What Utah tech CEOs learned after recent layoffs
As chairman and founder of Ocavu, John Cheney has always cared deeply about the people that dedicate their professional lives to his company. But he’s not perfect, he says, and the realization that decisions could have been made differently happens after the fact. As a result of this natural cycle, Ocavu went through two rounds of layoffs in July and October of 2022.
“I love my employees and I try to share as much information [with them] as possible,” Cheney says of the weeks leading up to the layoffs. “I shared our bank account balances during all-hands meetings and shared efforts we were trying internally and externally to make things work.”
The Ocavu team isn’t alone in having to make these tough decisions. Within a few months into 2023, high-profile tech companies like Meta, Yahoo, Zoom, eBay, Salesforce, PayPal, IBM, Google, Dell, Amazon and Microsoft announced plans to eliminate thousands of jobs. Business leaders cited the pandemic, inflation, supply chain issues, decreases in consumer spending, the war in Ukraine and fears of a recession as reasons for “trimming the fat.”
By the end of February, the nation had already seen 120,253 tech sector layoffs, according to Layoffs.fyi. Roger Lee, the creator of Layoffs.fyi, told NerdWallet that tech companies went on a hiring spree in late 2020 as people increasingly turned to technology to work, shop and socialize.
“The Fed’s easy monetary policy also enabled tech companies to raise capital and invest in growth,” Lee said. “Both of these trends have sharply reversed in 2022. Faced with a slowdown in growth and a downturn in the broader economy, tech companies are cutting staff after realizing they over-hired in recent years.”
In light of the macroeconomic headwinds facing the tech sector, there are a few different ways Utah CEOs view the elephant in the room.
Why layoffs happen
“Business leaders’ job descriptions are to create shareholder value,” Cheney says. “Sometimes, that means scaling up the team in anticipation of growth and a booming market. Sometimes, it’s to scale back to ensure the viability of a company long-term. It is virtually impossible to get either of those equations right, and so adjustments have to be made from time to time.”
As for Ocavu, Cheney believes he and his team made the best decisions they could. When Ocavu brought people on, it was because shareholders were best served by bringing those employees on at that time. When the company let people go, it was to optimize the outcome for shareholders, he explains.
“I know it might sound harsh and seem like we’re not putting the employees first, but that’s simply not the case,” Cheney says. “These layoff decisions are agonized over for months and everything is done to try to avoid them, but businesses are not charities. The primary financial outcome must be to the shareholders.”
If the fiduciary responsibility to the shareholders is not upheld, those in leadership positions can be held liable for making bad decisions. The term “it’s just business” really does apply in many situations, Cheney says.
Easy come, easy go
“A lot of growth-stage companies lose some of their intention when faced with economic headwinds,” says Brian McCann, president and CEO of Intergalactic. “When things are hot and money is flowing, a lot of these businesses dump cash on the employment market, hiring at breakneck speed. Now, it’s sad to see some of these same companies dumping engineers on the market at a similar pace.”
After participating in force reduction on both sides of the table, McCann now uses his experiences to shape his opinions on hiring strategy. He never takes the decision to hire lightly, regardless of role or need. If Intergalactic hires someone, that person is also choosing to work for McCann and modifying their life to join his team and help the company. That requires a lot of trust on both sides, McCann says.
“Unless it’s absolutely necessary, I think business owners and managers owe it to themselves, their stakeholders and communities to do everything they can to avoid employment cuts where possible,” McCann says. “Unfortunately, many seem to gravitate toward layoffs as a first line of defense.”
Intergalactic didn’t lay off a single employee during COVID, but its sister company, RAM Aviation, Space & Defense, laid off approximately 80 people during the initial wave of infections due to the high reduction in commercial travel via aircraft.
According to Gregg Robison, CEO of RAM, a company will quickly find itself upside-down and in debt if it is not proactive in managing costs. This can take years to dig out of, Robison says.
“Businesses must manage costs to survive,” he continues, likening the necessity of layoffs to cutting back on personal spending when times are tough. To ensure personal financial stability, we may reduce our spending habits, make sacrifices and postpone expenditures. Businesses are no different, Robison explains.
These layoffs could result in the tech industry remaining competitive and profitable as opposed to becoming bloated and inefficient, he continues. Although many individuals will need to find alternate employment, Utah is in a strong position with many jobs available and many entrepreneurs starting their own companies that are driving opportunities. “I believe it is a sign of future success,” Robison says.
Humans are volatile creatures, McCann says, and the economy swings on aggregated human emotion. Occasionally, it swings too far—like in 2007/2008—and those deep swings are hard to plan for. But generally speaking, McCann believes the cost of letting people go, finding new people when the situation improves and overcoming the training curve multiple times over is likely greater than the cost of setting aside money in good times in preparation for inevitable downturns.
“Maybe that allows a business owner to focus on other cost-cutting measures, at least initially, in a downturn,” McCann suggests. “Again, layoffs are often a first line of defense when the economy turns, and that’s really troubling to me.”
Though the industry will rebound, he believes layoffs will damage credibility, momentum and culture at the companies that utilize them.
“I haven’t seen anything impact culture so quickly, so furiously, as mass layoffs,” McCann says. “It undermines everything leadership is trying to accomplish. Sometimes you have few options and need to act, but those actions carry consequences. It will certainly impact immediate-term growth and aggregate momentum.”
"Reduction in force should always be a last resort, as so often the long-term loss of trust, and so many other unintended consequences, does not offset the short-term financial or operational benefits.”
Is there a “right way” to lay off employees?
From the employee perspective, impersonal and poorly communicated approaches to layoffs add insult to injury.
“All we got was some generic corporate speech, probably written by a lawyer, speaking in very general terms about restructuring,” says one former employee of a Lehi-based tech company who was laid off in October and chose to remain anonymous. “In the days that followed, it became very clear that the company was worried about potential legal action from those affected by layoffs, so they were very careful in the language they used. Unfortunately, that meant that I never heard anything remotely resembling a proper reason for the layoffs.”
While layoffs certainly never feel “fair,” this employee felt particularly blindsided. Just two months before being laid off, his CEO gave an impassioned presentation about growth, touting the company’s resilience.
“A month prior to the layoffs, we just had the most expensive company party in our history,” the employee says. The event treated employees and their families to food, drinks, entertainment and an elaborate fireworks show. “In retrospect, it felt so preposterous to throw such a massive and expensive party while our leadership was planning to lay off a third of the company,” the former employee continues.
When the layoffs were announced, armed security guards were hired to monitor the office and escort people out,” “I understand why some companies feel the need to do this, but it felt rather insensitive, offensive and unnecessary,” the former employee explains. “If you know someone affected by the layoffs, don’t be a ‘thoughts and prayers’ kind of friend. Network on their behalf, offer to review a resume, practice interviewing, and take them out to lunch just to see how they are doing. I’ve found that the worst part for a lot of those affected by layoffs is not the loss of income but the loss of self-worth.”
In a recent LinkedIn post, Davis Smith, the founder of Cotopaxi, said layoffs should rarely be the release valve for uncomfortable pressure within a business. “While they solve a short-term problem, they often cause significant long-term damage to a company,” he wrote. “Before resorting to layoffs, explore every possible alternative and put your people first. Your team will see your efforts to protect them, and it will pay off in increased loyalty, improved outcomes, and a culture of unity … There are legitimate situations where great, people-first leaders have to do layoffs due to factors out of their control. I’ve seen some of them do layoffs in the right way. Lots of empathy to them and their teams.”
James Clarke, founder and CEO of Clarke Capital Partners and Clearlink., says mass layoffs can be necessary from time to time for the general health of a company and might even save a company. However, mass layoffs are generally the manifestation of something systemically far more problematic than a softening economy or underperforming enterprise.
“In the case of the latter, layoffs are too often the inattentive managements’ or disengaged boards’ way to recoup profits or personal bonuses, which may have been operating on ‘autopilot,’ or one in which the business model—or even the entire company for that matter—is off course,” Clarke says. “Reduction in force should always be a last resort, as so often the long-term loss of trust, and so many other unintended consequences, does not offset the short-term financial or operational benefits.”
Healthiest job market in over 50 years
Jason Sloan, director of the executive education program at the University of Utah’s David Eccles School of Business, says when organizations are reducing their workforce by 5, 10 or 15 percent, it has less to do with an individual’s performance and more to do with the strategic direction of the organization.
“For anyone that watches the news, we know that every week there is an event that can cause disruption in specific industries or across a wide segment of the economy,” Sloan says.
In the short term, loss of employment can be a shock and difficult transition, says Brooke Lenzen, senior manager of executive education at the David Eccles School of Business. “Everyone reacts differently to this type of experience, from taking time off to reassess their career path to those that start applying to positions the same day,” she says. “It also depends on the type of package that the laid-off employee receives from their former employer and the ongoing support to help them transition,” she explains.
Sloan says Utah’s economy has been white-hot. “The layoffs we are seeing may help rebalance career opportunities across a broader corporate industry landscape,” she says. “Laid-off employees may be surprised at roles that exist outside the high-tech marketplace that provide rewarding career opportunities. Impacted employees can benefit from reimagining their current skill base and how their skills can transfer into different industries and markets.”
Robb Lifferth, the co-founder of IsoTalent, believes the impact of the tech layoffs is not the doom-and-gloom the media has painted it out to be. The U.S. currently has 1.9 open jobs for every job seeker. Utah County is close to having four open jobs for every job seeker.
“What that means is [laid-off employees] are going to get hired quickly and they have their choice of openings right now,” Lifferth says.
One thing that will cost the tech sector some heartburn, Lifferth continues, is that many employees who were laid off from tech companies in the last two quarters went to non-tech firms. This could affect tech firms’ ability to recruit talent in the future.
For employees who’ve been laid off, there’s one silver lining. According to Lifferth, the average job seeker is spending about 20 days on the market right now. During COVID, that time in limbo was closer to 60-65 days. “It’s actually an astonishing number. You almost don’t have time to apply for unemployment before you do get the job,” Lifferth says. “The job market is the healthiest it’s been since 1969.”