I’ve worked at a number of Silicon Valley startups and also mature major tech companies and there is one thing I’ve learned over those years – layoffs at a high tech company are the start of slow, sometimes fast, decline of that company. Pure investors have zero understanding of how a high tech company differs from a mature low tech company, where perhaps cost-cutting may work.
The only real asset a high tech company has is its people, that’s what defines high tech. Nothing Twitter has cannot be easily duplicated by someone else; Facebook could build the equivalent of Twitter is a brief hackathon, it’s not that hard. A user base can evaporate overnight, ask MySpace about that. Advertisers will abandon a sinking ship. The premium content suppliers will find another social media site for their PR. Most high tech, but especially a pure net play like Twitter is built out of air, few real assets, little proprietary technology, few special strangleholds on markets.
When employees are laid off the remaining employees now know their world is different. They may still have their jobs but for how long. Headhunters will be swarming all the remaining employees with offers. Often, especially the first layoff, is a chance for a little housecleaning, can a few employees that their peers know aren’t pulling their weight. But the high performing employees, who have the most choices, will also start to bail. Soon the company will be left with the middle performers and few, if any, stars. Not exactly the workforce you need for high tech. And the remaining employees will have to pick up the slack from the departed ones; I’ve seen this over and over – workers go, work remains, i.e. more work per remaining person. Some of the middle skill workers will decide that’s too much trouble and find someplace to go.
But the real thrill will be recruiting. Who’s going to leave a job to join a sinking ship? Twitter is public now, no good deal founder’s stock options and there are plenty of choices where founder’s stock is available, plenty of other fresh startups with their new idea and enthusiasm and promises of instant wealth. Why would any good candidate take a job at a failed startup when they have other choices. Silicon Valley companies are offering insane perqs as sign-on bonuses (never saw anything like that in my day but these are the times). Who would turn down a glamour well funded, pre-public startup with all sorts of bonuses for a declining has-been.
But of course the stock market thinks employees are just wage slaves and minimizing the cost of these leeches is entirely appropriate in the world of outsourcing (my old colleagues at EMC are surely sweating the Dell deal for exactly the same reason – private equity owners are scavengers, not builders).
And what problem do a few layoffs solve. Twitter’s problem is its business model. Its user growth has stalled because, let’s face it, there isn’t much there-there at Twitter. Maybe seeing videos of Arab Spring is cool, but does it pay (do advertisers want to slap luxury goods ads on scenes of violence?). Sure, Twitter is now shoving ads down their users’ throats, like all the other social media companies, but do increasingly more conscious of bandwidth cost (no unlimited free access any more) want to see most of the byte count in ads to get a, usually, worthless 140 character message? How much can Twitter soak the users they’ve got (aka monetarize them) before they start getting wholesale abandonment. And let’s not forget that social media is a critical mass situation, if your friends leave Twitter for somewhere else, you follow them.
Now perhaps the Twitter employees have grown complacent and spoiled and need a kick in the pants, about the only good thing about layoffs. The lazy days are over, knuckle down and start producing. But I’ve also seen that same pressure just turn into massive infighting – the employees who think they’re the producers attack those they think are the laggards. Decisions get harder to make because the threat of layoffs lingers off everything (your project gets cancelled, you’re on the list of the next layoff, so you fight for a loser project just to save your job). People get vicious in these morale-destroying situations. You think you’re overworked, now doing two people’s jobs – you’re going to be critical of those that appear to have it easy. Positive attitude, the optimism necessary to get a startup going, dies fast with layoffs and cost-cutting. Tiny, almost irrelevant perqs are now a source of endless dysfunctional bitching.
Few mature high tech companies survive the adverse effects of layoffs, but a company that is already losing money with a declining stock price, nope, everyone at Twitter is now looking around for other options. And so soon the investors, that always believe cost-cutting is good, will be holding an empty shell, where the real asset of the business, its people, are already down the street making some other investor money.
As the old song goes: Twitter I hardly knew ye.