Layoffs Becoming Necessary Evil for Tech Companies


When I wrote about the dimming outlook for jobs earlier this month, I quoted John Challenger, CEO of recruiting company Challenger, Gray & Christmas, as saying that companies were intent on cutting costs, with the implication that many of them would have to cull staff to do so.


That's exactly what seems to be happening on the West Coast, where a number of startups (as well as bigger companies like eBay) are laying off employees in hopes of making it through the recession. Among the companies making cuts, reports the Los Angeles Times, are Zillow, Pandora, AdBrite, Hi5, Jive Software, Redfin, Seesmic and Zivity. Seesmic founder and CEO Loic Le Meur says that laying off a third of his company's staff is the only way to keep his company going in tough times. He likens the move to "giving myself another round of funding."


Layoffs are a less palatable alternative to rounding up capital but may become necessary for more companies as funding sources dry up. As USA Today reports, 2008's third quarter saw just 270 venture capital deals for tech companies, the lowest quarterly number since Q1 1996. Not only that, but The Silicon Valley venture capitalist confidence index tracked by University of San Francisco business professor Mark Cannice fell to 2.9, the lowest reading in its five-year history.


Unlike previous downturns, including the dot-com bust, experts predict a far broader group of industries will be affected this time. Cathy Paige, a vice president of Manpower, tells BusinessWeek that "this is an equal-opportunity recession." For most companies, cuts will likely come first in any under-performing areas, followed by non-essential divisions such as marketing, communications and human resources.


While just about every sector, including tech, will be affected, tech may not suffer as much as it did in the dot-com fallout, writes CNET News' Dawn Kawamoto. That's because few tech companies have staffed up on the scale of the late 1990s. Without the inflated hiring patterns that characterized those pre-bust days, tech unemployment numbers are still holding true to their typical pattern, about half the national average.


Not only that, writes IT Business Edge blogger Dennis Byron, but many companies willfind it difficult to make sweeping cuts simply because technology is so well entrenched in their business. He writes:

... for the first time in business history, IT is like some of the bailed-out companies that received all kinds of government money in the last few weeks. That is, IT is "too big to fail." IT is so intrinsic to the operations of every enterprise -- and more importantly, each enterprise's interaction with its customers and suppliers -- that its budget can't be arbitrarily cut.

Will any good come of this? Some folks think so, including Jonathan Weber, editor-in-chief of NewWest.Net. Writing for Times Online, Weber posits that, depending on the outcome of the upcoming presidential election, the U.S. government could step in to bolster the tech economy by funding more basic research that can lead to technological innovation and by tweaking Small Business Administration loan programs to favor entrepreneurs.