Tech companies are laying off a large number of employees this year. One big reason is that they hired a lot of people when times were easier. Former Slack CEO Stewart Butterfield shared some insight this week into how over-hiring can happen, identifying a behavior among supervisors that he considers “the root of all redundancy.”
Butterfield cofounded the messaging startup in 2009 and saw its valuation rise dramatically in the years that followed, leading up to its successful IPO in 2019 following a massive funding round. Salesforce then acquired the venture for $27 billion, and Butterfield left the company earlier this year, admitting he was “not very successful” at integrating the two cultures. The billionaire now buys luxury real estate with his wife, Away co-founder Jen Rubio.
So Butterfield knows what the Fed-induced easy money era was like for tech startups. “Even at the time, it was clear – we would say in interviews, it’s just zero interest rates. That’s what happens,” he told Bloomberg. Many Podcast this week.
He added that while there are no real barriers to hiring, “you hire someone, and the first thing the person wants to do is hire other people.” The reason, he explained, is that “it’s a very clear indication, and it’s very true, that the more people who report to you, the higher your reputation, the higher your power in the organization.”
He continued, “If you are a manager, you want to be a senior manager. If you are a senior manager, you want to be a director. This is a very powerful incentive. So every budgeting process is, ‘I really want to rent,’ and to me that’s the crux of it all.
Employees Who “Shouldn’t Be Here”
Butterfield was talking about Slack, but the same phenomenon could be happening elsewhere in Silicon Valley. Certainly tech firms are shedding employees, including Salesforce, which cut its workforce by 10% in January and is reportedly considering more layoffs. Others include Amazon, Dropbox, Microsoft and Facebook parent Meta.
“Really, there’s probably a bunch of people at the company who shouldn’t be here,” Meta CEO Mark Zuckerberg told employees last summer, The Verge reports. After Meta laid off about 11,000 employees in November and another 10,000 in March, Zuckerberg targeted middle managers in what he called a “year of efficiency”. (Meta shares have soared this year, helping Zuckerberg grow his net worth to more than $45 billion.)
Butterfield noted that other types of companies would be less likely to over-hiring. “If you don’t have the constraint of ‘we don’t have the money,’ you know, if you’re making lysine or something like that, it’s a 70-year-old industry where there’s a lot of competitors and everyone’s been marginalized out of it.” Well, you can’t do that.”
But if you have “infinite wealth, either from having a monopoly on search engines or from being a VC that makes you lots of money,” he continued, “you can get rid of that barrier.”
And that, as he suggests, presents its own problems.
