Once seemingly unstoppable, Big Tech is now in reset mode.
We’re not talking about Snap’s earnings sending its stock plunging, or Twitter’s lackluster earnings report from earlier this morning. No, we’re talking about Big Tech. The world’s largest tech companies are pulling back in a way that could, perhaps, clear some brush for startups still making their way through the wild (the private markets) toward the promised land (the public markets).
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This is good news for smaller companies, which were long irked at the sheer amount of cash the Googles and Microsofts of the world could throw at potential hires, some of whom came from smaller, more financially constrained startups.
But as with most good news, there’s a catch.
There’s a competing trend that might make whatever laxity the talent market finds less useful than we might think initially. Let’s talk about it.
What comes after a hiring freeze?
The famous line from “The Sun Also Rises” about going broke slowly and then all at once is somewhat fitting in today’s context. Why? Because we have seen companies slow hiring and then pivot to more extreme measures rather abruptly.
Coinbase was an early example of this. The formerly high-flying crypto marketplace went from hiring like mad, to slowing hiring, to freezing hiring and pulling offers to layoffs so quickly our heads are still spinning.
But that was perhaps mere prelude to the hiring changes we’re seeing at large tech firms, which have employee bases that are magnitudes larger.
Observe:
- In May, Facebook announced a hiring slowdown citing growth concerns and in July began trimming peripheral staff.
- Also in May, Amazon detailed a slowdown in its own pace of hiring.
- Once again in May, Microsoft announced that it was slowing hiring and recently started removing some job openings.
- Google announced in July that it would pause hiring for a few weeks after previously disclosing a slowdown internally.
- Also in July, Apple was reported to be slowing hiring and stopping backfilling some roles.
That’s all of the Big Five slowing or stopping hiring altogether. This should be great news for startups — after all, they raise external capital and then use that money to boost spend (burn) through higher capex and opex. The opex portion of that increased spending mostly just goes into the staffing budget. So, as startups continue to raise more capital than any year except 2021, we can expect that some of them are positioned well enough to take advantage of a softening labor market.
Yes, but, as we like to say. Sadly, the very macroeconomic factors impacting big tech are also likely to hurt startups. No one can dodge a recession — a falling tide lowers all boats. So while the labor market is improving for startups in theory, it is doing so against a backdrop of economic uncertainty and a general vibe from venture investors that startups should limit burn for the foreseeable future.
So is this not really a boon for startups? To some extent it is. There are still startups in the market today that have ample capital left over from the 2021 funding bonanza and are seeing the sort of growth that venture investors covet. For those companies, the weaker labor market is a gift — it’s a great time to be a well-capitalized startup solving a real problem as the shift to the cloud continues, and it becomes easier to find the staff needed to capitalize on it.
The feast-or-famine aspect of the current venture capital market may be even more extreme than we thought at first. If the startups feasting can also take advantage of a tech labor market that is suddenly more favorable, they may be able to get more human capital for their financial capital than they anticipated. And who doesn’t love a deal?
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