74% of Startups Have Trimmed Staff, 65% Have Less Than 6 Months of Cash | Hacker News Reader

74% of Startups Have Trimmed Staff, 65% Have Less Than 6 Months of Cash

forbes.com

228 pointsalephnan108 comments

"Startups are laying people off!"

Examples: Publicly traded companies Uber and Lyft.

Sorry, they're not startups.

And yes, most will have less than 6 months in the bank. Most rounds of funding are planned to last 18-24 months. If they raised at the tail end of 2019, they're already 4+ months into that.

More likely, the bulk of the 65% are companies who raised late 2018 through mid 2019. They're in the middle of figuring out their new round and who will/won't be involved. The good news is that the VC funds have to put their money somewhere so investment can't stop. LPs don't invest for good luck. The bad news is that VCs are likely going to slow down for a quarter or two and valuations will grow more slowly than before.

Companies that have good metrics may be in good shape as VCs become more available and their pipeline dries up. Companies with mediocre to bad metrics may be gone by the end of the year.

Irony, strong companies I been part of have ~2 years of banked cash. Even non-profits.

These hyper-growth companies are showing their weakness. They only work during hyper economic growth. The fact that Uber and Lyft don't have like 2 years of runway in the bank is a strong indication of exactly how much these companies are gambling like drunken sailors.

This is exactly why we must bail out the people and let the companies that did not heed the warnings die out. Ideally with the owners losing all those mega billions they managed to grab.

Not just the companies themselves, but the VCs that feed into their behavior. Will VC firms ever feel the repercussions for fueling this tech boom's irrational exuberance?

And what happens when you chase hyper-growth over profitability when either the markets crash or a global catastrophe happens or perhaps more accurately both events happening? [0]

This plea for halp is left as an exercise to the reader.

[0] https://techcrunch.com/2020/04/08/deliveroo-graphcore-and-ot...

What is a "repercussion"? Most of the individuals involved are in a position where the worst that can happen is a slower rate of wealth acumulation. https://www.bloomberg.com/news/articles/2019-11-05/wework-me...

Son is an extreme outlier- remember he lost $70 billion during the dot com bust, and SoftBank lost 99% of its market cap, and in the subsequent decade was able to gain it back.

I'm talking about the average Silicon Valley VC firm.

> "Startups are laying people off!"

> Examples: Publicly traded companies Uber and Lyft.

> Sorry, they're not startups.

As an aside, I don't like how the tech industry/news sites call any non-behemoth tech company a "startup".

For example, these companies are not startups; they are large (and in some cases, deeply unprofitable) enterprises: SpaceX, Stripe, Airbnb, JUUL, Palantir, Epic Games, Wish, Coinbase, Robinhood, Instacart, DoorDash, WeWork, etc. [0]

Furthermore, 89% of American businesses have fewer than 20 employees [1].

[0]: These are the largest US-based "unicorn startups" per Wikipedia: https://en.wikipedia.org/wiki/List_of_unicorn_startup_compan...

[1]: https://www2.census.gov/programs-surveys/susb/tables/2016/us...

Startup has been consumed by its use as a marketing buzzword and as far as I can tell just means 'company' at this point. People just say they 'founded a startup' instead of 'started a company'.

I suspect most air conditioning contractors and electricians would be called 'startups' if they worked in software.

“Founded a startup” is absolutely but trivially correct because every company is a startup by any definition in the immediate aftermath of its founding. The question is just about what criteria make sense for declaring that a company has graduated from a startup to an established company.

Criteria like “founded in the last Y years”, “has fewer than N employees”, “has market cap under $X”, “is in a fresh/hot industry” alone or in combination end up including dramatically different sets of companies.

I don't agree. Startup has a fairly specific task or operating style that is irrelevant to its size and age and number of employees. A startup is a company that is experimenting with ideas and its main goal is to validate a business model. If those business models can't be validated in a certain amount of time, the company should shut down. If a business model is validated it needs to be implemented and the company is no longer a startup.

You can be a 0-day 1-person company but if you have a business model and an operating structure, you're not a startup. Most companies are started on a specific business idea and planned to run for long term on that idea. Those are not startups.

Where do you draw the line for "validating a business model"?

Uber was founded 11 years ago. How long do you need to validate the business model of a taxi app?

AirBNB was founded nearly 12 years ago. How long until they're done validating the business model of letting people rent apartments over a website?

I feel like a business model is validated when it becomes profitable, which it's why many of us don't validate the Uber/Lyft business model yet.

Okay, so it's partially computable. But non-viability can never be proven?

Startup implies tech and/or "nontraditional" business and also tends to imply VC money. A restaurant isn't a "startup" because it's a restaurant, a hardware store is a hardware store. But what is a VC backed meal kit company: a startup. There's no actual word for it so startup is the catchall term

Extremely insightful comment! I've been in the industry for a while and this is an excellent definition. It pertains to whether or not a business model is well-established or not.

> what is a VC backed meal kit company

How about a meal kit company?

Words mean what people who use them intend them to mean, so we end up with things like this:

noun

a new business venture, or a new commercial or industrial project.

adjective

of or relating to the beginning of such a venture or project, especially to an investment made to initiate it

https://www.dictionary.com/browse/startup

NB: dictionaries are not authoritative sources for living languages, rather they can only be historical records. Thus, words mean what people who use them intend them to mean.

I also think a more important qualifier is the primary focus being development of a proprietary product or service, as opposed to e.g. consulting or providing infrastructure. (Not sure exactly how to word it properly to make the distinction clear, but I think you get the gist)

In my book, a VC money is not a prerequisite for being a startup (although that tends to be how things go these days)

Plenty of startups are doing the same thing as giant companies that nobody is calling a startup. SpaceX started out building rockets just like everyone else in the industry. https://boomsupersonic.com/ designs and builds aircraft like say Boing.

Startup = new business model. However once those business models have become mature, it's no longer a startup.

Meal kits are not that revolutionary. Frozen meals have existed for decades, adding some different ingredients and shipping isn't a big innovation on it's own and is more of a standard evolution of food retail.

> I suspect most air conditioning contractors and electricians would be called 'startups' if they worked in software.

But do they provide innovative solutions and aim for growth?

Oddly, no. Most service companies are a lifestyle, not an attempt at an empire. Witness: when the owner retires, the company goes out of business. Unless a family member wants to carry on, most often they just lock the doors and walk away. Instead of trying to sell the business.

“Startup”, for me, means tech and “never consistently made a profit (yet)”. Some might add “and doesn’t really know how to get there, either (yet)”

Most air conditioning contractors and electricians are in a different category. Unless they set their tariffs wrong by an enormous amount, they are profitable almost (they may have to invest in tooling and transport) from day one.

> I don't like how the tech industry/news sites call any non-behemoth tech company a "startup".

And I don't like how they call these companies "tech" companies.

Yes, they use computers, but mostly in ways that we have been doing for decades. By that standard, every company is a tech company including farmers and banks.

If they must call them "tech", then call them "low-tech" unless they regularly and substantially publish in scientific journals.

And no, having a pet tech project like self-driving cars does not make you a tech company until it's getting close to your main source of profit.

>Sorry, they're not startups.

They are still living off of venture capital though, no?

Our company is in a counter cyclical industry, one of the ones referenced in the article. We were looking to raise money this quarter, regardless of this pandemic, because we had maybe a year and a half of safe runway left.

The interesting thing is that this downturn has simultaneously raised our revenue (since we’re counter cyclical), but dramatically decreased the likelihood of us getting another round with reasonable terms this quarter/year, because cash is no longer cheap for our would-be investors.

As such, even though our quarterly financials are going to be abnormally high, they decided to cut some perks and let go of 5% of employees (among other things) to reduce our burn rate.

It’s an interesting outcome: it doesn’t matter how counter cyclical your business is, if you have a runway and it’s less than two years, you’re impacted.

In the aftermath of all this, I wonder if more entrepreneurs of wannabe hyper growth companies will seek out positive cash flow more sincerely than they do today, after going through this trauma.

> It’s an interesting outcome: it doesn’t matter how counter cyclical your business is, if you have a runway and it’s less than two years, you’re impacted.

Not if you're profitable.

Being profitable rather implies more than two years' runway.

You're profitable until you're not. B2b world took a breath and continued in many places, but if the bottom keeps falling out, very unclear what next quarter looks like, and the quarter after. If the other end of the b2b is a b2c and the b2c goes away, so does the b2b.

We're seeing new (small) purchases continue at big enterprises, and 2020 budgets were already ok'd in dec/jan/feb. We also help gov teams, and even slower response there (and I feel for the employees there where remote work is even less of a thing, esp. in national defense). Institutional momentum & insulation means a very delayed response. No clue when it'll be and what it'll be.

Hence, even if you're doing fine, but don't have runway for > 1yr, who knows. Run-rate is very different from a cash reserve when the rug gets pulled out under you for whatever reason.

Not sure where you work but youre lucky to be at a company that has a team thats taking that kind of action. Massive props.

Yeah. Nobody likes to see people go, but it's better to cut 5% employees today, in reaction to the uncertainty, than to cut 20% in 6 months if the worst case scenarios play out.

It's a hard decision, but a mature one that minimizes the expected value of suffering, so I respect it too. Tough times :P

But if the worse scenario actually plays out, you go on to cut 5% every other month, and end up with a net 15% cut in half a year regardless. But now your people are uncertain whether they should expect another cut, given the track record.

There’s a number of reasons why I think that won’t happen here, but you’re right generally. My disposition leans cynical so it took me a week of badgering leadership to be confident this wasn’t the case. I don’t want to dive into the details of our particular case, but I agree with the thrust of what you’re saying: cuts almost never inspire confidence.

If you’re in a leadership position and you’re making a preventative cut and you’re super confident that you won’t need to make more going forward, you need to overcommunicate this, otherwise the anxiety you induce will reduce productivity and undo the cut.

I also work at a theoretically counter-cyclical company, which is a brilliant selling point these days, and business has been very good. Our experience has been a little different than yours. While investors are suddenly poor and conserving capital, the fact that we are closing big deals right now when every other startup they see is clinging to life and big deals are evaporating makes the company relatively attractive in the current environment. That is almost literally our pitch —- how many deals do you see that are doing this kind of business in our current environment?

We have been cautious but we are actively growing our headcount. The quality of candidates we see has also spiked. It is a very rough time for many of my friends but this is a market where strong counter-cyclicals can do extraordinarily well.

I think counter-cyclical SaaS business are well-poised for some favorable term sheets this quarter, which sounds like your setup: enjoy it! :)

Our product is consumer facing (so it lags the cycles a bit, we can't triple our sales team this quarter and immediately double our revenue), and in an industry with regulation-capped margins (effectively capping ROI, without market expansions). Maximum profit percentage is in the single-digits, but revenue is measured in billions, so it's a small slice of a big pie.

All this to say, we're a fairly conservative investment, so VCs don't look to us to save their currently-imploding portfolios, like they might look to you. Again, enjoy it! :)

We are enterprise, that is probably a key difference! I can easily see consumer being more tenuous in the eyes of investors because there are going to be far more questions about what consumers are willing to spend in current conditions. All of our customers have plenty of cash in theory, we just have to encourage them spend it with us. :)

Thanks for sharing. What are examples of counter-cyclical companies?

Insurance carriers are the poster child for counter-cyclical business (https://en.wikipedia.org/wiki/Insurance_cycle). (Tangentially, article is interestingly pretty opinionated for wikipedia! Strange.)

Staple goods and foods are also generally counter-cyclical, because in times of prosperity, people tend to eat out and travel more.

There aren't many examples of VC-backed companies in this category, because it's very very hard for upstarts to break into counter-cyclical industries.

Government is a common counter-cyclical.

Gaming and other cheap (fixed-price) entertainment is often counter-cyclical. When people get laid off they have more time to fill; similarly, when the general mood is depressed, people look for things that will distract them from their miserable predicament.

There're some other niche examples, eg. liquidation specialists and bankruptcy lawyers. These are pretty obvious ones: anything that people do when they lack money tends to get a boost in a recession.

Personal prediction. Look at 2008.

Right now "the blood is on the streets". The perfect time to use your capital to grab up whatever you can. In a couple of years we gonna have a total economic collapse or a major bounce back. So get started with shit now. It is the perfect time.

Buying yourself time until the bounceback is the right move.

I agree with this as good general advice about economic slumps, but I don't think the v shaped recovery earlier this year accurately reflects the real impact that so many people becoming unemployed will have. Is the right time now, or is it a few months down the track once everything has set in?

It's not obvious to me that we have reached the bottom yet.

One thing 2008 taught me was that people learned to constantly predict that doom is imminent, for fear they get caught not being retrospectively right.

That's no specific to 2008. It's an attitude that every new generation re-learns in their own formational crisis.

> counter cyclical industry

What are some examples of "counter cyclical industry"? I have not heard this term before..

"Will a society that has grown accustomed to hearing about startups employees’ big salaries and cushy perks — dog-walking services while working, anyone? — and that are mainly based in the big coastal cities, be willing to bail out what many might see as privileged and coddled millennials?"

Curious what people think about this question.

I really hope they won’t get bailed out. I think it would be healthier for tech if there was less investor money floating around so people can focus in tech and not on hyper growth. Maybe there will be a trend towards more bootstrapped companies that run real businesses as in making profits.

I wish I could upvote this 10 times. The Silicon Valley meme of some companies is too real. I only work for companies with a practical business model that I think has an actual chance of making money.

It seems strange to have to stress that.

I really hope so too. I've been running a decently-profitable bootstrapped company for a few years now and it's been weird having potential investors/acquirers looking more at things like activity/growth metrics than dollar amounts and profitability. (Obviously, both are very important and I understand why an investor would look at what a cash infusion could do; but I generally lean toward dollar amounts, runway, margins, and traction being more important when valuing a company than how quickly I could theoretically scale up and pivot/expand into new markets).

I think there's a big disconnect in the world of "startups" (hyper growth) and "small businesses" (profitability and scaling), and bridging the gap between the two might have a net-positive impact on the market at large.

That makes two. German start-ups managed to convince the government to set-up a 2 Bn € fund to bail out start-ups (that are defined how again?). The reasoning is that these companies are not eligible for other programs by virtue of not being financially stable enough to get bank loans. It's basically a VC / investor bail out. It would be rediculous if it wasn't so sad.

Meanwhile, in the real world of VC’s, they’re still looking for the “Uber of x” to pull in a 100x return before they can offload the smoking carcass to the public markets.

The problem inherently lies in capitalism. If you dont do it someone else definitely will.

Nothing about that is related to capitalism.

Bailouts are actually an example of government artificially affecting the market to support companies that would otherwise die.

They already are. We applied for and got PPP.

I wonder why "millennials" is relevant to the question being asked.

It doesn't even make sense. Plenty of GenXers working in startup land.

While I also agree this is true there are weekly threads there that imply people over 35 (or 40) cannot get a job in software. All Gen-Xers are over 35, so only one or the other reflects reality.

GenX is 40+ now

40 is over 35.

I don't think this is true. In my experience, those who are seem to have a constraint they don't mention, like knowing an older language that isn't in vogue (I spent a lot of time in the ColdFusion ecosystem, and there were many who really didn't know another language), and who haven't expanded their skillset as the industry has changed (front-end frameworks, Docker, cloud, git workflows, etc)

(I'm not on the market now, but I'm 43, my coworker is 41 or 42 I think, and virtually every programmer friend/cohort I know of that's 40+ is still gainfully employed)

I agree with your impression as well and am also over 40. This site I think generally does not seem to agree with this sentiment.

In many ways, I think HN has a very narrow view of the industry.

Agreed - and I suspect a lot of it is where people live. I could not fathom living in the bay area with a family - and I think a lot of people move out once they start to have kids, meaning everyone left seems to be < 30.

> an older language that isn't in vogue

If you've mastered C, you're still in decent shape.

Also, lots of older languages demand higher pay due to the small applicant pool. I know Cobol and Fortan in banking / finance devs making 400k plus bonuses and saw a K / kdb+ job that was offering 500k. Hell, I even know someone getting paid to write and maintain sql sprocs! Obviously these are anecdotal and not ubiquitous but the job market is a really funny thing when you get into esoteric knowledge.

There's something interesting about this in tech - jobs that are lucrative, but not great choices for your future. Oracle DBAs can still make a ton of money, but it's not a growth field - so anyone left is probably over 40.

I work for a startup and I'm in my late 30s. We recently hired a developer in his late 40s. All my friends working in the industry are around 40 and none of them has trouble finding work.

I'm in France at the moment. Maybe this whole "developers have to be [..30] years old" is only the norm in the niche HN talks about most.

I am sure a big factor with this is being married with kids also.

I work in sales and pushing 50 but have no kids or wife. I am spending most the day today drinking coffee and trying to learn to think in functional javascript.

The day just does not look like this when I am in a relationship. I can't even imagine if you throw kids in the mix. If I had a kid I would be spending my time wiring up their brain instead of trying to rewire my own.

Looking around my office (when it's open) proves that there are Gen X-ers in software.

I haven't seen this at all. I know lots of people, including myself, who are Gen-Xers and still happily employed in software. Unless you let your skills corrode and become stale, I can't see it really being that big a deal.

Even accepting that dubious premise, you also seem to be assuming that startups only hire software devs.

An increasing number of millennials are over 35, since 1982 seems to be the accepted beginning of the generation.

It might be in reference to anyone under 35 never having been in a downturn in their career. SV breezed through 2008 without a scratch.

It's a troll, not a question. Are people really reading it at face value, or do they subscribe to the popular view that most content is generated to serve the sick desperation of an aging and fading publishing industry desperate for attention and clicks? (see what I did there?)

Wait I thought startup employees were awkward young males living in small rooms in shared homes or dorm-like buildings, kinda just scraping by hoping their product catches on, and working 24/7?

you're confusing employees with founders :P

High risk,high reward

I'm not that young

Depends how politically connected they are.

We invest in foodtech and agtech startups. Most of them have seen spikes in demand, but operationally there are challenges and almost everyone has slowed their burn and cut staff because no matter how fantastic their numbers are they can’t rely on venture capital being there on the other side.

Companies that were looking at a a $10-$12m Series A are now dialing back to $2-3M seed II rounds with insiders. Companies that were looking at large $40m-$60m funding rounds, within 8 months of their last round have mostly stopped fundraising altogether.

Still it seems like the big firms are willing to do some seed deals to stay active without blowing out their fund.

Tough times.

I think there's a big reckoning coming. Big companies will do fine, in fact they'll probably just get bigger and richer. Anyone who's already poor, close to broke, or otherwise in a bad position is going to get hit hard by this.

I know it's a really unpopular opinion right now, but I do think the worst damage from the virus is the economic impact which is going to set millions (maybe even billions) of people back another 10-20 years. Simultaneously, rich people will just build an even bigger moat between themselves and the poor.

I think the biggest risk to rich people (and they know this) at the moment is that poor people finally decide to fight back against feudalism and we go through a new cycle of political upheaval ("new world order" type thing[0]). This is something Ray Dalio talks about a lot if you follow his writings/talks.

[0]: https://en.wikipedia.org/wiki/New_world_order_(politics)

I’ve never wanted to work for $BigTech. But the market and salary for senior software engineers collapsed locally and I don’t see it coming back. I still have a job. But, we did have an across the board pay cut.

I have an interview this week with one of the major tech companies. It’s not a software engineering position. But it is tech adjacent. They are the only companies that have the cash to afford to pay the wages I want.

The really funny part to me is that the same startups that laid people off are posting in "Who is hiring". I mean, come on!

Cut the fat and hire good engineers looking for work.

:Shrug:

Care to name names?

If developers are difficult to hire in a regular market, you can use this opportunity to hire them now while you trim your marketing team, which is trying to sell to a market which has hit the pause button anyway...

Except that layoffs.fyi which publishes lists of people being laid off together with their titles and linkedin/email addresses lists software engineers in the same companies that post a week later posted in "Who is hiring" looking for software engineers.

I think a lot of companies used covid as an excuse for cutting under-performers without needing to go through the complicated PIP process.

Especially when they know they can replace them with a lot of talent suddenly on the market.

This kind of practice is illegal in most developed countries. Hiring for the same position after giving someone a redundancy is considered intent for unreasonable dismissal. Does the USA not have these kind of protections?

Many states in the US are at will employment. Meaning you can be fired at any time for basically any reason. Protected classes (race, gender, etc) and acts are the exemption to that. But they can use any excuse they want, fire you, and hire someone else to the same position right away.

I've had pay withheld for months, sudden massive pay cuts, rent spikes (residential jobs), in fact well over half of my previous bosses still owe me salary that I will never see. One job I had to quit because my boss refused to give me time to heal from work-inflicted RSI and I ended up getting carpal tunnel. I still deal with it today. The BBB has never followed up and lawyers are expensive for a young adult living on their own. This is America!

The BBB will be useless in this case. If your state has a department of labor, you can file a complaint with them; often, just going reporting your employer's practices doesn't require a lawyer. You can also try to go to small claims court yourself to recover back pay, if the amount doesn't exceed the small claims limit; small claims is usually pretty DIY friendly (as far as legal processes go).

I've considered small claims but it's just never been worth it. And that's the margin in which these kind of people operate. As far as the BBB, that was really only one specific incident where it made sense to involve them. I was trying to disparage a boss for holding pay for the entire staff for a month and tried involving numerous organizations but he ended up getting away with it scot-free. I think not paying taxes eventually caught up with him though because that place was recently leveled. Looking back there was surely something I could have done to better escalate the situation but I was a dumb kid.

Yeah, I don't blame you. That is, unfortunately, how the system fails us; young people who don't know their rights or people of any age who are desperate to keep their jobs are really vulnerable to exploitation by shitty bosses who know that the balance of power is skewed in their favor. But that's a conversation for another thread, probably...

For the most part the answer to "can this possibly be legal under US employment law?!" is yes.

No it doesn't. Most states have at will employment meaning they can fire you because they don't like what you had for lunch.

They aren't filling the roles after. Companies are just trimming the under-performing fat.

Doesn't seem odd to me to be cutting staff in on area and hiring in another.

You can pick up laid off engineers for a “bargain” price and have them build feature x,y and z now to be ready for the grand reopening of the economy.

If the ppp shell game works like I’ve been told you can swap marketing/support/sales for engineers and maintain headcount.

I think this is true.

We are a smaller company, laid off 4 employees, one technical, and three in sales.

Then, we added a family member, with a newly created role.

Oh, and hired three interns as fulltime devs.

Just realized, as I typed this.

It could be as simple as "easy time to let people go" but things have changed..

If your plan hasn't changed since January, you're doing something wrong. Odds are companies are changing direction and killing off ideas/projects that aren't working and doubling down on those that are. That could be as simple as the marketing mix but may be product roadmap or target customers and the entire go to market strategy.

Any one of those things means you might need to shift people from one area into another or even layoff one group to add to another.

The original link gives 400 for me. This one seems to work: https://www.forbes.com/sites/johnkoetsier/2020/04/30/74-of-s...

I'd guess that most startups have less than 6 months of cash regardless of a pandemic happening or not.

Of course, blaming the pandemic for layoffs is an opportune thing to do.

For most (actual) startups (Lyft is not a startup) this should be an excellent time to execute or to pivot, but most certainly to thrive.

Business as usual then

Wrong link, the correct one is: https://www.forbes.com/sites/johnkoetsier/2020/04/30/74-of-s...

How do we reach out to a mod to fix the link?

Le mod has fixed le link.

(hn@ycombinator.com is the way)

Reply on news.ycombinator.com