How Tech Layoffs Sparked a Wave of Entrepreneurship in Silicon Valley

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“When I first joined the company, my boss told me not to hire anyone for the first six months or even the first year.” Madeline, a recruiter who started working at Facebook’s parent company Meta in September 2021 (Madelyn Machado) shared her work experience at Meta through a TikTok video. She said that at the company, “basically, I don’t have to do anything… I kind of miss that job.” It was like having a baby.

However, the company’s legal department accused Madeline of uploading TikTok videos on the grounds of a “conflict of interest”, and Madeline was eventually fired.

Due to the ongoing spread of the Covid-19 pandemic, from the spring of 2020 to the spring of 2022, major business activities in the United States shifted online, remote work, online shopping, online learning and entertainment, and the number of jobs related to technology in the United States increased by 1 million. However, with the end of the pandemic, the main form of consumption gradually moved to offline. Under the influence of inflation and the Fed’s interest rate hike starting in mid-2022, high-tech companies that once aggressively expanded their employment have begun to lay off workers on a large scale.

According to statistics from Layoffs.fyi, a website that tracks technology company layoffs, the number of layoffs in the first quarter of 2023 is 166,000, which has exceeded the 164,000 in 2022. The largest cuts include Amazon (9,000 on top of 18,000) and Facebook (11,000 on top of 11,000).

The trend of layoffs in the technology industry has even spread to the job fairs of major universities in California. The major technology companies FAANG (Facebook, Apple, Amazon, Netflix and Google), Microsoft, Uber, Spotify and Salesforce are all absent.

However, the laid-off coders and software engineers did not lose their jobs, and many turned to start their own businesses. Madeline herself set up a recruitment company, and the 224,000 fans on her TikTok account became her customer base.

According to a survey of 1,000 laid-off technology employees by venture fund Clarify Capital LLC, 63% of unemployed technology talents started their own businesses and made more money than before. Entrepreneurship service company Y Combinator received a 20% increase in entrepreneurship applications in 2022, and applications in January 2023 increased by 5 times year-on-year.

Albert Qian, who used to be in charge of human resource management products at Oracle, told Caijing that for tech talents in Silicon Valley, “after layoffs, the natural trend is to start a business. The 2008-2009 financial crisis resulted in a lot of people being laid off … This is also the moment when Uber, Lyft, Airbnb (as we later saw) were born.”

The over-hiring culture of big factories

“We hired too many people” “We were too optimistic” “Things did not happen as we expected”…From Microsoft, Google to Salesforce, Stripe, Spotify, similar layoff emails were sent to employees in the second half of 2022 .

Over the years, the generous benefits provided by major technology companies have attracted young people from all over the world to seek jobs in Silicon Valley. However, Kate Duchene, president of RGP, a professional talent management consulting firm, pointed out that these companies are also particularly ruthless when laying off employees. They would get layoff emails…or find out they’ve been fired when their pass expires.”

Anup Srivastava, a professor at the University of Calgary in Canada who specializes in the development of technology companies, introduced that the “winner takes all” ecology of the technology industry means that only the surviving companies can make profits. This leads to fierce competition among companies to hire talent from time to time. It also creates a culture of tech companies’ preference for “over-hiring,” often hiring talent “before there is a real need.” In the past two years. In order to compete for talents. The annual salary of newcomers in the industry soared to 300.000-400.000 US dollars. And those with 5-7 years of experience even reached as high as 500.000-700.000 US dollars. The number has risen by 30%-50% during the pandemic.

Qian Fengyu explained that the technology industry is a special industry. The rapid changes in the industry require these companies to use very favorable conditions to attract talents. With high growth and a large amount of capital. The industry’s employment culture is different from other industries. When the economy goes down , In face of pressures such as rising interest rates, the downsizing of enterprises will also be very rapid.

He further pointed out that during the Covid-19 pandemic, people were locked at home, and the major technology companies thought that they would become part of people’s daily life, “so they hired, even over hired, because they thought that was the right next step. Unfortunately. The most important thing is that after the isolation measures are over… these companies find that the facts and expectations have deviated, so they need to lay off staff.”

He believes that the current large-scale layoffs are the result of the technology industry facing an economic downturn. After this large-scale layoffs, people’s attitudes towards large technology companies will be different. “Originally people thought that these companies would not fail.” , which is not quite the case now.

Joe Cardillo, who has experienced this round of work reshuffle during the pandemic, told Caijing that the large-scale layoffs in the technology industry are more like social contagion. He explained that companies like Google, Microsoft, and Facebook, with billions of dollars in the bank, were laying off 12%-15% or even 20% of their workforce, and it looked like these companies were laying off employees out of fear of the future because “they fear that they won’t have as much control, or seeing peers doing it. As a result, many small and medium-sized technology companies have also taken the same action because of fear.”

However, it is also the misjudgment and layoffs of major manufacturers that push Silicon Valley’s innovation engine forward. Once the company lays off employees, many technologists will feel that it is time to start making the products they want to make. Qian Fengyu believes, “This is a trend that needs to happen, because this can create a new type of technology, and everyone has the incentive to innovate. Create the necessary competition and put pressure on the businesses that already exist.”

Look for needs and optimize

The products launched after starting a business determine the possibility of future success. These ideas may come from personal preferences or personal expertise. Madeline founded her own headhunting company after leaving, but there are also technologists who have entered a completely different field. David (David Jacobowitz), who was originally in the marketing department of ByteDance, decided to start a business of “sugar-free chocolate”.

“I imagined the next 10-15 years of my life in order to climb up in the enterprise, and then I told myself that I don’t want to do this.” David told the media, “In 2020, when I was playing games at home, eating chocolate, I started worrying about the nutritional value of the snack I was choosing.” So David decided to launch “anti-gravity chocolate” that didn’t add sugar and avoid weight gain. David uses his marketing expertise to set up websites for products, allow consumers to buy directly on the website, and use publicity to convince offline stores to sell his products.

Cardillo also decided to start a business in 2022. “The pandemic is a turning point.” He told the Caijing reporter. From 2019 to 2021, Cardillo was laid off by three start-ups one after another. When he started his fourth job, “sending emails until after 1 am and having to get up at 5 am. I was very aware of my physical fitness. There was a problem with my mental and emotional state. So I quit my job.”

He introduced that he kept asking himself during the break, “What can I do? What do I want to do?” The answer he found was “hiring, team building, and supporting the team to deliver good performance in a healthy working environment.” He founded a platform called “The Early Manager” to train executives on how to manage teams and create a healthy work environment.

He explained that after working in several technology start-ups that entered the C round of financing. He found that the entrepreneurs of these major companies seriously lack the training to manage diverse talents. Prejudice was brought to the team. “I still keep in touch with several bosses and presidents I have worked with. And I respect them very much. But their companies failed to provide a healthy working environment for me and my colleagues at the time. Especially women. African Americans. Asians. Pacific Islanders. Latinos. Native Americans. etc.” As such. Cardillo’s platform focuses on training executives to “practice discussing and sharing their own power and decision-making processes.” Currently. Training executives accounts for 70 percent of the business. While the other 30 percent is assisting job seekers with their job searches.

Unintentional insertion is also one of the development models of entrepreneurship. In addition to training executives. Cardillo once assisted job seekers to find jobs for free on Albert’s list. An application community created by Qian Fengyu. Unexpectedly. Job seekers asked for further services. But it became Cardillo’s new business.

Qian Fengyu introduced that he founded this mutual assistance community in 2013. At the beginning. He just wanted to help new entrants improve their application skills and provide advice. He set the number of people joining at the beginning to not exceed 5,000. Unexpectedly, there are nearly 48,000 registered members now, and it has become a platform for finding jobs, talents and career advice. Because of the further needs of these users, this platform has now become an operational project, and the number of users has increased significantly during the pandemic.

Having an idea for a startup is one thing, but executing it isn’t easy. Cardillo introduced that he feels that he actually does four jobs. The first is to train executives themselves, the second is content marketing, the third is operations, and the fourth is to establish a peer community communication platform to prevent themselves from being isolated or making uninformed business decisions. In addition, because his entrepreneurial project is not a software product, he can only rely on his own funds to maintain his business for a year and a half, and financing is only possible when the operation reaches a certain scale.

In addition to choosing to start a business, the survey shows that it is not difficult for technology talents to find new jobs. According to the data released by the recruitment website ziprecruitor at the end of November 2022, 37% of the laid-off employees in the technology industry found a job within one month, and 79% found a job within three months. Talents with computer technology background are in high demand in other industries. Statistics in October 2022 show that 74% of new jobs are still in the technology industry, but 6% are in retail and online business, 5% are in the financial industry, and 2% are in the health field.

Professor Srivastava pointed out that traditional industries are under pressure to transform. “When Amazon appeared, everyone laughed at it. Wal-Mart laughed at it…slowly, people discovered that the disruption of technology is real…all industries that need digitalization need these talents.” Because the salaries and benefits provided by the technology industry previously prevented other industries from hiring these talents. Only when the technology industry released talents. Other industries began to have the opportunity to hire these software talents. Including network security. Government departments. Health fields. E-commerce and financial industries. etc.

Qian Fengyu, who has been running a job application mutual aid website for ten years. Pointed out that the pandemic has caused people in the technology industry to re-evaluate their priorities in life and put more emphasis on work-life balance. “Humans are highly stress-resistant animals.” And being laid off is an “opportunity to reinvent or discover yourself.”