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Comment by andrenotgiant | Hacker News Reader

> After the early-2000s dotcom bust, Bain researchers found that stock prices for S&P 500 companies that had no layoffs or laid off less than 3% of their workforce increased an average of 9% in the next year. Meanwhile, stock prices were flat in companies that laid off between 3%-10% of their workers, and prices plummeted 38% for companies that laid off more than 10%.

Failing companies go through layoffs. Companies like Sun Microsystems, Kodak, Sears, Circuit City, Kmart all went through lots of layoffs. But everyone knows that's not what killed them.

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> But everyone knows that's not what killed them.

Another addition I'd like to add here is more often then not wrong people get booted while the "dead weight" tends to stick around and becomes even deader due to a motivation fall from the layoff. So maybe it doesn't kill, but for sure exacerbates an already bad situation.

We are a small team in big company, and management that made wrong decisions is still somewhere there but not my direct management, still getting same paycheck, car, cards and benefits but new managers (that accepted to take over and got brand new car for 100k€, cards and bonuses, bells and whistles) started to layoff workers so we know this is the end for my team, and of course they will do whatever it takes to "save the product", but not fix the the real issue... lack of good developers to fix terrible bugs in our product.

That’s really the key part: if the managers who created the problem are still there, layoffs will just make it worse. There are cases where getting out of a dubious business line can lead to long-term benefit but I’ve seen that a handful of times compared to losing useful people while the bad managers failed upwards.

That's basically the story of Philips. They go through a tough period and choose to divest a "dubious" line of business to focus on higher margin products. The new company, freed of Philips management, goes on to surpass the revenues of the parent. That's how ASML and NXP were born. Signify (Philips lighting) is getting reasonably close.

If your small team in a big company does not directly generate money, then you’d definitely be ripe for elimination. Time and time again we’ve seen examples of trams that are critical to supporting various revenue generating parts of the company while not directly making money themselves get cut as an “obvious” way to save money when only looking at the books. Been there.

> Time and time again we’ve seen examples of trams that are critical to supporting various revenue generating parts of the company while not directly making money themselves get cut as an “obvious” way to save money when only looking at the books.

Love how your typo turned into a beautiful metaphor for infrastructure being cut.

Save the trams!

Some are kind to eng ICs, you’re not laid off from the company just given time to join another team. As you can still be a high-performer with context on company culture/tech stack while on a non-revenue-generating team.

The thing is, ending a product that's not making money shouldn't mean eliminating the workers. Those were people you picked, brought in, and have adapted to your culture.

It always strikes me as weird when a product fails and the decision is to eliminate everyone from the product manager down... and then make no other changes. Then they bring in completely new people for whatever the new product line is. Sometimes, sure, an individual or group might cause a product to fail that should otherwise succeed. But it's weird to default to the production team. Is it a design problem? A maintenance problem? A product price problem? A sales and marketing problem? A management problem?

Like, the Pontiac Aztek did not do badly because one welder from Mexico screwed it up. It failed because it was ugly. It was ugly because the styling didn't survive the requirements to use the same parts as the Buick Rendezvous and the same basic platform as the Pontiac Montana. The process of making that vehicle fit into GM at that time killed the product. Today the Chevrolet Equinox, a direct descendent, is one of the best selling vehicles on the road at a time when there's a lot more competition.

Even if mostly the “right” people are laid off, laying off a wrong person can have a cascading effect.

Good people like to stick together. Get rid of a couple and the rest will start to leave.

Even if, from the company's perspective, if lays off all the "right" people, some of those people will be "wrong" from the point of view of other people on the team. Maybe the company didn't value a certain person, for corporate or HR reasons, but there's always a chance that person was a valued team member for human reasons.

Layoffs will lead to people leaving, regardless of how surgical or random they are.

Exactly. Somebody who is universally hated by their co-workers should just be let go. Nothing to do with a layoff. So everybody who is around has some reason for actually being there. In a well-managed place, that is.

> Somebody who is universally hated by their co-workers

How many times have we seen a company fire whoever they consider "dead weight" but keep the universally hated guy because he's a 10x rockstar whatever?

A 10x person who brings down 20 others to a small fraction of their potential and causes other rockstars to leave is still net-negative. Good management understands this.

(And I'm not sure why I'm downvoted for this. Nothing about that should be controversial?)

Exactly. So the company keeps the guy everyone hates after laying off people that get along. The next people to leave the company are the ones disgusted by the move.

Depends on the company. I've seen the opposite case were such a person was let go, much to everybody's relief. Some people had to clean up his mess, which was genius in the sense that it worked flawlessly, but nobody else could maintain it, so he had locked in a minimal bus factor. Which makes such a move harder to execute, but the earlier the better.

https://www.freecodecamp.org/news/we-fired-our-top-talent-be...

https://news.ycombinator.com/item?id=15474893 (2017) (133 points | 130 comments)

I've seen the opposite happen: fire the unsocial guys and keep the social guys that do absolutely nothing but flame and troll on slack.

Unfortunately, optimizing for not getting yourself laid off is not the same as optimizing for max productivity. In many ways, they're quite opposite.

Indeed. Like everyone from Lake Wobegon, I think that I am effective at my job. One of the most productive things I can do is to strangle bad ideas in the crib. This is not a popular role. Killing someone's pet initiative can make enemies. Yet, it can save countless weeks/months/years on doomed-to-fail efforts.

Working to not be laid off usually means just keeping your head down and going with the flow.

This happened to me. There was a layoff, I got overwhelmed with work that had to get picked up, lost motivation, and burned out.

The key takeaway for me is that layoffs are an effect, not a cause, of company failure.

The quoted text is a good example of this. If a company is struggling strategically or economically, and doesn't do a layoff, it's just going to struggle more, and fail more quickly. Companies that aren't laying people off are likely not even considering layoffs, because their businesses are actually doing well.

So, it's pretty obvious to me that companies in that cohort would see the biggest stock price appreciation, because layoffs are an indicator of poor future performance.

Layoffs are an effect of unsustainable success.

If you can lay off people without cratering the company, it means you hired too many people in the first place.

There is the question of if layoffs saved the company enough to save itself or improve? And with that data you could say layoffs by themselves don't.

Today the question is why companies making good profits are making layoffs. And looking at the damage they cause is relevant in trying to predict company performance

> There is the question of if layoffs saved the company enough to save itself or improve?

They at least secured management a final big bonus for dealing with that, so management and shareholders cash in a bit on the way down.

If the layoffs are taking a company which could be stably growing to one which is going downhill - in that case the execs actually hurting their long term compensation.

But i get it, it's like junk food for execs, easy to do, crisp in the action (even if not in the effects). But consumed carelessly its bad for company health

> And with that data you could say layoffs by themselves don't.

I think that is one inference too far? Layoffs may have saved some of those companies from bankruptcy. The Bain study is looking at share price performance and offers no data that would resolve that question.

There's a big tendency to look for culprits whether layoffs, PE, MBAs, or whatever. But a lot of companies just made wrong bets or were in the wrong place at the wrong time. Kodak was never going to survive in anything like its pre-digital form.

Yet, those who makes those wrong bets are generally paid very generously and they are generally not those who suffers from the consequences

You skipped the second part of my comment. Yes, senior execs at large publc companies--assuming they didn't do anything actually criminal or stupid related to their own finances--generally come out the other side OK. But sometimes a company can just reasonably get into a place it's hard to come out from. Kodak is a really good example IMO.

Maybe I'm expecting too much, but for me the only good reason a CEO is paid more than any actually useful employee of the company is to anticipate this kind of thing and use the money from their leadership position in the old tech to invest and not be in a very bad position with the new tech.

Sometimes companies just aren’t in a good position for historical reasons. Returning to Kodak you can’t really say to your investors and employees 90% of our existing business is toast and we’re going to churn everything over the next 5 years.

Sometimes you can do things more incrementally but other times it makes sense to basically close up shop and maybe shop your brand and some assets while keeping the biz afloat at some level with a lot of people still collecting a paycheck.

This is it exactly. Layoffs are a symptom of failure, not a cause of savings.

It's kinda like saying: people who are on chemotherapy are more likely to die from cancer than people who aren't.

Of course: that's why they are on chemotherapy!

This correlation isn’t necessarily causal. Companies that are failing are more likely to layoff could be just as true as companies that layoff are more likely to fail.

Also, failing companies that use layoffs to restructure can succeed. For an example see IBM in the 90s. It’s hard but possible. And since the article uses stock price as a proxy for success, IBMs stock struggled for a long time afterward. It hit an all time high in 2025.

And then there are non tech industries that just go through cycles, like oil.

IBM is up 40% from its previous 2012 high point. In the same time, S&P is up nearly 400%.

Its stock has done pretty well the past couple of years. (And it's a pretty good dividend stock as well.)

Is there a reason you didn't quote the next two sentences that directly address that?

yes, it's the post hoc ergo propter hoc fallacy

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