffs and these companies cutting costs every way
possible, and this will permanently shape how they view FAANG which brings us to the inevitable end.
THE INEVITABLE END: All of this may have seem
a bit abrupt from an outside perspective, but this was always an inevitability, and no one knows this
better than the founders of these companies. Take Larry Page and Sergey Brin for example,
the founders of Google. Way back in 2014 and 2015, they realized that Google was
heading in the direction of becoming a soulless corporation. That’s why Larry Page wanted to
refocus the company’s efforts into engineering and focus on things like Google Glass and self
driving cars that could help take the company to the next level. But, shareholders weren’t exactly
a fan of Larry’s approach. They would paint him as some sort of disconnected billionaire who wasn’t
focused on financial growth. He tried to resist them for a few years but eventually in 2015,
he would throw in the towel and give investors exactly what they wanted: A CEO that would put
investors first. At least with Larry Page, his views on Google’s direction were more subtle
and you had to read between the lines to see what he really thought. Jeff Bezos on he other hand is
way more direct. As you can see, the fall of these companies is not a matter of if but simply when.
And the more that these companies get distracted away from their core products and services that
made them successful, and the more they focus on pandering to investors and doing stupid stuff like
overhiring and then laying off everyone, the closer that date becomes. This isn’t to say
that any of these companies are going to file for bankruptcy in 2 years or something. But the power,
control, and influence that these companies enjoy over this next wave is likely the most
that they’ll ever enjoy. After that, they’ll enter the much less glamorous phases of stagnation and
eventually demise. And now that everyone is laid off and these companies have shown
their true faces, that's what happens next. Another massive hurdle that these companies
are gonna have to address is the issue of market saturation. Check out this video to learn more.