In the last 24 hours I heard from two people about layoffs at their companies. Planetly, the German climate-tech success-story (sold for 100m $ in Dec 2021, we integrated with them at forto) was just shut down completely today. All 200 employees were fired on the spot.
After a roller-coaster that went up-up-up for the last 4-6 years, it seems now the new direction is downwards. I hope the German companies who need to let people go, show more compassion and tact than OneTrust (who acquired planetly), who just yesterday told people that their work was worthless and was going to be done cheaper and better in India. Great stuff coming from a company whose mission statement reads: “We exist to unlock every company's potential to thrive by doing what's good for people and the planet.”
Reminders:
This is my quick monthly update via which I’m sharing back with you - the people helping and interacting with me - what I’m learning and how my startup journey is progressing
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In my last update I shared that I would focus on businesses next, after I had interviewed mostly TECH talents before. So this time, I am sharing business and economy insights that I think are worth it.
Layoffs are (going to be) everywhere
Startups are reducing their workforce and taking out people who joined in “Probezeit”. In the US these layoffs already happened in April and May, but now they are coming to Europe and it’s going to be tough.
99.251 people have been laid-off in start-ups according to layoff tracker layoffs.fyi. And I am sure the “hidden reductions” are much bigger.
Two weeks ago I discovered a link to a list of layoffs at Westwing. Then the link disappeared. I asked about it on LinkedIn, two people confirmed it, but quickly deleted their comments again. I followed up and turns out they were getting a lot of views from colleagues and ex-colleagues. They didn’t want the exposure with such negative news. Overall consumer-facing companies are rather trying to keep this quiet. After all, as a consumer I might not be inclined to buy from a company that does not seem to be in good shape.
Especially companies that do not have a real business model yet are going to struggle since the venture capital funding has dried up as well. Hello Gorillas.
If you or friends are affected by lay-offs and need some support with figuring out German labor law / unemployment stuff, I’ll be happy to help. Let me know!
What does this mean for companies, especially startups?
The key drivers for startups are changing fast. Consumer spending is down, energy prices are up and many startups are not close to profitability. For many companies who raised huge amounts, profitability just hasn’t been an important goal from 2016-2022 compared to fast growth and capturing market share. This has all changed. Cost, profitability, runway - those are the things on the mind of companies right now.
From my discussions with leaders across European startups here is what I expect in the next months:
Most startups will stop hiring excluding critical positions. This is going to be the major driver of slower growth of the startup ecosystem. (See this article.)
Many startups will reduce their workforce by 20%, either through natural churn or active lay-offs. Anything <20% is also not going to make enough difference for their P/L statements.
Startups will reduce non-core activities. That shiny new product you were thinking of launching: gone. That high-risk moonshot data science work: canceled.
All startups will review their cost in detail. Where are the biggest drivers (next to people) and everything will be brought under the magnifying glass.
For SAAS usage - companies are already cutting non-core products. All the “fluffly” software that isn’t fully adopted and used in companies and was purchased from 2019-2022 is getting cut right now.
Who loses: all software that isn’t fully adopted into core processes. Even if your product is better than the competition and adopted you are not safe. (See winners.)
Who wins: the big platforms (Microsoft, Google, …). Why use Zoom when there is google meet included in your subscription, why use slack if there is teams. Yes, it’s worse products but they are cheaper.
Many tech leaders are asking themselves now:
How can we preserve our innovation-power and company valuation, while being cost conscious?
Over the next weeks I aim to support a couple of companies with “mini-consulting projects”. I will help them figure out how to be more effective, focused on the intersection of TECH and HR.
For example: many recruiters that have been painfully hired are now without work inside companies and need to do project work. However, usually the project-work experience is limited —> this is where I can step in, structure the projects and help teams be efficient. Also I will be learning about the things that matter in a downward economy for companies.
If you know any company looking for support to get their TECH/HR teams more effective, please let me know!
This is my summary one-pager on the “fit for growth” program.
What does this mean for building my (software) startup now?
Overall, I do not worry about this changing climate too much for my own plans. While it might have been easier to sell something in the last two years, now you have to build something that is of real value.
It makes validation of my ideas more difficult. Leaders have less time and are in a more stressful mood. However, this eventually means only really strong products will get attention. I’m fine with that.
Up next:
I have started working with a very exciting person (very experienced engineering leader) on a joint project. It’s a bit too early to tell, but it’s really fun so far. We are looking at making TECH leaders (Engineering and Product) a lot more effective by giving them a new kind of toolkit. Stay tuned for updates on this. I am excited!
I haven’t spent much time on working with TECH talents the last weeks. I also wonder if my initial insights from the summer are still true. Back then I did not find many pains of tech talents, because they could still essentially chose their dream employer. Now with layoffs - this might be changing. People will be a lot more careful of quitting their employer and taking risks. However, since TECH hiring is global and the US already might be on an upward trend again, it’s hard to predict what will happen.