High-tech industry coming to terms with sobering reality
High-tech industry coming to terms with sobering reality
With employees being fired, recruitment coming to a grinding halt, and traveling and parties being canceled, there seems to be little doubt that the age of abundance and excess in high-tech is over
“That moment, when you have run out of your favorite cereal and there are only four other options," - is the description line of Facebook page "Troubles in High-Tech", which has 71,000 followers. It started off as a joke about the public cynicism received by high-tech employees regarding their perks, but in recent weeks it has become a parable for the industry.
After many months of surging valuations, huge salaries, IPOs, lavish parties and flights to exotic islands - the madness is over. Startups are raising less, news of layoffs in the industry are making headlines almost daily, and even wages of new employees have dropped. In the industry the situation is being packaged in countless ways, with a tendency to embellish reality and the use of slogans about efficiency and "shrinking inflated mechanisms". But the message that is emerging from dozens of conversations with entrepreneurs, managers and employees is almost uniform: the hype is over.
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The party in high-tech has come to an end and the industry faces a difficult time sobering up
(Photo: Yuval Chen)
It's true that even when the hot air is emptied from the high-tech bubble, conditions there are still better than most. However, this is an industry that is used to making noise, is based on ambitions and abundance, with grandeur dreams of an exit. Once it loses these, it is forced to change profoundly. "There are still different ice cream flavors, cornflakes and parties, but there is definitely a slowdown, if not a complete halt," says an employee at one of the largest companies in the industry. "The conditions remain similar, but something in the extremism, in the need to show how much money is poured into the fun, is over."
That's an understatement. There are those who are saying more explicit things, and they do not concern cereal: "There is a feeling of fear and helplessness, an atmosphere of dread, some feel it more than others." The speaker is a well-known entrepreneur, the founder of an Israeli cybersecurity company that was forced to lay off recently. He knows how to put his finger on the nature of the change: it's not just layoffs. It is not a tangible issue, it's psychological. "We are an industry that thrives on the need to win, today is amazing and tomorrow will be even more amazing," he explains. "That's hard to maintain at the moment. Maybe, in six months, things will improve a little, but right now this narrative already feels fake.
“The hardest thing is the dissonance between the previous high and the current low. A moment ago you were on top of the world and now you feel like you are at the bottom. There is always the question mark if you will survive. It is not guaranteed, even when the situation is good. Maybe, this time, something will happen from which we won't be able to recover."
How does this manifest itself in the day to day of the employees?
"For example, asking for a raise today is really not reading the room - it's true that you have more work, but you know there is no money. You would have to be very detached from reality to ask. In many ways, we have returned to an employers' market, after we were in an employees’ market."
And what about the parties and the swag?
"When times are tough and you throw a party it creates a dissonance. The company is in bad shape and so is the market - so you want to celebrate now? It's not perceived as 'how fun, I'm being pampered'. It doesn't look good. Who are we trying to fool that everything is fine, who are we fooling?”
Losing the sense of eternal immunity
"We were under an illusion, we knew it didn't make sense and that it would end, but the attitude was 'let's enjoy it while we can,'" says Sivan Avihud, Co-founder of Link2USA, a consulting firm providing solutions for international startups and companies that seek to expand their presence abroad. "We planned 2022 at the end of 2021, with abundance and still in the bubble, and now we are planning 2023 with much more emphasis on business and less hedonism. It feels like a decade has passed rather than a year. We have moved to a parallel universe, a different reality."
Where are you experiencing this?
"For example, more and more employees are shying away from glitter, parties, or happy hour while their friends are being fired. This is a very strong discourse at the moment. Employee morale has clearly been undermined, and the companies are also focusing on what is necessary, not on luxuries. I am a member of a global group of human resource managers, and it is clear that budgets for next year's parties have decreased significantly. The money is going into the business, not 'nice to haves'. We have entered survival mode."
This change in atmosphere is also felt in companies that are not laying off employees. "Employees do not always understand that the fact that there are no layoffs in their company does not mean that it’s business as usual. 2022 will affect everyone, no one is immune," says Eynat Guez, founder and CEO of workforce management platform Papaya Global, which, only a year ago, raised $250 million at a valuation of $3.7 billion. "Even though we are recruiting as usual and are not cutting back, we are looking at each position and asking ourselves if it is required or 'nice to have.' Employees should appreciate workplaces that are currently trying to be more conservative and extend the runway at the expense of bonuses and events."
The current conservatism, cutbacks and layoffs are shaking up the industry because they are changing the status quo that many companies have become addicted to in the past year. The illusion that unlimited abundance will last forever is over, and slogans that, until recently, accompanied high-tech suddenly sound far-fetched, not to mention cynical.
"Many companies used to say that they are a family. But today, it is a slogan that laid off employees are angry with, and I hear it a lot," says a manager at an international software company who was recently laid off. And not only are the laid off frustrated, but also those who remain in the company, he says. "For everyone involved in layoffs, it's difficult - I don't think there's anything more exhausting, for a very long time you're only involved in bending the system for the sake of the people you value. Even for those who remain, it's clear that the atmosphere is damaged, and it will take time to restore confidence.”
Perhaps peoples’ sense of security was hit hardest. An industry believing that economic fluctuations do not affect it and employee job security lined with options cannot be threatened is now forced to sober up. It's not the ice cream flavors that are missing, but the confidence in the constant galloping forward, the workers' belief in their immunity, the implicit arrogance that was hidden in the very fact of being associated with high-tech.
The fog is confusing, especially for young people that haven't gone through prior crises
Sobering up isn't easy. Many of the managers interviewed for this article continued to use the lingo of the past. But, between the lines, it was already easy to see that these words were failing to cover all the tears. And it's not for a lack of trying. Many companies are working hard to hide the extent of their layoffs. "The system has no motivation to release exact numbers," says the same manager, "after all, once it has happened, it no longer really matters what percentage of employees was fired, 5% or 7%. Either way, many were let go."
There is also an industry rumor around "hush money" for those that were fired; In a Facebook group of product managers, there was even an anonymous person who spoke of it from personal experience: "In return for significantly increased severance pay, I signed a confidentiality agreement, so that no one will know that cuts are being made (it's a private B2B company, they probably don't want to drive away the customers)."
"The assumption is that the situation is always worse than is reflected on the outside," says Shaul Olmert, one of the founders of Playbuzz and co-founder and CEO of the startup Piggy.
"That is because the more you admit to large layoffs, the more you hurt the sentiment of investors or credit from the press. That's why the truth is always embellished.
"For example, they say they fired 50 employees when, in reality, they fired almost twice as many people, and another 30 who were going to join aren’t joining any longer."
Voluntary retirement plans, the outsourcing of some jobs and the fact that quite a few companies continue recruiting all contribute to the blurring of the numbers, so many of those laid off quickly find a new job. According to the data by the Israel Innovation Authority, there is still a shortage of about 15,000 employees in the industry.
"I look at all the people who left with me, and all of them are in the recruiting process or have already signed with new companies," says a senior product manager who was fired about two months ago from a company which he says has "just moved to new offices and was about to devour the world." Since then, he has already started working at another startup. The VP of HR of a company that laid off about a fifth of its workforce in the summer also says that when she helped those that were fired look for work, she discovered a great demand: "It surprised me, because I had the feeling that the crisis had already started. In the meantime, we are back to recruiting, sparingly, and it is not easy to find people, what's more, when you recruit, you pay a price for the layoffs you made. Candidates saw that you had cutbacks and are asking about it."
This complexity is part of the difficulty of sobering up. And the difficulty is greater for the young. Older employees already know that sometimes there are both widespread layoffs and recruitments, that no abundance can last forever, that wages sometimes go up and sometimes go down. For young people, those who entered high-tech in recent years and knew only good times, it is much more difficult to understand that the current change is necessary and natural.
"High-tech experiences these cycles every few years, and the way employees look at it differs according to their seniority," explains Dikla Edlis, HR manager at unicorn Verbit, which laid off 60 of its 520 employees this summer, 30 of them in Israel. "On the one hand, there are the ones who have been in the industry for many years and understand that this is part of the game, that money comes in and out of the market, and for them the element of surprise is minimal. Of course it affects them - just yesterday I saw one of the veterans who wrote that he has post-traumatic stress from high-tech - but with the younger people it is different.
“They haven't experienced anything else, and now they are encountering a change in momentum which happened very quickly."
Yes to cocktails, no to flights - now it’s time to work
The change in momentum doesn't happen overnight. Sometimes, there are just cracks. Naturally, the belt-tightening starts with items that are easier to cut - marketing and branding. There is less outdoor advertising and there are fewer flights. But even companies that have shrunk budgets haven't cut alcohol. "The money invested in forging team spirit is still there," says Tzachi, a team manager at Wix, which recently stopped hiring. "Last week we had a DJ, hamburgers, beers and cocktails on the roof. It's a quarterly tradition in the company, and all this in the new and monstrous campus in Glilot, which has a subsidized dining room with the chef Assaf Granit. The small pleasures, whether it's an escape room or beers at home, were not cut."
What was cut?
"Flights. All flights have been canceled, both for vacationers and for professional conferences that everyone used to go to. If you aren’t lecturing at a conference or don't get a sponsorship, you don't go."
And what will happen to the company's traditional Purim party?
"Last year's party was also criticized within the company, and many people thought it was inappropriate to celebrate when Russia invaded Ukraine (where Wix employs about 1,000 people). This year, there is no expectation of such an event, at least not at the moment. Everyone is looking at the market and waiting for some kind of news."
There are those who see this period as an opportunity to unify ranks. "There is nothing that unites people more than war, and a recession is war," says the founder of a well-known giant company that recently laid off employees.
What does the change look like for you?
"The atmosphere is more focused. Doing more things that our customers need, for example. Saying goodbye to people is always difficult, but now we are concentrating on work and we are only at the beginning of a period, and it is not clear how long it will last. You have to keep your head down and wait for it to pass, a year, two years, five. And this period will differentiate between focused companies and those that live in the past. We feel like we have to work harder to come out stronger. Even at Google, the good years were the crisis of 2008."
A year? Two years? Five? How long should the runway be so it won't be necessary to make additional cuts? "2023 will be more difficult than this year, there will be more companies that will shut down and more employees that will be laid off. Companies are preparing for the next 24 months," says Amit Rapaport, founder and CEO of the startup Compete, which in September laid off more than a quarter of its employees. "Sequoia and other venture capital funds have already informed all the companies in their portfolio that there won't be any funding rounds in the near future. The meaning of this is that in order to achieve our goals, we need to make sure that the money we have will last for much longer."
How do you mediate this to employees?
"It is extremely complex. Both as a CEO today and as a former HR manager, at Palo Alto and SentinelOne, I don't believe in cutting corners and sugar coating the situation. You chose to work in high-tech? It comes with certain benefits — and it comes with the understanding that you are in a more dynamic market. And the more honest I am with my team, the more tools they will have to understand the ecosystem and find solutions to adapt the product to the situation."
Eynat Guez also believes that we will continue to see downsizing: "The idea of downsizing began in the first quarter of the year and now, in the fourth quarter, it's like being told several times to 'tidy up your room'. In the end, you will be forced to. So those who haven't done it yet and have a huge gap between the current situation and their goals - will have to take drastic measures."
Veterans of the industry remember to frame everything as a required correction, but with broad effects. "The market needed correction, disproportionate amounts were invested, there was a gold rush, and naturally the majority are going to lose," says Shaul Olmert. "Everyone thinks they are lucky or the genius who will succeed, but statistically the majority fail, this is how it is in every investment channel. The problem is that even when the correction is necessary, it is not that some committee convened and said 'Let's check where there was excessive panic' - it is a tsunami that sweeps everything away.”
Diana Bahur Nir contributed to this article
