Why do successful IT companies need massive staff reductions?

Source: Andrew Winning / Reuters



What can Twitter , Microsoft and Snapchat have in common? These are successful IT companies and news about them is always heard. However, there is another feature: over the past few months, each of them has carried out staff reductions.



The reasons for dismissals, on the one hand, may depend on the specific situation, but, on the other hand, the very fact of these events really unites such IT companies. The publication Business Insider and its interlocutors discuss whether regular layoffs are a healthy trend for successful IT companies.



According to the co-founder of the Goodwater Capital fund Chi Hua Chin, layoffs for a successful company are like burning excess fat for a person who always wants to stay in shape. This is especially critical for companies "aged."

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HP and Microsoft, for example, have cut thousands of employees this year alone. You can, of course, write it off on a considerable “age” of companies, on the need for constant renewal for further development.



However, the trend is becoming relevant for startups. So, last week Flipagram cut 20% of the state. This application allows you to create and share stories from photos, videos and music. Its investors include such well-known funds as Sequoia Capital and Kleiner Perkins Caufield & Byers.



Indian startup Zomato laid off 300 employees. The startup valuation exceeds $ 1 billion. Zomato is a service that collects information about the best restaurants in the largest cities in the world. Currently, the service includes 18 countries. The main difference between Zomato and resources like Yelp is that the startup is based on the principle of "feet on the street" ("legs on the street").



Snapchat has closed the unit for the production of unique content and plans to lay off dozens of employees. The application allows you to communicate using pictures that are visible for only a few seconds and then disappear.



Twitter plans to soon reduce 8% of employees.

The company has so far failed to solve the problem of insufficient audience growth. Therefore, while Twitter is suffering losses and is forced to cut costs.



The tendency to reduce costs in all conceivable and unthinkable ways is to some extent reflected in the sharing-economy model. Startups like Uber or AirBnB are good examples of such a business model.

Young Internet startups that have found a way to minimize costs, but have received a large amount of investment, have the opportunity to develop and scale, while remaining private.



The global IPO market this year fell to $ 32.72 billion. Last year, its volume reached $ 80.86 billion. According to the company Dealogic, since the beginning of this year, only 19 companies in the United States held an IPO. Last year, for the same period of time, 41 companies became public. However, Pure Storage and Square are exceptions. Both are preparing to go IPO this year. However, if their IPOs are frustrated, two more precedents will fall into the collection of large cuts.



Reductions can be considered only one of the symptoms of what is happening with IT companies, with the IPO market and with the economy as a whole.