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It’s hard to turn on the news or browse social media platforms like Meta (formerly Facebook), LinkedIn and TikTok without hearing about massive layoffs in the big tech sector. It is a common misconception to read about layoffs and assume that those companies are not performing during these tough economic times, when in fact most of the companies implementing mass layoffs are doing fine financially . So, what’s up with tech layoffs and what does it mean for small business owners?
What’s happening at the big tech companies?
According to data published by layoff.fyiIn 2022, more than 160,000 technical workers were laid off from 1,051 different companies. While these statistics are alarming, tech layoffs don’t stop with the new year. Already in 2023, 485 tech companies have laid off 138,302 employees. With the trend of layoffs continuing, it is likely that the number of tech layoffs this year will quickly cross the 2022 figure. And it’s not just smaller startup companies that are laying off team members, some of the hottest big tech companies appear on the list as well. the only big tech company that has not yet announced Mass layoffs are Apple.
Tech companies reporting mass layoffs:
- meta – One of the first big tech companies to announce massive layoffs, the company laid off 11,000 employees in November of 2022. In the press release, Meta representatives said the layoffs were due to their doubling of staff during the pandemic and the resulting need for remote workers. Recently, meta announced They will lay off another 10,000 in mid-March.
- Amazon – Like Meta, Amazon announced mass layoffs in November 2022 affecting 10,000 employees, saying that “Macroeconomic environmentWas to blame. Following the 2022 layoffs, the e-commerce company also reported its intention to eliminate another 18,000 jobs by early 2023.
- sales force – Salesforce CEO Marc Benioff told reporters in January that the company planned to cut 8,000 jobs. The company also announced that along with the layoffs, they are reducing office space and cutting operating expenses.
- Microsoft – In January this year, the tech giant announced that it would lay off an estimated 10,000 employees – that too due to the large number of new people it hired during the COVID-19 pandemic.
- Google Internet pioneer Google also joined the list of big tech companies issuing mass layoffs after its parent company, Alphabet, announced business plans to lay off 12,000 employees. The CEO, Sundar Pichai, said the massive layoffs “happened after a period ofunrealistic growth expectations,
- Spotify Earlier this year, Spotify announced 600 more job cuts. In the announcement, the CEO, Daniel Ek, said the layoffs were intended to help the company focus on efficiency.
- coinbase – Crypto company, Coinbase, has joined the ranks of tech giants in 2023 when they reported massive cutbacks of around 1,000 employees. While the number seems small compared to Amazon and Meta, the layoffs affected roughly 20% of the company’s workforce.
What is the reason for the recent layoffs?
A layoff occurs when a company lets go of an employee for reasons other than their personal performance. There are many reasons a business may lay off employees, including a decline in annual revenue or net income, downsizing, reduced cash flow following a large purchase, and organizational restructuring. While no employee ever enjoys losing their job, businesses can recover when truncation is handled correctly,
The tech industry has experienced remarkable market growth since 2010, which is why many analysts are calling these massive layoffs one of the worst paradoxes in history, The layoffs were so unexpected because during 2020, 2021 and 2022, big tech companies made history by increasing their workforce by up to 50%. Driven by high demand for technology products and services during the pandemic, technology companies Forced to hire additional staff to keep up. As 2022 draws to a close, business owners start preparing for recession By cutting costs wherever possible.
The increase in recruitment during the pandemic and rising inflation rate explains something downsizingBut that’s not the only reason some of Silicon Valley’s biggest names are downsizing their workforce.
- imitator , Stanford Professor, Jeffrey Pfefferstates that one possible reason behind the massive layoffs in the tech sector is that tech giants are copying the actions of their biggest competitors.
- investors Other experts, such as Michael Cusumano, saying that big tech companies are not laying off employees for cost purposes. Cusumano explained that another plausible reason for the layoffs is investor activity. MIT’s deputy dean further explained that since tech companies are often evaluated by investors on their revenue per employee data, reducing headcount could be a strategy to increase investment activity.
- economic defense – as the federal funds rate, Rate of interest, and inflation rates soared, with many large corporations implementing strategies to deal with the recession. As the public reacted to the threat of an economic recession, consumer spending slowed. Reducing operating expenses, such as salaries and wages, was one way businesses could compensate for declining revenue.
- new strategies Big tech companies like Meta and Microsoft take pride in providing innovative products and services to the public. However, keeping pace with rapidly evolving technology trends sometimes requires new ideas and changes in technical teams.
How tech layoffs affect small businesses
Mass layoffs in the tech sector affect small business owners in any industry. Whether you’re a startup entrepreneur thinking it’s a good time to start a tech company, or you’ve been running a corner coffee shop for the past twenty-five years, changes in the labor market and economy can affect your business’s bottom line. can affect.
As massive job cuts continue at large tech companies, small businesses are beginning to see a decline in customer support and an increase in technology outages. In January 2023, following the company’s news of 12,000 layoffs, Google Ads Not working for more than three hours. This affected small businesses that depended on the service to communicate with current and potential customers.
With the number of laid-off techies nearing half a million, the available pool of diverse talent has opened up for small businesses. Hiring former employees who share experiences at some of the world’s most successful tech companies can benefit a small business through increased productivity, new growth strategies and revised business models.
For the same reasons as decreased technical support, small business owners need to consider their marketing resources. As tech giants downsize their workforces, more companies are relying on automated services that turn up marketing opportunities on platforms like Facebook, TikTok, Elon Musk’s Twitter and others.
The reduced labor force at companies like Coinbase and Salesforce presents a unique opportunity for entrepreneurs looking to launch tech startups or expand their target market. Downsizing reduces the threat of competition for smaller companies because it creates an opening with their customer base. And the layoffs could cause B2B customers of large tech firms to consider more boutique services for fear of volatility.
Small Business Financing Options for the Opportunities Created by Tech Layoffs
Entrepreneurs who want to capitalize on the opportunities created by layoffs in the tech sector should act quickly to revise their business plan or hire key team leaders. However, like any endeavor to start a new business or grow an existing venture, a lack of capital is often a stumbling block. Considering one of the following small business financing options can be a great way for your business to benefit from the shift in tech employment.
A Term loan One is the traditional type of business financing where the borrower receives a lump sum amount of cash and then pays back the loan over a predetermined amount of time. Term loans are perfect for borrowers who need up to $500,000 and are looking for predictable repayment terms. The interest rates for term loans are either variable, which fluctuate according to market rates, or fixed, which remain the same throughout the term of the loan. Term loans can be used for working capital, expansion, repairs, or major purchases and may require a down payment or personal guarantee from the borrower.
sba loan are a financing option backed by US Small Business Administration, The funds are issued by an SBA-approved lender, but the government guarantee makes these loans less risky for the lender. There are several loan programs through the SBA including SBA 7(a), 504 loans, microloans and Express loans. Some SBA loan programs set repayment terms and interest rates, along with the permitted uses of the funds. Small business owners who may be approved for SBA loans prefer this type of financing because SBA loans have lower interest rates, smaller down payments, and more flexible eligibility requirements.
business line of credit
A business line of credit Can be funded in as little as 24 hours for approved borrowers. A line of credit works like a business credit card in that it is a revolving line of credit. The borrower is sanctioned up to the maximum loan amount and can then draw on the credit line whenever they require fast funds. Monthly payments reflect only the amount of funds withdrawn, not the credit limit.
merchant cash advance
A merchant cash advance (MCA) works by using the borrower’s receivables as collateral for the cash advance. An MCA is not a loan, but an agreement between a business owner and a lender where the business owner sells his future credit card sales or other business receipts to the lender in exchange for a lump sum payment. MCAs provide a fast-funding solution for any business expecting credit card or debit card revenue in the future.
There’s no way to tell whether layoffs in the tech sector will continue, but there are several ways small business owners can prepare to make the most of the tech company trend. New business owners can increase the quality of their talent by hiring former employees of some of the larger tech companies, or by marketing their services to a new pool of customers. Those same entrepreneurs should also be aware of the risks that result from mass layoffs, such as reductions in technical support and advertising platforms.
Whatever direction you decide to take your business in, consider exploring small business loan options. Biz2Credit, an IT company, Tech Star USA, worked with the business financing experts at Biz2Credit and secured funding in less than two months. Joseph, the owner of Tech Star, shared that the company was able to complete several business development projects with the funds.