Why successful IT companies need massive layoffs

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    Source: Andrew Winning / Reuters

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

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

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

    HP and Microsoft for example, this year alone have cut thousands of employees. Of course, this can be attributed to the considerable “age” of companies, to the need for constant updating for further development.

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

    Indian startup Zomatofired 300 employees. The startup’s valuation exceeds $ 1 billion. Zomato is a service that collects information about the best restaurants in the largest cities in the world. Currently, 18 countries are represented on the service. The main difference between Zomato and resources like Yelp is that the startup is based on the principle of “feet on the street”.

    Snapchat has closed its unique content division 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 cut 8% of employees in the near future.
    The company still has not been able to solve the problem of insufficient audience growth. Therefore, while Twitter suffers losses and is forced to cut costs.

    The tendency to reduce costs in every conceivable and inconceivable way, to some extent, is reflected in the model of sharing-economy. Startups such as Uber or AirBnB are good examples of such a business model.
    Young Internet startups who have found a way to minimize costs, but have received a large amount of investment, are able to grow 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 Dealogic, since the beginning of this year, only 19 companies in the United States have conducted IPOs. Last year, over the same period of time, 41 companies became public. However, Pure Storage and Square are exceptions. Both are getting ready for an IPO this year. However, if their IPOs are broken, two more precedents will fall into the collection of large reductions.

    The 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.

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