So the economy took a nose-dive this past month. Yahoo’s stock is down more than 35% in the last 30 days, Google is down 16% and ebay is down 34%. The Online Media sector is taking a beating for sure. Yahoo! is laying-off 1,500 people and eBay already laid-off 1,500. But how many of the companies doing lay-offs are financially strapped or in trouble? At this point, any company can announce a ‘me-too’ lay-off without having to provide much explanation. A lay-off now would actually be perceived as an indication of good fiscal management! So for many companies this is a great opportunity to ‘cut the fat’ and get away with it. But look closely and you will see that while some companies are eliminating positions, they will be creating new ones elsewhere in the company. Out with the old and in with the new. RIFS are fundamental.
The economy took a nose-dive this past month. Yahoo’s stock is down more than 35% in the last 30 days, Google is down 16% and ebay is down 34%. The Online Media sector is taking a beating for sure. Advertisers are cutting budgets and channeling the remainder of their spend where they can specifically measure results. There is no question that the ride has gotten bumpy and will likely get worse before it gets better.
So Yahoo! is laying-off 1,500 people. EBay already laid-off 1,500. Now Wikia is laying off 30% of their team after Pandora laid-off 14% of theirs. The image I am providing is the Tech Layoff Scorecard from CNET. You can find it at http://news.cnet.com/8301-1001_3-10069195-92.html. This chart illustrates some of the recent lay-offs that have been reported across the industry and it is updated daily:
CompanyDateHow ManySanDisk10/22/2008TBAManiaTV10/22/200820 of 70iMeem10/22/200825% of 80Mahalo10/22/200810%HP10/22/200824600 over three yearsYahoo10/21/200810% of ~14,300Ticketmaster10/21/200835%Comcast10/21/2008300Softchoice10/20/20086.5% of 958Veoh10/20/20080Wikia10/20/20083Autotrader10/20/200869Texas Instruments10/20/2008possibly 300Sprint10/17/2008ongoingJaxtr10/17/200813Zivity10/17/200833%Zillow10/17/200825%SearchMe10/17/200820%Heavy10/17/200814%Lenovo10/17/200850 in Morrisville, N.C.MPC Computers10/17/2008200Hi510/16/200810-15%Sirius XM10/16/200850Pandora10/16/200820Adbrite10/16/200840%Tesla Motors10/15/2008Detroit officeSkyRider10/15/2008AllAppcelerator10/15/20086Jive Software10/14/200833%Redfin10/14/200820%Seesmic10/10/20087Lulu10/9/200824Micron10/9/200815%eBay10/6/20081000Gawker Media10/3/200814%
VCs and PE firms are handing down the word to their portfolios: ‘tighten your belts boys, and stretch your funding for the next three years.’ The wells aren’t dry, but the likelihood of exits in this sector with this market just got pushed out. It’s definitely time to shine the spotlight on venture-backed tech companies, that promised high-value returns, who still haven’t figured out how to make money. VCs and PEs take this time to reassess their portfolios. They’re already invested pretty heavily in the space so now it’s a matter of suring up those investments. How strong are the existing management teams in place? Are we going to rescind the next traunch? Should we make some structural changes at the leadership levels? One thing is for sure … VCs are getting active with their companies.
Is this the next bubble-burst? Not necessarily. We all know that the economy is in a recession. How many of the companies doing lay-offs are financially strapped or in trouble? Some of them are as we can see or estimate. Some of them, like Yahoo and eBay need to scale-back just to maintain shareholder value or keep profitability at expected levels. Other smaller venture-backed companies need to scale back costs until they can get their revenues up to support the business.
But when big companies RIF (reduction in force) it also opens the door across the industry. At this point, any company can announce a me-too lay-off without having to provide much explanation. In fact, at this point in time, a RIF will likely be perceived as an indication of good fiscal management in response to economic uncertainty, inflation in our sector and the forecasts of decreased spend from advertisers. So for many companies this is a great opportunity to ‘cut the fat’ and get away with it.
RIF opportunities come in cycles. When big companies do a layoff – like Yahoo did a year ago – other companies follow suit so they can move under the radar of the headliner. Do all of these companies need to RIF? Nope. In fact, look closely and you will see that while some of these companies are eliminating positions under the guise of good fiscal management, they will be creating new ones elsewhere in the company. The East Coast Sales Director will be replaced by the National Business Development Manager. The Global Market Strategy Director will be replaced by the Corporate Product Marketing Director. These changes don’t necessarily happen at the same time. Smart companies let 90 days pass between the two moves. This allows the RIF to happen in one quarter, and the opportunity to report the impact, before going into the next quarter when the re-expansion occurs. Out with the old and in with the new.
So with the current lay-offs in the industry, what does that mean for companies that want to grow – great hiring opportunities? Yes and no. RIFS don’t usually flush the good people, they flush they expendable people while the good people get retention bonuses or extra stock options. The market will get flooded with mediocrity and one man’s fool will look like another man’s gold. I am not saying that there won’t be any good candidates put out to pasture, but hiring managers will have to do a lot of interviewing to find them. Tactically, the opportunity to hire is to go at the companies that just did layoffs and try to hire the retained people while they feel unglued. Good recruiters know this already.
But in the end RIFS are fundamental operating procedures – and opportunistic initiatives that are taken when the elephants are under the microscope. Don’t let 400 point daily swings in the Dow and RIFs make you think that the bubble is coming. Think a quarter or two out. There are some very good technologies out there, game changers. There are a lot of dollars invested in some real businesses and accomplished teams. Advertisers need to make money and need now more than ever to invest in marketing and sales to do it. It’s bumpy now, and will stay this way for a while. But look carefully through the dust being kicked-up and see the movers and shakers that are in motion beyond the RIFS. It’s probably not a ‘pop’ you’re hearing but plans for more growth.