Day #8: đ§ Is this a good moment to switch jobs with so many layoffs in tech?
We are in an uncertain period in the tech labor market, with big tech (Twitter, Meta, Amazon, etcâŠ) companies laying off part of their workforce. Letâs understand what and why is happening.
This means that everyone should stay where they are because itâs too risky right now to move to a new challenge?
Of course, the answer to that question depends on many variables, and I will just be misguiding you if I tell you âđ Ohh donât worry, the market is fine and you should try to take the next step in your careerâ or âđ± Noo⊠Donât move right now, the market is crazy and you shouldnât definitely no move to another place⊠just stay where you areâ, none of those is the right answer to the question.
What and why this is happening in the tech market?
First of all, itâs important to try to understand what is happening and why is happening in the current market.
For the âwhatâŠâ question, the reason is simple, we are in a market correction momentum. A correction of a market happens in many areas, for instance, in the financial markets, labor markets, products trading markets, online businesses, etc⊠actually, this is healthy for the market and can be also healthy (even if a bit painful) for every employee (I will explain this theory after).
But letâs take the example of the most known of this term is the financial market. On the financial market, we call this a âbear market correctionâ, which means that the market index has declined around 10/15% of its gross value. We call this a correction because, usually this happens when the value of the market has grown too fast and now the value starts to be just speculative, rather than showing its intrinsic value (this is base of investment of one of the most successful financial market investors, Warren Buffet).
To explain barely what intrinsic value means the value that something (an asset, product, service, stock, etcâŠ) real has based on the expected return of that âthingâ, and not the speculative value that usually is based on the FOMO (Fear of missing out) syndrome, where you will buy something, not because of its real value, but only because you think some others will buy it for an expensive value in the future⊠just because. So this means that, if you buy something, not for the value on the expected return, but only believing that some others will pay you more for that without any rationale, you are just hoping that someone is dumber than you to pay more for something that doesnât really value that price (because the return doesnât compensate the investment).
Importance of understanding what Intrinsic Value means?
However, if you pay the right price for what you are buying, not because someone else paid that price, but just because you know (based on the expected return) that is the right price for you, then you donât really care about the market value volatility, because you bought/paid for what you expect to receive, so, you will keep it while that assets stills give you in return what you expect to receive. For instance, if you bought a stock because you know the intrinsic value of that stock was the price that you bought it, then you will want to keep that stock even in correction markets because you know that price will keep rising in long term (unless something on the company/market changes drastically and then the intrinsic value have to be recalculated).
So, why this correction market happens?
The answer is simple, the correction markets actually try to push the market to its real intrinsic value, because the value of that asset raised too high, and probably that raise was only based on the speculation market. So, the speculators that were pushing the market for those high prices will start to step out making the market value decrease for a correction value. Then, the market starts to stabilize at some point, and sooner or later, the market will start to rise again.
Why does this compare to the current tech labor market?
To be honest, this is something I already expected a few years ago that it will happen. Thatâs why I prepared myself in advance and also this should be a lesson learned for everyone affected by this recent laid offs. Why did I prepare? Saving money, living a minimalist life, and avoiding increasing my daily expenses even when I start to receive a better salary. Because this is cyclical, a crisis will keep happening cyclically in time, and so, everyone should be prepared for those periods.
âŠif after 2/3 years you still have 1k employees or less, that is not attractive for investors, because they start to belive that your business stagnated
Why did I expect to this happen? Based on the speculative market. Iâm working in tech since 2012, and since then Iâm watching completely speculative strategies in many companies where Iâve worked and some others that I was following outside. One of the clear examples was Stripe, where they admit they were speculative based on their results during COVID period, but the problem was not COVID, but the whole tech market. Every company was trying to hire the best tech talents, every day, for what? For growth⊠Just to keep growing, and to make the company valuable. For a financial market, one of the metrics they use to evaluate the growth of a company is naturally the profits, but also, the number of employees. If your company has 1k employees and if after 2/3 years still have 1k employees or less, that is not attractive for investors, because they start to believe that your business stagnated, the investor doesnât invest in stagnated businesses.
But the worst part is startups, the investors clearly invest in a company if they can scale in terms of the number of employees, which will be a key metric for those investors who expect an easy exit in the short/mid-term.
What is the problem of investors investing to grow fast?
they want you to be just one more.
The problem is simple, when this happens, every (or most) of the employees in the company/startup, are just numbers. Do you remember when I explained the importance of intrinsic value? Well, itâs here the importance of that intrinsic value, if you are just a number, they are not seeing your real value, and maybe they will even pay you a higher price just for you to join the company, not because you really have that value, but just because they want you to be just one more. Trust me, I saw many employees in many tech companies, they really didnât know what they were doing there. They were clearly just a number on a chart. The problem is when the speculative market stops, they (investors) are not expecting any exit of the business in the short term and they enter survival mode.
When investors enter survival mode. Itâs where Redundancy roles come in
This is the moment the investors realized they will not be able to sell their participation in the business, and now they are just focused on making real money with the business. But to make money, they need to cut costs, and of course, the firsts to cut are the ones that were hired mostly to be just a number on the chart, so, they will keep the ones that are impacting the core business. Now, the ones they hire or keep, are the ones they calculate their intrinsic value for their business, and not to be a speculative number for investments (because in this market, the investors donât care about that anymore).
Impact on the labor market
The impact of this will be, of course, to reduce the salaries in the Tech market for the coming years, which will be a problem for those that increase their cost of living and their value for the tech market was not well calculated based on its intrinsic value, so, probably some will need to accept a reduction of salary (myself included). But that is not a real problem, because now you know that if you join a company, you know they are paying you the value they expect to receive in return, so, you can trust more in your current/next position. Because now, as I explained previously, every company is just focusing on hiring valuable employees, to help them achieve their business goals (not investment goals), and so, now your current/next salary will be more accurate with the rest of the market, without the speculative bonus (that is not healthy).
Correction market on tech
To conclude, that is why this is happening in the tech labor market, the speculation has been over, and now every (or most) companies are now hiring because they need you for their businesses, and not because they want to show off their potential investors. And this, to be honest, is much healthier for everyone, painful for this period (mostly for those that are looking for a new job), but much healthier for companies, startups, employees, and investors.
Is this a good moment to switch jobs?
So, for this question, the answer is, now you know that if someone is hiring you, it means they really need you in their business. So, it always depends on what motivates you to start a new job and your current personal situation. But to be honest, now itâs less risky to change jobs than in the past, because now companies are hiring with a business strategy, rather than hiring to just increasing the number of employees to show it to their potential investors.
What do you think? Do you agree? Do you have a different perspective on the current labor market situation? Let me know in the comments and if you liked this post, please give me some claps and follow me for more content.
Thank you, David, @journeypreneur
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