Twilio is laying off 17% of workforce

https://www.wolframalpha.com/input?i=TWLO+profit+divided+by+...

And thus, its one of the things that I'm quite willing to add to my collection of "spending under $100/year on this."

Combined with the "this is useful as a back end for knowledge lookup", I suspect some of my toy projects will be using it more.

1. In the Internet era, we live with much bigger markets and hence much more of a "winner-take-all" (or at least winner-take-most) economy for companies that exist primarily on the Internet. You see this over and over in different areas - there is usually one giant leader that takes the lion's share of the money, then maybe 1 or 2 frequently discussed competitors, then everyone else.

2. With this "way fewer points for second best" dynamic, most investors and business leaders are biased much more towards FOMO than fear-of-losing-money.

3. Thus, when the pandemic came along, many folks did see it as the start of a new dynamic with how people used online services. And they weren't entirely wrong, e.g. remote work is obviously much more prevalent now than pre-pandemic. But again, from a business leader's perspective, I'm sure most of them thought it would be much worse to miss out on a paradigm shift in online services than to over-invest.

Of course, any discussion about this topic should lead with the huge sloshing of money due to low interest rates that abruptly reversed. Whenever that happens you see investors pour money into risky assets as they chase yield.

If you were buying in the stock market early and didn't sell (or held on to vested stock), you probably felt the same and wouldn't have predicted such a precipitous crash. It looks obvious now but if you said mid-2022 that 2023 growth is gonna be lower than even pre-covid you get funny looks. Then the unplanned growth strains support, customers are complaining, your competitors are doing well too and are going to keep R&D expense ratios, so you do the same to stop your product falling behind. Investors are high on the bubble, you can spend money with much less scrutiny

The pandemic years saw companies accelerate their growth, even those who didn't have a clear 'pandemic angle' like Twilio. 2020 Q4 saw Twilio revenue growth 65% which encouraged them to hire more. Again, this is just the flip side of the current growth they are seeing (20-30%) which is causing them to re-balance their cost structure for lower growth.

There is risk in hiring during high growth periods - the risk being potentially these employees either won't deliver the value you expect, your strategy is wrong, or your growth rates won't continue. If these things happen, you might have to do a layoff. There is risk is NOT hiring during high growth periods too - if the company doesn't structure itself to capitalize on the current growth it is seeing, competitors could come in and sweep up market share.

At the end of the day, no one has a crystal ball for when high growth rates will stop, or when low(er) growth rates will pick back up again. In these cases, companies will hire during high growth periods and might have to lay off during low growth periods.

Many people seem to want to frame "layoffs" as a de facto failure, but it really isn't a failure as much as it is a company responding to dynamic market conditions (again, the flip side of hiring when growth is high). It's hard to say if the pandemic era hiring was really a bad idea - that hiring did fuel many of these companies to rapidly expand their revenue base and capitalize on many growth opportunities. Now that their future growth is expected lower, they are re-balancing their cost structure to respond.

In his essay he noted that what that means is that managers work to expand the people they manage as that gives them more budget more prestige and more power.

He has an amusing anecdote about the British Navy in the early 1900s to illustrate his point.

They essay is very well written and I highly recommend it.

https://www.economist.com/news/1955/11/19/parkinsons-law

There only "downside" to not hiring is the chance you have to layoff 5-20% of your workforce in a year or so. The upside is tremendous.

If you're big, you would have to explain to shareholders and the board why Google and Facebook are doubling/tripling in size, but you're not - is it because the company is moribund? SELL SELL SELL!

If you're small, you would have to explain to investors and the board why other startups/unicorn wannabes are doubling/tripling in size, but you're not - is it because the company is moribund? SELL SELL SELL!

Here is my company leadership heuristic: what option requires the least discussion/interaction/explanation with the board? That's the one that will be chosen.

Every explanation here thus far misses one simple fact: interest rates.

Imagine the more people you hire, the more money you make and/or the more dominant of a market position you assume.

Now imagine the Federal Reserve has lowered the Federal Funds Target rate to 0 and is performing FOMC operations to buy $9 trillion of bonds to lower interest rates across the board. This is what they did:

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

So imagine firms can go on a hiring spree with almost-free money. Consider that WACC (weight average cost of capital) is one of the key factors in calculating the NPV of a project. Now consider that a positive NPV means you should do the project. This means a lot of projects (and hence hiring) get greenlit.

Now imagine the Federal Reserve says, “Party’s Over, guys!” and raises the FFT rate and stops buying bonds. Almost free money goes away, the WACC increases and now the NPV of all those juicy projects goes negative.

Add in an expected recession, the ability to cull the bottom x% performers and you get a recipe for widespread layoffs.

IF they go back to doubling in size every year, THEN its a short term one month layoff. Looking at the numbers, this specific company example is not going back to doubling every year.

I think it gets engrained into the DNA of the company that they double every X months or X years and its hard to shift the culture when the company flatlines or even slightly declines. "Why, we always onboard 10% of our workforce per month, its just what we do" and when you grow that fast there are literally people who's entire day job is onboarding, like typing in new W-2 and insurance forms all day long or whatever.

In 2020, companies were envisioning that the way we worked was so drastically different from how it really turned out, surprisingly similar to before. That meant a lot more investment in new markets that would need a lot more services and goods (ex. remote work meant a lot of work for people to develop homes more, allow more to be done fully virtually, move many services originally in cities to suburbs). When things didn't turn out that way, and people started to get back to normal, projects that would have had a huge return if realized and need more people working suddenly different. Then it was a game of chicken of how to admit that they invested in the wrong efforts because things didn't turn out how they had expected.

A lot of cheap money (low interest govt loans, etc) as part of the market propping up in April 2020, and beyond lead to a lot of incoming capital for a lot of these companies. I think just over half or at least close to half of the money printed to assist people went straight to Wall Street. That flooded the market with money which while propping up the market, probably got used to hire a lot of people who weren't necessary for "growth" or not strictly necessary and wasn't sustainable.

Everyone here is replying with various explanations of why these companies made the "mistake" of over-hiring but no-one is stopping to ask if it was a mistake. Sure the announcements are full of apologies and stories of taking responsibility for mistakes made, they need to be: they're marketing. But cui bono, or more pertinently, the inverse: who is negatively affected by layoffs? It isn't shareholders. Meta just did massive buybacks after layoffs.

Over-hiring isn't a mistake because the only real downside is the subsequent layoffs, and layoffs don't negatively effect anyone that "matters".

Sure there's institutional knowledge loss but that only matters for product quality which, let's be honest, isn't any indicator of revenue.

Overhiring isn’t “hiring more than we meant to”, its “hiring more at time X than is appropriate for the market conditions at X+Y”.

It’s what normal, capital-controlled firms do in times of easy money, the hire more when throwing more stuff at the wall to see what sticks is cheap, and then when a contraction occurs, they cut and milk the stuff that is already working. Its normal business-cycle things. When there is talk of cooling inflation by tightening monetary policy, one of the core mechanisms that that works by is causing firms to cut employees in roles that don’t contribute to short-term returns as much, reducing consumer demand and constraining price increases.

(“Overhiring” is something of a misnomer from any perspective other than the perspective of the time after the hiring when market situations have tightened.)

Companies that didn't get in on the gold rush would have been punished. Now, companies that don't cut costs or shrink will be punished.

In my opinion, it's ok if it happens to rookies. Like, small mom and pop business owners who got excited during a "gold rush" (surge in sales during CoVID) or whatever.

But like... executives with net worths $20m who are like, elected (and kept quarter after quarter) by a board of massive publicly traded companies? I thought they needed to be next to perfect / the gold standard. "Eh, we messed up, sorry, we're human". I thought the bar was higher.

Maybe I'm over-exaggerating the whole thing anyway. If Microsoft is done doing 1 time layoffs past 3 years at 10k, people after CO=oVID, not a big deal. If it's just the beginning and every quarter or so they shed more and more, it'll be interesting.

Add in higher interest rates mentioned elsewhere, and instead of buying more and more companies (which means you can move staff around to new teams), there isn’t any buying so layoffs are the result.

There are exceptions of course. The risk to reward ratio seems pretty bad to me, though.

Unfortunately for Uber and Lyft, they massively over-hire and over-compensate (except for drivers) relative to the more financially healthy rideshare firms globally.

Putting it in context: the US has about 160 million people in the labor force. It's shocking when we see companies laying off 10,000 people, but in the grand scheme of things this is really quite a small drop in the bucket. In all of 2022, tech saw ~150k layoffs, or about 0.1% of the labor force.

Also, on the scale of the whole industry people jumping to these tech companies is probably a tiny fraction of overall employment.

Although Twilio has never turned a profit, they've cornered the "SMS via API" market and could theoretically start to turn one at any point.

Maybe their business model isn't even viable, and/or needs a big revamp.

Unlike other companies that fired people with 100bi in cash(looking at you, Google), Twilio is literally paying for people to use their services for over a decade.

Are boards and VCs so rich that they can keep such thing going on for so long, without ever the expectation of making a profit?

Chief Diversity Officer - ... responsible for guiding and scaling inclusion strategy and diversity initiatives across Twilio's global workforce

Chief People Officer - .. responsible for driving the talent development and acquisition strategy, and building infrastructure to support a thriving culture of belonging, diversity and inclusion across the company

I'm seeing some optimization opportunities here.

Tech company growth rates were high during the pandemic so they hired to fuel that growth. Now that growth rates are lower, they have to re-balance their cost structure to match their new forecasted growth. This is happening at every company currently doing layoffs. In Twilio's case, they went from almost 70% year over year growth during the pandemic to currently about 20-30% year over year growth. The same evaporating growth rates is true across the tech industry - Meta is actually seeing revenue decline year over year, Google has seen growth shrink to just 1%. Even more telling are operating margins which are evaporating very quickly as growth stalls - Google's operating margins are down 17% year over year.

No one has a crystal ball, so companies hire during high growth periods to capitalize on growth, and lay off during low growth periods to re-balance their cost structure towards profit. This is true of many industries - you see the same effects play out in the boom and bust cycle of industries like O&G - which are currently hiring and not too long ago were laying off as well. People want to frame lay offs as de facto failure, but really it is just companies responding to market conditions - no different then companies hiring when growth is high.

I predicted there would be mass layoffs in tech right like this last year, and more specifically predicted 6 months ago that we'd be seeing basically what we're seeing as far as layoffs.

With rising rates investors are asking companies to show a clear path towards profitability. Most of these companies are losing more money each quarter and industry wide this has to stop.

For the larger profitable companies it's likely because they realize a huge amount of their revenue is coming from these companies that don't make money.

While I'll be the first to criticize companies for working to remove power from workers, what we're seeing is simply investors waking up to the economic reality that growth without profits is not sustainable.

The rise in interest rates from 0.25% to 4.75% is meant to slow economic growth, therefore companies need to adjust to a period of slower growth. The higher interest rates work primarily through the real estate market, slowing construction, but this means less consumers, and therefore less income for companies.

Keep in mind, the banks raised rates rapidly as soon as they knew the Fed was going to raise rates. The Fed took many months to get to 4.75% but the banks jumped ahead and raised rates almost instantly.

In 2020 many CEOs needed to plan for hypergrowth, in 2023 many CEOs need to plan for a possible recession.

The money I spend becomes income for a company, and when that company pays you a salary, and you buy something from my company, then they money you spend becomes my salary. Everything goes around in a circle. Therefore, it doesn't matter how much debt a company has, but it does matter how much debt other people have. If other people suddenly need to pay more interest on their debts, then they have less money to spend whatever it is that your company is selling (unless you work at a bank).

It's because a lot of tech companies have built their financial management on regularly refinancing and getting new cash through the debt market to keep things going, rather than minimizing the usage of debt markets for cash generation.

Companies still do have lots of cash but they need to manage that cash with the expectation that they won't be able to raise cash as easily in the near/mid future. Valuations are cut because there's better places to put money now to get yield so when you do raise, you'll need to sell an even bigger piece of the company to get the funds you need.

This is just speculation on my part but also perhaps instead of investing the money in the company it is better to just buy bonds for a better rate of return? Basically instead of buying workers time to get a rate of return. That worker has to 'beat' the interest rate which factors into MR=MC to make it worth the while of the company to keep them around. Wonder if there are any economic studies on that.

It's a valuation problem with how much FUTURE profits are valued vs CURRENT profits.

Losing money now to make money in the future isn't sexy anymore. So you have to fire people until you make money now.

For companies like FAANG - which are ridiculously profitable - it's still the same.

Future profits aren't worth as much. Current profits are worth more. Now it's sexy to fire people to make more money now, because that's valued higher than before.

This is part of why valuations in tech land have been cut so much. If you are the management of a public company, and you are trying to increase your stock price, the answer is to make the your cash flow profile look more like option 1 vs option 2 above. One (perhaps shortsighted) way of doing that is to cut cost via layoffs…

1. Explicitly stating this was your decision, not just the inevitable consequences of the invisible hand of the market. Explaining that "we" in this post refers to the CEO and board of directors.

2. Explaining that you hired thousands in the last couple years with the knowledge that the company was not in a strong long-term position, and knew at the time that you might have to lay them off soon, but didn't tell them because you thought it would hurt your ability to hire and retain them.

3. Acknowledging out loud that layoffs hurt people, not being honest with your employees about their future hurts them, but you do not regret it and believe the size of Twilio's market cap is more important.

That said, I could see this being worse than 2008 for tech. Parts of tech really did binge on hiring in 2020 and 2021. In 2007, companies were just getting over the scars of 2000.

I did not want to go remote. I had to because my SO's job required us to move from New York to basically rural America. I hated moving here, and now I feel like my career opportunities are fucked because of the move.

One of the silver linings of this recession is DEI has been gutted and thrown on the trash heap where it belongs. Any competent CEO is using this moment to gut the commissars and rabble rousers from their payrolls. Time to check the Slack logs and cleanse the company of activists.

Twilio has only had one profitable quarter in its entire existence. Both the business model and strategy are clearly broken.

I do wonder (read: hope) if this means the next wave of tech companies will be more private/lifestyle focused. 37Signals had a great article about this:

https://37signals.com/why-we-choose-profit/

Not every company needs to be a market leader, what's wrong with having a drastically smaller size (say <200 people, a number plucked from thin air) and decent revenue?

It's a better time than ever to create a SaaS with low cost overhead. If you leverage serverless and strong design, you can build extremely useful and far-reaching products with a handful of people. No longer do you need hundreds or thousands of people to do this.

Then operational cost is low, and revenue required for breakeven/profit is low too.

While other techniques and applications might be (somewhat) more secure, the loss of ability to use the same application you already have/use for 2FA is a pretty big annoyance for a lot of people.

I have my 2FA in bitwarden myself... with a pretty long passphrase that I don't use for anything else. It's the master key to the kingdom. There are many sites that I keep with the sms/email codes simply because they either don't offer typical OTP as an option.

Their process is ridiculous and is matched only by the insane password requirements that they recently implemented (I think they required a 18 character password ? Or 24 ?)

However, I am entwined in their ecosystem for all of my texting and calling and message management, etc., so I am forced to deal with it.

In fact, their clownish requirements were the impetus behind the 2FA Mule[1] experiment which I now use across almost all services.

[1] https://kozubik.com/items/2famule/

No one in their right mind would think that. One layoff can be understood as necessary. Two says to employees "you will never feel safe here again", and is a huge signal for top performers to run for the exit.

That said, this article gives zero indication this is a firing, so I expect that your parent's comment is someone who is salty at Twilio and wants to make this sound "more vicious" -- 'firing' someone is a harsher sound than 'laying them off'. Plus, there's VERY few examples ever of significant staff cuts happened with _firings_. That would imply that 17% of Twilio did something so egregious at work that they got fired all simultaneously, which, like...how?

I don't see anything in the Twilio post that looks anything like a firing.

Firing a person tends to mean that the position will be hired for again once the person is gone.

Another way of looking at it:

Firing a person is terminating an individual working with a company - but the company still has that role to be filled.

Laying a person off is the elimination of the role, which also has the person leaving the company, but its the role that is being removed, not the person (they are free to apply for other positions in the company or get rehired later).

When you are fired there is a direct implication of fault or failing to perform.

These things can vary a lot depending on local/state/country laws, but if you are laid off you may be entitled to a redundancy payment, you may be entitled to apply for other roles in the company², you will have a notice period which you will either work or go on gardening leave for, and so forth. If you are fired, none of this applies³. If you are in an work-at-will state things are a bit different. Gig economy jobs are a grey area in many places⁴.

--

[1] other than the implication that the people who kept the same/similar role are better or otherwise more useful to the company

[2] if the lay-offs are due to restructuring rather than downsizing

[3] except you have access to some sort of appeals process (for unfair dismissal for instance) which goes your way

[4] there are court cases and other investigations ongoing to determine/clarify what rights such workers do[n't] and should[n't] have

There's absolutely a difference in widespread RIFs/layoffs and firing an employee, both in terms of how that individual is treated by future potential employers as well as the eyes of the law.

https://www.wolframalpha.com/input?i=%28100-11%25%29-17%25

There were also a ton of insider sales by the C suite last year. Not getting a warm and fuzzy feeling about this company all things considered.