We’re All Paying the Price Now for Overhiring, Lowering the Bar, and General Startup Inflation

So our economy is going through some unpredictable transitions, with Cloud and SaaS companies powering through with still-strong growth and unemployment remaining at near-record lows, while inflation, interest rates, and more batter us at the same time.

And we’re seeing a lot of layoffs in tech, Meta and Stripe being the latest.

Perhaps the only direct and frank statement I’ve seen is from Stripe:  “We Just Plain Overhired.”

But even there, the issues are more nuanced.  In some cases, yes, companies just planned for growth that never came.  More often, they planned for a Series B-F that isn’t coming.  And importantly, in the boom times of late 2020-early 2022 … in many cases, all hiring discipline was lost:

• Everyone lowered the hiring bar, which reduced efficiency
• Sales teams hired way, way ahead to hit huge plans, and in many cases, ended up with a tough combo of lower quota attainment and higher comp structures
• Marketing teams bloated in size to achieve the same goals
• Everyone became a manager, few wanted to do the real work, leading to even more hiring

The problem now is in many cases, startups and bigger like Meta are simply stuck with teams that are far less efficient than we were pre-Covid.  In the race to hit crazy growth and fuel crazy multiples, everyone lowered the bar in some fashion.  At least for the sake of expediency.

That was fine when Cloud stocks grew to record highs and multiples, or sort of fine.  It was all masked.

But now we have to deal with it.  The next round probably isn’t coming soon, and even if it is, it may well be far smaller than planned.  The IPO isn’t coming as soon as planned, even if the numbers are strong.

And all of this will surface a ton of inefficiency that grew up in tech and SaaS and Cloud in 2021 and early 2022.

That’s leading to a lot of pain, even at the best of the best.