Should tech companies lay off workers to save cash?

Jun 08, 2022|Abdul Abdulrahim

You might think yes, but the data suggests not always.

It’s no longer news that companies and economic spectators are spooked by what is believed to be a looming economic downturn.

Key takeaways:

Over the last few months, public and private tech companies have been announcing layoffs across regions in anticipation of the global downturn.
Bad layoffs can have a lasting effect on those made redundant, the employees retained and the company as whole but it is increasingly common in companies that solely prioritize speed to capture more growth.
Growth in venture funding for African startups remains strong and it appears parts of the market might be immune to the global trend because of the already difficult operating environment. Nevertheless, we can still expect some type of shedding in companies that have a bloated workforce.

Even corporate executives from JP Morgan’s Jamie Dimon to Tesla’s Elon Musk have cautioned investors to be wary of the downturn. After what seemed to be a never-ending joyride of rising stock prices, booming private valuations and “easy money,” corporate leaders have started intensifying alarms about high inflation and impending interest rate hikes.

As tech stocks have crashed on public markets and private company valuations have taken a hit, investors are writing cheques more cautiously while urging their portfolio companies to preserve cash. It’s an unfortunate time to be fundraising, particularly for those with a high monthly burn rate.

Over the past month, public and private tech companies have been announcing layoffs across regions and sectors. Employees from Unacademy (India), Carvana (U.S.), Klarna (Sweden), Getir (Turkey), and Avo (Israel) have been impacted by workforce reductions. Larger companies such as Twitter and Meta are also instituting hiring freezes.