Hacker News Reader

Comment by MuffinFlavored | Hacker News Reader

> you'd expect at the very least a post-mortem.

"Despite getting paid millions to be good at my job, I did what every other CEO was doing when the Federal Reserve set interest rates low and hired a bunch of staff. I didn't think "hmm... this might change in the next 6-12 months". It changed. I am now doing what every other CEO is doing and jumping on the bandwagon and correcting."

Now I don't actually have proof that interest rates directly affect Google (who is probably flush with cash/very profitable/has high margins/has lots of money coming in).

I don't think they were financing 12,000 employee salaries with "cheap debt" and now they can't. Not sure how inflation plays into it.

I just like to tell myself "these people weren't top performers and if you work for a company like Google (and get paid a lot), you are expected to do a lot/be a top top top performer"

View on HN

> these people weren't top performers

Problem is that this is not how this is unravelling. Large lay-offs like that cull entire departments, not the lower performers.

What I'm hearing from Googlers I know -- the layoffs are not on the whole tied to perf. They're across the board in terms of years of service and seniority and product areas and roles and some people recently promoted have gotten the axe, too.

Doesn't seem to be departmental. When Google does that (axe a PA or department or product) they have a process of giving a chunk of time usually to let people move themselves, or be moved; e.g. when they killed Fiber at my site (Waterloo) they moved everyone (including me) into other roles and brought new projects into the office, and people in Mountain View and other places were given a few months to find something else internal.

It's the same at Microsoft and Amazon, I've seen top-tier people with >10y service getting axed in both instances.

I'm not suggesting there aren't top tier people but I know firsthand that just being there for 10yr (specifically the past 10 years at G) does not in any shape or form imply you're top tier. You could have been literally coasting for a decade.

Yes, will this is in part the Faustian bargain that is often made to work at Google. People often become mediocre working there, and Google is on the whole frankly fine with this because it keeps those people from going & working at potential competitors.

That this is now changing, is interesting.

In any case, like I said above, this round of layoffs doesn't seem to be indexed on performance. At least not completely, from what I've heard.

It should be interesting to see how many new startups get built out in the next year as a result of this.

There are like 46k Xooglers or something.. +12k Xooglers now. That is like startup gold. So much opportunity if these folks self-organize.

> Problem is that this is not how this is unravelling. Large lay-offs like that cull entire departments, not the lower performers.

Companies like Google are overstaffed by the lazy, entitled Prima Donnas. You can see it all over HN in its advice:

"Don't go to a startup! You would need to work. Rather get a job at FAANG, get paid a very large salary, leave on the dot, don't ever be on call. Also, best part, you will get at least a few hours a day to play around on the internet. Also, remember, you have a power of pocket veto! If you do not like something, just don't do it. What are they going to do? Fire you? You will get another job in a jiffy!"

With the zero interest rate environment gone the culling is inevitable.

Advice on HN not to go to a startup is because 99% of startups have bullshit equity options these days.

They're not worth the risk and stress because the VCs and founders are keeping potential payouts to themselves but pushing a huge amount of the financial risk and work stress onto their staff.

Unless you're a cofounder or maybe a founding engineer, payout from a reasonable sale of a startup these days -- if it fluked out and actually happened -- ends up being little more than the annual comp at one of these BigCorps.

TLDR, you don't get a job at a FAANG because you're lazy, you get that job because you're looking out for yourself and your family and you'd prefer not to be someone's plaything.

That said I got sick of Google and went and shopped around last year and now I'm working at a smaller, series B funded company now and love it. But I ain't hoping to get rich, just job satisfaction.

When VCs and founders get their shit together on equity agreements, early stage startups will be more attractive again.

EDIT: Also hate to burst your bubble, but on-call rotation is a part of plenty of Google SWE teams, not just SRE. But they do pay a handsome bonus for the time you're on-call.

My buddy and I were just talking about this. A company we were modeling received $4.2M in VC funding and had 20 employees at time of purchase. The purchase price was never advertised, but we assumed a 7x multiple on last known value and assumed the sale price at $25M. $25M turns out to be a little over $1M per employee after 4 years (company started 2012 and was bought in 2016). I asked out loud "why would you do this when you could just go to Microsoft or Apple, do less work, and make the same money in the same amount of time".

Now this price is skewed towards the investors and very early employees, but the point still stands. You will very clearly make more money working for an established corp than a startup.

I mean, if you explore scenarios in https://www.tldroptions.io/ even your scenario of $1M per employee is super rare. Actual stock option agreements I've seen and heard about recently for Series A early stage startups were small fractions of a percentage point of outstanding shares, and subject to potentially many more rounds of dilution.

The only time in my 20+ career I've gotten anything real out of an employer being acquired was when Google bought my employer (for just under $400m) in 2011. In that case, though, the stock conversion of my options was only part of the generous compensation package from Google. And in that case it certainly wasn't "I'm gonna go retire now" money, either.

Many are happier with a more modest lifestyle if it means pursuing something of deep interest. For example, researchers in industry make substantially more than their academia counterparts.

The lottery ticket is just a bonus.

I am quite happy to be doing more interesting work after 10 years of slinging protobufs, hence why I have gone to work for startups recently.

But what I'm trying to say is in reality there are no lottery tickets being issued. Except maybe to the founders. Trying to frame it that way is a real problem. Actual equity agreements are mostly not much money at all. I had a founder try to make this claim to me quite recently -- it's nonsense, because I know the kind of offers he was writing up, there was no "lottery"-like outcome possible.

And it is this inequity in potential outcomes that makes the startups less attractive and also diminishes anybody's desire to work excessively hard. The potential payout isn't there. Maybe if one is an exceptional negotiator, I dunno.

Sure. The question then, is if Google, with its deep pockets will let you pursue your deep interest, better or worse than a startup dedicated to a niche.

Depends, I left Google about half a year back. One of the roles I was considering was a former employer, a non-profit, which would have been roughly a 50% compensation cut. But I loved the work, and loved the team. Ultimately I went another direction because of some poor choices they made around remote work.

The discussion that led to it was "I'd rather we have less money than you be miserable all time time" from my other half. The culture at Google isn't for everyone. I didn't fit with it (or at least in my org) and it was a constant source of frustration on both sides.

I don’t know why you think working the hours you’ve been hired to do is being a “Prima Donna”. And I don’t see how getting paid a large salary, having better work-life balance and being hirable are negative things.

Seems like you would rather advice people to have bad working conditions and sacrifice their personal life for a shitty salary on a startup.

> I don’t know why you think working the hours you’ve been hired to do is being a “Prima Donna”. And I don’t see how getting paid a large salary, having better work-life balance and being hirable are negative things.

You want to do an average work working average hours, you get paid an average salary. That would be about $70k/year.

I'm super happy that FAANG started to cut the fat. The sanity is returning to the market.

Interest rates have a large indirect impact on their business, not in the day to day operations but in the value of the future cash flows vs. risk free rate.

Super simplifying, if risk free interest rate is 0% then you can value current cash flow the same as future ones. When you have 5% risk free in 14 years that new dollar is worth half of what it is today.

This has big impact on enterprise value for growing businesses.

> Interest rates have a large indirect impact on their business

Can you expand on how please?

Wouldn't this depend on Google (or other companies) actively financing things through debt with loans from banks?

Why would they need to do this if they have tons of cash on hand?

> Alphabet cash on hand for the quarter ending September 30, 2022 was $116.259B

If anything, can't they put that money somewhere and earn interest on it? Higher interest rates means they'll earn more on it.

How do they experience increased costs from interest rates if they aren't financing projects through debt? Or are they?

They are related but different concepts. The value of a company is equal to the discounted value of its future cash flows. If rates go up, that means a higher return can be had for zero risk, which means all cash coming in the future at more than zero risk is now worth less. There is a second term other than risk free rate in the discounting equation which is related to capital structure. So, amount and cost of debt does impact valuation (though there is some debate and theory that makes my statement not quite true), but it is not the only factor.

Are you saying in a perfect world, the perfect CEO would "can" (get rid of) every team/project that isn't projected to 5% ROI yearly (assuming risk free rate has roughly gone from 0.25% -> 5%)?

Obviously there are exceptions where you want to eat losses up from (R&D a big project for a few years hoping it returns a lot down the road)?

WACC = (E/D x Ke) + ((D/E x Kd) x (1 – T))

E = equity value

D = debt value

Ke = cost of equity

Kd = cost of debt

T = tax rate

Ke = Rf + B * ERP

Rf = risk free rate

B = beta of company

ERP = equity risk premium

Kd = Rf + credit spread

In theory, if a project's ROIC is less than WACC, it does not generate economic value.

How does this apply given that we're assuming Google has enough cash on hand from profit of other aspects of their business that they do not finance most projects through new loans (debt) from banks at current interest rates because they don't need to?

Their cash balance doesn't really matter, it impacts their cost of capital in various ways, but you can still compare the ROIC of any given project to the overall company's cost of capital.

Their cash balance can also make higher risk-free returns otherwise

and charlie munger said he never used calculus

That’s all algebra :)

If you can make a 5% return on investment and borrow money at 0% interest than you're going to invest a lot.

As the interest rate approaches 5% your willingness to invest falls.

Tech runs wild on low interest rates because the return potential is so high. It falters on high interest rates because the risk is high.

> As the interest rate approaches 5% your willingness to invest falls.

Do we have proof based on their financial statements quarterly that they are actively investing their cash in risk free assets yielding 5% instead of investing in projects? I find it hard to believe that a team of $200k-$300k/yr earning employees at Google can't find a way to generate more than 5% net margin for the company?

The particulars don't matter. That was just an example.

If a company sees an opportunity that it thinks it can profit on above its costs it will do so, if it has the resources.

> I find it hard to believe that a team of $200k-$300k/yr earning employees at Google can't find a way to generate more than 5% net margin for the company?

But does the decrease of 6% of those employees have a resulting income decrease? Likely most teams will continue to function without the missing employees. Also plenty of the employees are recruiting and HR and other non-income-generating employees.

Also yes they have billions in marketable securities, in debt, and interest income, etc

https://abc.xyz/investor/static/pdf/20220427_alphabet_10Q.pd...

I think this is more of sliding the levers to keep the earnings good. There was a massive amount of money dumped into the economy over the last couple of years. Companies produced record earnings, and their stock prices correspondingly increased. Now to keep "growing" they need to decrease spending to keep earnings at the same or higher levels.

It is also an opportunity to cut some cruft. A lot of good people get swept up too but most large tech companies have had huge layoffs in the past. They can then cite the necessity to do it as "everyone is having to tighten up"

Google could still be profitable without cutting staff, but their profit would drop and be perceived as not "growing"

I think it's beyond that -- with interest rates rising, companies need to increase earnings or else decrease their expenditures, in order to maintain their valuation.

I'm not sure about this. Here's WHO is asking for this:

https://www.theguardian.com/technology/2022/nov/15/major-inv...

His first argument is bullshit, because Google is effectively debt-free. So Google can choose what to do with its money. He is quite open about that it's simply HIM wanting money:

"TCI also called on Alphabet to increase its already substantial share repurchase programme to run down its $116bn of cash, given that large-scale mergers and acquisitions are limited owing to regulatory scrutiny. It urged it to copy Apple’s approach and become “cash neutral” over time."

His style described in the article sounds like "corporate raiding" from the 80s. One might point out corporate raiding caused a financial crash ...

> Now I don't actually have proof that interest rates directly affect Google (who is probably flush with cash/very profitable/has high margins/has lots of money coming in).

It affects everyone. When interest rates increase, the risk-free rate of return is much higher than when interest rates were 0. That means the ROI of each incremental dollar needs to be higher than it previously was, and when companies have a lot of projects with low risk-adjusted returns, they'll axe those.

> I don't think they were financing 12,000 employee salaries with "cheap debt" and now they can't. Not sure how inflation plays into it.

Think macro-level. It's not that each individual firm says "oh, debt is cheap" and takes on more debt to increase spending. It's that economy-wide a lot of firms are responding to that incentive, and that increased spending is showing up at other firms as increased revenue (and at the macro level, as a general shift in demand).

So your revenue goes up. What do you do with it? Well, if you have projects you could start or increase funding for that look like they'd be profitable, you do that. You might even leverage it a bit; if you think the risk-adjusted ROI of something is way higher than the interest rates you can get, why wouldn't you?

And even if you think there's a good chance that the cheap credit dries up and the economy goes into recession, (a) leaving money on the table for a long-term bet isn't something most CEOs can pull off without shareholders fighting them on it, and (b) you're not actually aiming for zero layoffs -- any company that is innovating and iterating is going to need to lay off some people to match their workforce to their needs sometimes.

Inflation's effects take place at the level of deep incentives. It's not something you can fix by thinking "hmm... this might change in the next 6-12 months."

Hearing a lot about top performers getting laid off too

Reply on news.ycombinator.com