Cost Cutting at Dropbox and Silicon Valley Startups | Hacker News Reader

Cost Cutting at Dropbox and Silicon Valley Startups

businessinsider.com

63 pointsminimaxir32 comments

These articles are always written with a not so subtle level of schadenfreude by the author.

When companies cut costs they basically have a choice of reducing COGS, reducing overhead, reducing compensation per employee, or reducing the number of employees.

Most software companies have relatively low COGS so there isn't much to cut there. Reducing overhead (office space, events) is the least painful. Cutting peoples' salaries is basically impossible, so the only lever there is holding back bonuses. Depending on the company that may be a big cost saver. The last option is laying people off.

Given those are the only options cutting overhead is the nicest thing to do. Why is that a bad thing?

From the perspective of an ex-cisco employee, two main reasons:

1) Because it never ends at cutting overhead. In fact it would be quite accurate to say it never ends. I still have contacts with cisco employees and the fear of mass-layoffs has gotten worse every year, I am told since 2001 (I wasn't yet an employee in 2001). When the "overhead" in my office was visibly cut, I thought like you did, it was a mistake.

Firstly, I should have immediately found another job. Granted it took another year and a half, but I could have done far better, even with just a bit of preparing. I thought I'd work forever at cisco. In retrospect that was a very, very bad assumption to make.

Secondly, I should have taken my employment contract to a lawyer. Because they fucked me on severance, stock options, and a few other things. You see, paying employees, especially during mass-layoffs, definitely is something they maximally cut (even to the point of probably being illegal).

2) Because top level managers keep making things worse. At cisco, the specific thing that made me really angry was that we could no longer book our own flights. We had to use the company travel agency. Then you find out what really happened: senior management was told they could no longer expense first-class flights for their entire family. So what did they do ? They went to a particular airline, and negotiated a deal : free first class flights for them (meaning at sub-business prices), if everyone at cisco would fly economy and business only with that airline. Mind you, this was the one that made me blow up, it was far from the only thing.

One company I worked for was very big on breakfast meetings. You would grab a muffin and a coffee, then go listen to some VP waffle about something.

One day, the muffins were all sliced in half, and a sign up to only take one half each.

Not long after that the company laid off 6000, including me.

Pay attention to these early warning signs, is my advice.

A wise ex-trader once educated me about the FITH (Food in the hallway) index. One internal measure of a companies performance.

Seems like the FITH index is on a downward trend at Dropbox.

Curious if they've read the classic Steve Blank https://steveblank.com/2009/12/21/the-elves-leave-middle-ear...

As a somewhat frugal person, I feel really uncomfortable when companies buy me unnecessary things (that could be going into my salary...).

SV sounds like it's becoming a nicer place to work to be honest.

I think employer provided food isn't currently taxed, which is a huge benefit.

http://www.wsj.com/articles/silicon-valley-cafeterias-whet-a...

And it's clearly there so employees can get back to work faster and stay on location for lunch. Is it more efficient to have catered rather than outside food? Does it taste better? Is it healthier? It's hard to say. I think the companies around there will keep catering around.

A lot of excess is more blatant.

Dropbox food is better tasting and healthier than neighborhood lunch options, which are also very expensive (I've seen $16 sandwiches)!

As a somewhat frugal person, I feel really uncomfortable when companies buy me unnecessary things (that could be going into my salary...).

But it wouldn't go into your salary. As far as I've always understood it the goals of perks is, besides attracting new talent, to keep people on premises as long as possible.

It is very impressive to younger college graduates. When you go from eating cheapest pizza and pinching pennies, something as simple as free dinner sounds like a lavish perk. Throw in free shuttles, massages, etc, you'd find they'd be really happy and tell their friends too.

It is probably worth it to the company in terms of keeping people there, having them enjoy their day etc more than just paying that to each employee as part of the salary and have them buy their own dinners.

That's nice. Everyone is different and different things make them happy.

I wasn't saying I personally agree, I would rather have that money in my paycheck. But given their audience and the cost benefits analysis -- it does seem to make sense.

Yeah, I'm well aware of both these things.

Somewhat similar, just don't care.

They did it so intentionally that makes you feel if you don't work your ass off, you didn't deserve such a good company! But I just ignore them if they are not essential.

The thing that got me was:

"The company wrote in the email that employee perks in total have been costing Dropbox at least $25,000 a year for each employee. Based on Dropbox's roughly 1,500 headcount, that would translate to about $38 million a year."

That sounds nuts, but do "perks" include health insurance, life insurance, the usual stuff? Or just the ridiculous stuff that only exists at tech companies?

No, insurance is usually referred to as "benefits". "Perks" are things like snacks and massages.

Perhaps Silicon Valley needs a perks metric? "That's only 0.25 pandas per FTE."

That's about $100/employee/workday, which is significant but not insane -- a couple of meals, a few espresso drinks, a massage and some dry cleaning and you're probably in the ballpark when you consider operational overhead. Whether they're easy to cut is another matter -- perquisites are considered more important when they're being removed than when they're instituted. (Plus, it's a cheap if unreliable signal for financial distress.)

There will also be the salaries, offices, etc of the people whose full time job it is to administer the perks system.

I completely understand cutting a chrome panda and eliminating open bar on Friday nights, but things like an employee shuttle seem like a solid use of company money to increase real productivity. Time spent driving a car or navigating a few bus/train connections just can't be that productive. A comfy bus straight to the office (probably with WiFi)? Yes.

Dropbox's employee shuttles ran a very limited schedule and only to the Marina and Mission from their Mission Bay office. When the company was smaller it may have been more practical but over time as hiring picked up a larger percentage of employees didn't live in these two areas. Spending so much on a shrinking percentage of headcount wasn't reasonable especially since the majority of employees were paying their own commute costs, often from the South or East Bay.

Am I reading correctly that Dropbox management spent a hundred thousand bucks on a chrome panda in order to get people to think about careful spending?

I think what happened is they bought a chrome panda first (probably took a year), and then more recently decided it was worth having some level of cost control, but what do you do then -- sell it? remove it? cover it with a tarp? -- so they put a note on it saying essentially "Never Again."

It's a pretty cool panda. I can see why they are keeping it.

Apparently this is the thing:

http://imgur.com/gallery/yp7wIRV

I'd ask why, but if there was an answer to that question it wouldn't be half as cool.

That makes more sense. I feel like the article painted it quite differently.

In their position I would have sold it and donated the money to charity.

Sold it for how much? Just give some money to charity, don't waste the panda.

The question before cutting each cost: Will this help my staff be more productive and happy?

The assumption being a happy and productive staff creates better products.

Panda? Maybe not.

Free soda? Keeps our engineers from being thirsty! Yes.

Bring all you mates to friday open bar? Maybe not

Bring your closest mates to drink beer and talk shop? Yes.

Just because investors are no longer willing to blindly shovel cash into the furnace that is SV's pointless startup culture, doesn't mean they will similarly slow down investments into innovative technology companies that have promising products, real revenue and strong visions.

Press loves to generalize. Doesn't make it true.

> innovative technology companies that have promising products, real revenue and strong visions.

How many of today's startups does that describe? Like 1 in 50, maybe? The past three years have felt an awful lot like the late 90s, and I think the next three are going to be a lot like the early 2000s.

Frivolous office decorations and perks can be tolerated so long as one avoids frivolous business decisions and products that are doomed to failure from the start.

Reply on news.ycombinator.com