The first time Julian Chavez got laid off from his job as a digital ad sales rep at web.com didn’t turn him off from the tech industry. Neither did the second time when he was laid off from ZipRecruiter. By the third time, though, Chavez had had enough.
“I really loved what I did,” said Phoenix-based Chavez in a text message. “But the layoffs got me jaded.” Now he’s pursuing a graduate degree in psychology.
Chavez is one of hundreds of thousands of tech workers who’ve been laid off in the past two years in what now seems like a never-ending wave of cuts that has upended the culture of Silicon Valley and the expectations of those who work at some of America’s richest and most powerful companies.
Last year, tech companies laid off more than 260,000 workers according to layoff tracker Layoffs.fyi, cuts that executives mostly blamed on “over-hiring” during the pandemic and high interest rates making it harder to invest in new business ventures. But as those layoffs have dragged into 2024 despite stabilizing interest rates and a booming job market in other industries, the tech workforce is feeling despondent and confused.
The U.S. economy added 353,000 jobs in January, a huge boost that was around twice what economists had expected. And yet, Google, Amazon, Microsoft, Discord, Salesforce and eBay all made significant cuts in January, and the layoffs don’t seem to be abating. On Tuesday, PayPal said in a letter to workers it would cut another 2,500 employees or about 9 percent of its workforce.
The continued cuts come as companies are under pressure from investors to improve their bottom lines. Wall Street’s sell-off of tech stocks in 2022 pushed companies to win back investors by focusing on increasing profits, and firing some of the tens of thousands of workers hired to meet the pandemic boom in consumer tech spending. With many tech companies laying off workers, cutting employees no longer signaled weakness. Now, executives are looking for more places where they can squeeze more work out of fewer people.
It’s called the rule of 40, and it’s the metric that has tech executives acting like bipolar Chihuahuas. Grow, cut, expand, right-size, cross the chasm, reorg, polish the turd and cover the smell. If a tech company doesn’t hit their rule of 40, their stock suffers. If they do, the stock soars.
% growth year over year + % profit margin should be greater than 40. 20% growth and 20% profit margin, or 0% growth and 40% profit margin, it doesn’t make a difference.
That means if you have a 15% profit margin, your target growth is 25%. But if you only grow, say, 20%, you must make that 5% back by cutting COGS. Companies trying to grow will hire staff to build up sales and get more done. If the growth doesn’t hit its target, those new hires are probably cheaper than the experienced people. Time for layoffs and outsourcing the veterans.
But why 40?
That’s the fucking horror of it. There’s no particular reason. Some stock analyst at some point said that 40 is a magic number that good Saas companies hit and not hitting that number is a death knell. But the market is far too complex and variable to boil it down to one metric.
But then investors like a simple metric, because it means they can anticipate what the dead money day traders will think, and bet the trend rather than the stock. If you can anticipate the market, you can make money regardless of what it does.
And executives know the rule, and serve the shareholders. So they move heaven and earth to maintain the magic number, even if it means destroying the lives of fungible employees.
So the rule becomes the prophecy becomes the rule because the prophecy said the rule would be the prophecy and the people making money like having rules because it allows them to be prophetic.
It’s an ourobouros of bullshit, where the rich get to ride the snake as it turns, and the employees all eat shit and are in turn consumed to provide the motion.
This is where I spat out my coffee.
but… why male models?
Come on man, I just told you.
Because MBAs don’t math good.
20% looks too small, 60% might look too much like a bubble ready to burst.
The more you learn about numbers, the more arbitrary you realize they are.