Here Come the Layoffs - 10/17/2008

When the Internet bubble burst, tech workers were hit hard. The industry-wide contraction not only impacted .com start-up VPs making 200k a few years out of school, but hordes of experienced and seasoned software developers, engineers, and designers. Silicon Valley lost 15% of its high tech jobs. It took many years for things to sort themselves out. Some of the consequences of that bust even continue to this day.

For example, I was speaking recently with the UNH computer science department head, Phil Hatcher. He indicated that the number of computer science program enrollees remains 50% below 1999 levels. It seems many future software professionals were left with a lasting bad taste when the bubble burst last time. In addition, many students think all the software development jobs are eventually moving overseas. With the rise of Web 2.0 and a whole category of new web-based business opportunities, I really thought we were finally climbing out of those dark days and software was “cool” once more.

But now it has started again.

Earlier today, I saw this summary of software and technology job loss announcements from the past week. That is a lot of activity. And so many appear to be missing from the list. eBay announced a 10% workforce reduction. Zillow announced cuts. VoIP startup EQO slashed its workforce by 65%. One week ago, my former employer, Chordiant Software, announced a 13% workforce reduction. Word on the street is that cuts at Yahoo are coming soon. Even Google, which is holding up surprisingly well in this market, has cut new hiring by 75%. A pretty strong statement from the world’s leading technology company.

The big buzz this past week was the secret Sequoia Capital meeting, which has been written about extensively over the past week (see venturehacks and Silicon Alley Insider for example). In summary, the renowned VC firm convened all their CEOs to a secret meeting and gave them a very strong message regarding the current downturn and what was going to be required to survive it. If you haven’t clicked through the presentation yet, you really must - it makes for interesting but very scary reading. One statement is now burned into my head, and this one phrase pretty much summarizes the whole presentation: “spend every dollar like it is your last.”

Not everyone is doom and gloom on the outlook for start-up companies, as Kevin Ryan outlines in this short post. But that was two weeks ago. That is a long time ago in the current environment. With the Sequoia meeting, the world may have changed.

My advice to small or emerging companies right now is plan to do more with less. A lot more with a lot less. Make sure your personal financial needs are as low as possible. If you are seeking capital, expect investors to be very cautious - especially private/individual investors. Expect to get less money than you want, and give up more than you want in the process. But if you can secure a little financial coverage now, this could be an excellent time to hunker down, crank on your product, and diligently work those one or two critical clients. The economy is not stopping. Professional investors remember that investments made in 2001-2002 were some of the best performing of the decade. Hard work and flexibility as a team, and low run rates, will be your friend for the next several quarters.

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