Tech companies have laid off workers massively this year. One of the main reasons is that they hired too many people in the first place when times were easier. Stewart Butterfield, the former CEO of Slack, this week shared some insights into how overhiring can happen, identifying behavior among supervisors that he sees as the “root of all excess.”
Butterfield co-founded the messaging startup in 2009 and saw its valuation rise dramatically over the following years, with one massive funding round after another until its successful IPO in 2019. Slack then acquired the company. company for $27 billion, and earlier this year Butterfield left the company, admitting that he “didn’t do very well” integrating the two cultures. The billionaire now buy a luxury property with his wife, Away co-founder Jen Rubio.
So Butterfield knows what the Fed is inducing easy money era was like for tech startups. “Even then it was obvious – we would say in interviews, it’s just a zero interest rate. That’s what’s happening,” he told Bloomberg. odd lots podcast this week.
He noted that when there’s no real hiring constraint, “you hire someone, and the first thing that person wants to do is hire other people.” The reason, he explained, is that “it’s a very obvious signal, and it’s very true, that the more people who report to you, the higher your prestige, the more power in the organization.
He continued, “If you’re a manager, you want to be a senior executive. If you are a senior executive, you want to become a director. It’s a very powerful incentive. So every budgeting process is, ‘I really want to hire,’ and that to me is the root of all excess.
Butterfield was talking about Slack, but the same phenomenon may well have happened elsewhere in Silicon Valley. True, tech companies have laid off employees, including Salesforcewhich cut 10% of its workforce in January and would be consider further layoffs. Others include Amazon, drop box, MicrosoftAnd Facebook Meta parent.
“In reality, there’s probably a bunch of people in the company who shouldn’t be here,” Meta CEO Mark Zuckerberg told employees last summer, when The Verge reported. Meta then laid off 11,000 workers in November and another 10,000 in March, with Zuckerberg targeting middle managers and calling it “the year of efficiency.” (Shares of Meta have soared this year, helping Zuckerberg increase his net worth by more than $45 billion.)
Butterfield noted that over-hiring at other types of businesses would be less likely. “If you don’t have the compulsion of ‘we just don’t have the money’, you know, if you’re making lysine or something like that, a 70-year-old industry where there’s a lot of competitors and all the margins have been removed, you can’t do that.
But if you have “infinite money, either by being a search engine monopoly or by having VCs that give you lots of money,” he continued, “you can get rid of that constraint”.
And that, as he suggests, presents its own problems.