Consider all the reasons you might have to reduce headcount in an economic downturn:
You rely on venture capital to survive which is no longer as easy to get, so you simply can’t afford to pay your staff.
You’ve started making a loss, so you need to fire people to get back to profitability.
You have low cash reserves, so need to reduce operating costs to give you more of a runway if things go wrong.
There’s reduced demand for your services so no need for as much staff.
Business propositions which were marginally worthwhile in the past are no longer positive expected value.
So consider Meta:
It’s a super profitable company (made 4 billion dollars last quarter).
It’s got 40 billion dollars in cash reserves—enough to keep the lights on for 6 months even if income dropped to zero.
It’s usage hasn’t significantly changed, and demand for advertising certainly hasn’t dropped enough to lay off more than 10% of it’s workforce.
The employees who were layed off don’t seem to be exclusively layed off from sectors which only make sense to invest in in an upturn. E.g. Eric Lippert was laid off, and his team worked on internal tooling to improve software development at Meta. Whether that’s a good idea or not seems independent of the economic headwinds.
Also laying off staff has enourmous costs. Meta is paying extremely generous packages to laid off employees (16 weeks of pay, plus 2 for every year working at meta, and 6 months health insurance). It also strongly demotivates people who weren’t fired and makes it harder to recruit in the future. Finally, since fired employees aren’t usually given a chance to handover, it leaves their colleagues scrambling to take over their roles.
My best guess is that actually the layoffs have nothing directly to do with the economic downturn. Among any big company’s investors there’s those who want it to stay lean, and those who want it to expand. When Meta posts poor financial results (even if they have more to do with the state of the economy than whether Meta’s business decisions were any good), that shifts more firepower towards those who want to slim things down, and so Meta is forced to make cuts.
[Question] Why are profitable companies laying off staff?
Consider all the reasons you might have to reduce headcount in an economic downturn:
You rely on venture capital to survive which is no longer as easy to get, so you simply can’t afford to pay your staff.
You’ve started making a loss, so you need to fire people to get back to profitability.
You have low cash reserves, so need to reduce operating costs to give you more of a runway if things go wrong.
There’s reduced demand for your services so no need for as much staff.
Business propositions which were marginally worthwhile in the past are no longer positive expected value.
So consider Meta:
It’s a super profitable company (made 4 billion dollars last quarter).
It’s got 40 billion dollars in cash reserves—enough to keep the lights on for 6 months even if income dropped to zero.
It’s usage hasn’t significantly changed, and demand for advertising certainly hasn’t dropped enough to lay off more than 10% of it’s workforce.
The employees who were layed off don’t seem to be exclusively layed off from sectors which only make sense to invest in in an upturn. E.g. Eric Lippert was laid off, and his team worked on internal tooling to improve software development at Meta. Whether that’s a good idea or not seems independent of the economic headwinds.
Also laying off staff has enourmous costs. Meta is paying extremely generous packages to laid off employees (16 weeks of pay, plus 2 for every year working at meta, and 6 months health insurance). It also strongly demotivates people who weren’t fired and makes it harder to recruit in the future. Finally, since fired employees aren’t usually given a chance to handover, it leaves their colleagues scrambling to take over their roles.
My best guess is that actually the layoffs have nothing directly to do with the economic downturn. Among any big company’s investors there’s those who want it to stay lean, and those who want it to expand. When Meta posts poor financial results (even if they have more to do with the state of the economy than whether Meta’s business decisions were any good), that shifts more firepower towards those who want to slim things down, and so Meta is forced to make cuts.