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Crunch time on tech layoffs

2023-03-04T12:29:36.604Z


Companies in the sector thought that growth and profits were unlimited. But funding was cut off and a crisis began that is not over yet.


The economic panorama and the accelerated growth of the sector in the last two years, going through the Covid-19 pandemic (and because of it due to the acceleration of the development of projects that fostered a bubble), created the perfect storm in an industry

that seemed immune to this type of labor movement

, but which today demonstrates its fragility after the dismissals announced in various companies in the sector, including companies that seemed untouchable.

Many technology companies

have grown strongly in the last two years

due to the health restrictions caused by the Covid-19 pandemic, with strong capital injections and aggressive expansion, such is the case of digital entertainment companies that exploded due to the increase in the stay at home, e-commerce, which grew hand in hand with internet sales to avoid social contact or fintechs whose operations benefited from contactless payments and the delay of banks in their digitization.

In order to respond to the high temporary demand,

many of these companies expanded organically and inorganically

;

investing both in development and in human capital, without measuring a key factor: real profitability.

Few could see that the demand curve for resources was flattening for a long time because this unbridled rage was not possible to sustain without a solid and verified business model.

There were many factors that caused this blow to technology-based companies, although they all lead to the same cause:

the cut in financing

.

From now on, the world economic scenario went against the model: on the one hand, the war in Ukraine forced all economic forecasts to adapt to the new reality, while the deep and rapid rise in interest rates in the United States and many other countries to try to control the historical increase in the cost of living made credit more expensive, ending the era of cheap money to which companies and high-risk investors had access.

Enthused by the promise of unprecedented growth,

they were ruthless in recruiting talent, setting up publicity and garnishing projects with huge budgets

to seek to reach the first in each category, speculating that they would improve results, not counting with the definitions of the business, the maturity and the structure of the team that goes beyond the technical issue.

Thus, the performance of a team without taking into account these considerations is erratic, and the arrival of the financial winter ended the chaos: laying off staff was one of the consequences, but not the only one.

The correction is also reflected in

the decrease in investment in advertising, which reaches 50% or more, and from there drops to the entire chain

.

Because

what the money from endless financing did was make up these conceptual errors

from the business and allowed it to move forward without too many questions, but when the available money was limited, something that nobody focused on became evident: the potential profitability of a company and a mature and responsible business model is what really matters.

In parallel is the issue of regulations.

When there are innovations that emerge and the market is not ripe to receive them,

the issue of regulation remains gray

, and this imbalance makes the business model unfeasible.

To adapt regulations, time and money are needed... and the latter is what is missing.

What to expect in 2023?

For now, we have to know that we will see much less activity in the technology sector in the future, because while for some companies it is just a cost adjustment, for others it represents the end of a cycle of frenetic growth.

Most importantly,

the job market in the IT industry is still tightening and the industry's unemployment rate remains remarkably low

.

In addition, the high demand for job profiles in the industry remains, only now the IT job market has lost the fierce competition that has characterized the sector, with salaries and benefits inflated to attract talent.

The industry needs quality workers who can adapt to a real market, where profitability is essential to maintain jobs and the scalability of projects.

But none of this is going to work if you don't start by

proposing a concrete, real, sustainable business model that observes long-term profitability

.

* Jorge Nieves is director of Innovation at Vortex

look too

Google will cut 12,000 jobs: it is almost 6% of its total staff

The wave of layoffs in the technology sector continues: Microsoft throws out 10,000 employees

Source: clarin

All business articles on 2023-03-04

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