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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 mass layoffs in the big tech sector. It’s a common misconception to read about layoffs and assume those companies are not performing during these tough economic times, when in fact most of the companies implementing mass layoffs are doing just fine financially. So, what’s going on with the tech layoffs and what does it mean for small business owners?
What’s happening at big tech companies?
According to data published by layoffs.fyi, more than 160,000 tech employees were laid off from 1,051 different companies in 2022. While those stats are alarming, tech layoffs did not stop with the new year. Already in 2023, 485 tech companies have laid off 138,302 employees. With the layoff trend continuing, likely that the number of tech layoffs this year will rapidly surpass the 2022 figures. And it’s not just small startup companies laying off team members, some of the most popular big tech companies appear on the list as well. The only big tech company that has not yet announced mass layoffs is Apple.
Tech companies reporting mass layoffs:
- Meta – One of the first big tech companies to announce mass layoffs in November of 2022, the company laid off 11,000 workers. In press releases, Meta representatives stated that the layoffs came after doubling their headcount during the pandemic and the resulting need for remote workers. More recently, Meta announced they would be laying off another 10,000 mid March.
- Amazon – Just like Meta, Amazon announced its first round of mass layoffs affecting 10,000 employees in November 2022 citing that the “macroeconomic environment” was to blame. Following the 2022 layoffs, the e-commerce company also reported its intentions to eliminate another 18,000 jobs in early 2023.
- Salesforce – CEO Marc Benioff, of Salesforce, told reporters in January that the company planned to lay off 8,000 jobs. The company also announced that along with the layoffs, they would be reducing office space and cutting operating expenses.
- Microsoft – In January of this year, the tech giant announced it would be laying off an estimated 10,000 employees—also due to the large number of new hires during the COVID-19 pandemic.
- Google – The Internet pioneer, Google, also made the list of big tech companies issuing massive layoffs when their parent company, Alphabet, announced the business’s plan to lay off 12,000 employees. The CEO, Sundar Pichai, stated that the mass layoffs followed a period of “unrealized growth expectations.”
- Spotify – Earlier this year, Spotify announced another 600 job cuts. In the announcement, CEO, Daniel Ek, stated that the layoffs were intended to help the company focus on efficiency.
- Coinbase – The crypto company, Coinbase, joined tech giants in 2023 when they reported massive cuts of almost 1,000 employees. While the number seems small in comparison to Amazon and Meta, the layoffs affected about 20% of the company’s workforce.
What’s causing recent layoffs?
A layoff is when a company lets go of an employee for reasons other than their individual performance. There are many reasons for a business to lay off employees, including a decline in annual revenues or net income, downsizing, decreased cash flows following a large purchase, and organizational restructures. While no employee ever enjoys losing their jobs, businesses can recover when layoffs are handled the right way.
The tech industry has experienced remarkable market growth since 2010, which is why many analysts are calling these mass layoffs one of the worst contradictions in history. The reason the layoffs were so unexpected was because during 2020, 2021, and 2022, big tech companies made history by increasing their workforces by as much as 50%. Driven by high demand for technology products and services during the pandemic, technology companies were forced to hire additional staff to keep up. As 2022 came to a close, business owners began preparing for a recession by cutting costs wherever possible.
The hiring surge that occurred during the pandemic and rising inflation rates explain some of the downsizing, but it is not the only reason some of Silicon Valley’s biggest names are slashing their workforce.
- Copycats – Stanford professor, Jeffrey Pfeffer, states that one potential reason behind the massive layoffs in the tech sector is simply because tech giants are mimicking the actions of their biggest competitors.
- Investors – Other experts, like Michael Cusumano, are 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. The deputy dean of MIT went on to explain that since tech companies are often evaluated by investors on their revenue per employee data, decreasing the number of employees may have been a strategy to increase investment activity.
- Economic defense – As the federal funds rate, interest rates, and inflationary rates soared, many large corporations implemented strategies to combat a recession. As the public reacted to the threat of an economic downturn, consumer spending slowed. Reducing operating expenses, like salaries and wages, was one way businesses could offset decreasing revenues.
- New strategies – Large tech companies like Meta and Microsoft take pride in providing innovative products and services to the public. However, keeping up with rapidly evolving technology trends sometimes requires new ideas and a change in tech teams.
How the tech layoffs affect small businesses
Small business owners in any industry are affected by the mass layoffs in the tech sector. Whether you are a startup entrepreneur thinking this is a great time to start a tech company, or you’ve run a corner coffee shop for the last twenty five years, the change in the labor market and economy can impact your business’s bottom line.
As massive job cuts continued at big tech companies, small businesses started to see a decline in customer support and an increase in technology outages. In January of 2023, following the company’s news of 12,000 layoffs, Google Ads was out of service for more than three hours. This affected small businesses that relied on the service to communicate with current and potential customers.
With the number of laid-off tech experts nearing half a million, the available pool of diverse talent has opened up for small businesses. Hiring former employees that share experience at some of the worlds most successful tech companies can benefit a small business through increased productivity, new growth strategies, and revised business models.
For the same reasons as the decreased tech support, small business owners need to consider their marketing resources. Since tech giants have reduced their workforce, more companies are relying on automated services which changes the marketing opportunities on platforms like Facebook, TikTok, Elon Musk’s Twitter, and more.
The decreased labor force at companies like Coinbase and Salesforce gives entrepreneurs a unique opportunity to launch a tech startup or expand their target market. The layoffs lessen the threat of competition for small companies because it creates an opening with their client base. And the layoffs may cause B2B clients of the large tech firms to consider more boutique services for fear of instability.
Small business financing options for opportunities created by tech layoffs
Entrepreneurs that want to cash in on the opportunities created by the layoffs in the tech sector should act quickly in revising their business plan or hiring key team leaders. However, like any effort to start a new business or scale a current venture, the lack of capital is often an obstacle. Considering one of the following small business financing options could be a great way for your business to benefit from the shift in tech employment.
A term loan is a traditional type of business financing where the borrower receives a lump sum of cash upfront and then pays the loan back over a predetermined amount of time. Term loans are right for borrowers that need up to $500,000 and are looking for predictable repayment terms. Interest rates for term loans are either variable, which fluctuate according to the market rate, or fixed, which remain the same over the life of the loan. Term loans can be used for working capital, expansion, repairs, or large purchases and may require a down payment or personal guarantee from the borrower.
SBA loans are a financing option backed by the U.S. Small Business Administration. The funds are issued by an SBA-approved lender, but the government guarantee makes these loans lower risk for the lender. There are multiple loan programs through the SBA including the SBA 7(a), 504 loans, Microloans, and Express loans. Some SBA loan programs determine the permitted use of the funds as well as the repayment terms and interest rates. Small business owners that can get 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 approved for a maximum loan amount and then can draw on the credit line whenever they need 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 a cash advance. An MCA is not a loan, but an agreement between a business owner and a lender where the business owner sells their future credit card sales or other business receipts to the lender in exchange for a lump sum payment upfront. MCAs provide a fast-funding solution for any business that expects future credit card or debit card revenues.
There’s no way to say whether the layoffs in the tech sector will continue to make headlines, but there are many 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 the former employees of some of the big tech companies or marketing their services to a new pool of clients. The same entrepreneurs must also stay aware of risks that stem from the mass layoffs, like a decrease in tech support and advertising platforms.
Whatever direction you decide to take your business, consider exploring small business loan options with Biz2Credit. One IT company, Tech Star USA, worked with Biz2Credit’s business financing experts and secured funding in less than two months. Joseph, Tech Star’s owner, shared that the company was able to complete several business development projects with the funds.