Startups are once again considering layoffs as a way to control cash consumption and attract new capital.
News that Fast, a one-click checkout software provider targeting the e-commerce market, is offering sharp staff cuts to investors in hopes of securing new capital is notable, but a single data point. A public database tracking startup layoffs, however, indicates that the company is not alone in looking to reduce its headcount.
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It’s doubtful that accelerating staff reductions will make the startup labor market dramatically less talent-friendly. Startups are not the only companies in the market hiring technology workers. Upstart technology firms must compete with both industry incumbents, like Apple and Microsoft, for talent, as well as traditional firms building out their own in-house engineering and data teams. So it’s likely that even as startups trim staff, the labor market for tech workers remains more than temperate.
But cutting headcount is a quick way to cut burn and extend runway. If cash is business oxygen, laying staff off lets a company breathe more slowly, extending its life expectancy without an infusion of external capital (air).
It doesn’t seem likely that we’re on the precipice of a similar spike in layoffs that the onset of COVID-19 brought in 2020. That moment is essentially impossible to reconstitute in business terms. This time around, folks better know what is coming. Changing public market valuations for tech companies and a frozen IPO market have soured private-market sentiment concerning high-growth, high-burn startups. But the damage will accrete more slowly, as startups are each on a different cash countdown, meaning that their respective hard choices about staffing levels won’t occur at once.
Let’s take a quick moment to consider the latest state of the Fast saga, skate through recent startup layoffs to see if we can spy a trend, and ask what we’re going to see in Q2.