One of the interesting points of the crypto crashes and the macro economic environment struggling, has been the laying-off of staff from crypto companies, as well as many financial services and especially, SaaS companies.
In the reporting, they drop percentages in the headlines like;
Does this tell the whole picture?
Not at all.
If you dig a little deeper, what is found is that a lot of the layoffs are in the marketing, and customer experience areas, as well as customer service, but many are also looking to increase their engineering and design teams.
However, there is more to it than this as well, for most of these companies that are firing people had a very aggressive growth strategy in a bid to secure market share, which pushes the Customer Acquisition Cost (CAC) very high. This approach not only means a very high marketing costs, but also salary burden and because of the rapid rate of headcount growth, which has a profound effect on the company in many ways, as often the hiring practices are not well planned or consistent, as well as the many cultural issues that arise, especially due to employee expectations and internal practices.
This is further exacerbated as many of these platforms and companies are flush with investor funds and high evaluations, so in there quest to hire the "best and brightest" in a hot employment market, they essentially overpay for many people who might not perform as well as expected. But, due to the aggressive growth strategy that burns through cash held, there is little time to do the "housekeeping" work, cleaning out unnecessary, overlaps and underperformers.
Enter the Downturn
But, once a downturn comes and that well of cash starts to run dry as economic conditions falter and investors become more squeamish to double-down on their investment, the need and time opens up to streamline business activities, which inevitably means that headcount is going to change and at least in the short-term, decrease.
Of course, the crashes in crypto are going to affect this, because it cuts off streams of revenue they are relying on, especially the crypto trading platforms that take a cut of trades. If a company takes 0.5% of a billion a day, they are taking in 5M a day, but even if they have the same user activity, if the markets halve in value, they will take 2.5M a day. But, in that halving of value, traders will trade less too, so there is a compounding of the reduction in value. If the company has been aggressively growing, they likely geared their company toward getting that 5M a day, not the 1-2M a day they may be receiving now, so they have to cutback or lose money hand over fist.
They take an aggressive growth strategy to establish themselves in the market place quickly in the hope to squeeze out competition, however in their quest to do so, they often do not build a sustainable business model, nor do they build a product that the acquired customers will keep using in downturn times. For much of these ones that are struggling due to aggressive growth, what you will notice is that their business model was largely based on marketing hype and centered around "luxury" items that cost, not save or make a customer money.
But, even if they do generate income, in downturns, people become more conservative, so if they are in a field like crypto, they are going to see investors pullback funds to safer investments or, use them to cover the rising costs they face due to inflation and interest rate increases, which has upped their liquidity needs, largely because in the "good times" they overextended themselves as if those times won't end.
Doom and Gloom?
Yes!
And no.
This is part of business process and early on in industry development, the attrition rate is normally high. It is going to be even higher in crypto and tech, because there is still the idea of hype-based marketing and evaluation (token or business price) as an indicator of success.
In aggressive growth strategies for customer acquisition, business activity is often forgotten, so the customer is not necessarily an active customer, they are a hype chaser, joining the bandwagon of signup, but not becoming a consistent user. This makes it look great for growth, but long term it can be detrimental because when the hype subsides, they are also the first to stop usage, which can see a collapse in user count, which leads to a fall in evaluation, which can death spiral cycle, including the reduction of staff.
Longevity however, will be with those who build their product consistently and userbase more organically, and these will be the ones who pull through the other side of an economic downturn and reduction in general business activity, because survival isn't based on token price or an inflated evaluation, the business runs on active customer base. For the businesses who offer more than luxury purchase decisions or can generate adequate income even through downturns, they will continue to hold an active customer base engaged with their product, which in turns insulates them from a demand perspective, even without hype.
The vast majority of crypto evaluations are hype based in the sense that they market for some kind of promise of supersized return to investors that is unsustainable in the long run, but attractive in the short. Once that hype dies, the next hype train arrives and all the investors offboard the first and onboard onto the next, because other than the promise of gains, there is nothing keeping them loyal.
Keeping it loyal
There is very little product loyalty at all anymore, or loyalty in general, which is also evidenced in the hiring, firing practices of companies, as well as the behaviors of employees, who are willing to move for more money, even if what they move to isn't offering much of a product. Just like a game, there is a meta here that means that the businesses that can offer the most salary will get people, but who they get doesn't necessarily mean they have the best people. In some way, it is like a liquidity pool where they are trading their investment fund for a shitcoin token that doesn't have a usecase and a diminishing return on their investment.
In pretty much every workplace, the best and the brightest are very rarely the ones fired because they are the ones performing or, they are the ones who have options to leave, so they find suitable employment before being forced out. The consolidation of these businesses is necessary not only for survival, but to improve the business as a whole, as even though it is a difficult time and process for most involved, it can lead onto a better product and ultimately, a better customer experience all up.
Just like the volatility of the crypto markets, employment in related business models is going to largely see similar volatility, as they tether themselves to the market conditions. This means that choosing to work for one has the potential upside of early adoption, but also the downside of market collapse and employment loss. This means that choosing to work for these kinds of companies is the same as making an investment decision on what token to buy and those who chase the return with no regard to the product offering, have to accept the risks of what they are investing their employment potential into.
Tough times
Sure, this is a challenging time for everyone involved, but like all investments, time is necessary to realize the biggest benefits and gains. This includes the tough times, where things might seem like they are collapsing, but it is only because they are being evaluated against an unrealistic all time highs and hype evaluations, rather than real business potential and activity.
The dark tunnel of economic downturn always has a light at the end, but it doesn't mean that all will emerge from it. Those that do however, will be the ones who become the standard industry leaders and if they manage themselves well, can hold market share for years to come. In crypto, because of the potential for distributed ownership, there is even more chance that those that survive will continue on strongly into the future, because not only do they have a user base, but their user base is intrinsically tied as owners to the business model too, giving incentive to be loyal.
The coming year is going to see a lot of businesses "collapse" but it won't be because of the viability of the industry, it will due to the lack of financial discipline, strategy planning and poor hiring practices that leave them with top-heavy business models, without an adequate product or customer base that is willing to support them. As the recovery starts to happen though, there will be plenty of lessons learned for the existing and new companies coming in, investment capital flowing, and a customer base looking for a new home.
For those looking long, the aim is to not get caught up in the hype and drama and instead, continually build for tomorrow - today and every day after.
Taraz
[ Gen1: Hive ]
Posted Using LeoFinance Beta
I was part of a group of layoffs for a company that tried to grow too fast during the NFT boom. Luckily, it was just a side hustle for me, so it didn't impact me too much, but I have seen first hand what you are talking about here. They have now shifted their focus mostly to development and working on getting a turn key product out.
Posted Using LeoFinance Beta
Glad it didn't impact you too much, though it is never a nice feeling to lose any job I guess. In time, most of these companies will pivot, or cease to exist.
I'd say for some crypto companies it may have been a great excuse to lay off their woke brigade. I've been hearing many stories in some of these companies that would shock traditionalists. Kraken comes to mind as one of those companies that had to get rid of staff who had problems with everything. Maybe this was badly needed.
In many industries now, employees are getting so entitled. Look at the Twitter- Musk debacle - Twitter employees working in IT complaining about change.
Tells me,
Something needs to change.
I believe most of this crypto related company should understand by now that because the crypto market is doing well and there’s abundance you can just hiring workers that you know you can’t keep at the bearish market. There should be strategies in places on how to be solid irrespective of the market conditions
Posted using LeoFinance Mobile
The strategy is to hire aggressively and then, cut away the dead wood.
We can give software engineers an example for this situation for two years. Nowadays, they work at any company they want to and they demand the salary they would like to be paid. Their salaries were increased more than %100 at where I work.
For the good ones at least, it is true - "good enough" I should say. Because so many companies now have to go back and improve their fundamental products, the software engineers are in high demand. Marketers - not so much.
Day by day hype and emotionalism only gets in the way of the end goal. It is much better to be steady as she goes. Thanks.
Do you get the feeling we are less steady on average? At least for me, I get this weird sense of both unresponsiveness and insensitivity, coupled with emotional peaks and troughs.
I am against laying off clients randoml even they are not performing well, this is just a weak argument, at least they are working. The problem of companies is that in times of crisis, they must remain steadfast, even at the expense of others.
It is better for cryptocurrencies to enter the clean energy fields
If you owned a business and an employee wasn't performing the job they were paid to do, or the job that they are paid to do is not necessary, would you keep paying them out of your pocket?
All of the businesses without good business strategies are going to have a hard time and I don't really think it will improve much either. I am just wondering whether or not the zombie corporations will go down because I don't see them surviving unless the government/banks bail them out.
Posted Using LeoFinance Beta