(Expansion) – Far from personal or idealistic interpretations, massive layoffs in startups have the main objective of reducing costs and ensuring the survival of the company; That’s the positive, that the business continues.
This global phenomenon has not ended and will not end soon. We come from an economic context of high valuations; a pandemic that accelerated the digitization process and boosted the growth of these companies. Now, we are facing an economic crisis that is forcing startups to rethink their strategies in the short, medium and long term.
Investments are becoming more cautious. During the pandemic, the ‘boom’ of capital was attracted by startups. Media headlines frequently spoke of great valuations and highly promising new unicorns were the news. But by the end of 2022, the picture is different: inflation and low-growth forecasts are grabbing the headlines.
officially on a diet
Financing has not ended, capital continues to be raised, but now investors are more risk averse, applying more realistic valuations. The question is, are they putting an end to a period of fat cows? It is a fact that we will continue to see investments, but increasingly sophisticated.
For example, a few years ago the companies in which 500 Startups Management Company invested were mostly online sales, now it allocates funds to companies in industries such as telemedicine, artificial intelligence and data.
Jorge González Gasque, from G2 Momentum Capital, wrote a short story about unicorn companies, which clearly portrays the present of these companies. In his narration he notes: “They took a harder path and declared: Guys, money will be tight in the future… Make money last a long time and maybe you’ll fire some of your favorite employees.” And he closes with emphasis: “From now on, we (and our colleagues) will only invest in thin and mean unicorns. They are now officially on a diet.”
no bad, no good
In the strict sense of survival, the social role of the entrepreneur is to add value with their products and generate employment. Although it is not correct to say it: first you have to survive and you survive by cutting expenses and making difficult decisions.
Great leaders know to play fair in times of turbulence. It is common to believe that as leaders accepting a mistake is detrimental to our prestige, or our ego; but, when we talk about in front of the team, exactly the opposite happens. Accepting failure builds empathy and builds trust.
In 2008, Howard Schultz, from Starbucks, openly expressed that having recognized his mistakes before more than 180,000 collaborators was a turning point for the company, since from that moment on they resumed their growth path. In addition, for him it was “like having freed himself from a great weight on his shoulders.”
On the other hand, it must be considered that after a big dismissal, the morale of the team may be low and it will be the leader’s task to work on it.
In the short and medium term we will continue to see layoffs in startups, some planned and others improvised. I can predict that we will have strong economic turbulence in 2023 and 2024 in the economic context, and in 2025 due to the political context, which implies important challenges for the ecosystem.
Let’s celebrate the survival of startups, but as entrepreneurs let’s be responsible for the mistakes we make. Let’s play fair, if the time comes to dispense with people from our organizations, I repeat, let’s correct the course and take care of the team, there is no more.
Editor’s note: Jorge Sánchez García is the managing partner of Apolo 25. Follow him on . The opinions published in this column belong exclusively to the author.