Tech is going through a factory reset moment
Issue 141: How layoffs, AI, and recession recovery is rebooting an entire industry
Factory reset: A software restore of an electronic device to its original system state by erasing all of the data, settings, and applications that were previously stored on the device.
Whether we like it or not, tech is having a factory reset moment. This isn’t the first time. It happened in the 90s with the dot-com bubble. Companies that were once the darlings of Wall Street, such as Pets.com, Webvan, and eToys, quickly saw their stock prices plummet as investors lost faith in their ability to turn a profit. For the younger folks, Webvan was basically Instacart before Instacart.
There is never a single reason for this occurrence and multiple factors force tension like tectonic plates on the planet. Let's look at the three reasons I see as forces of nature: continued mass layoffs, the rise of AI, and recovery from the recession.
The first is all the massive layoffs happening at tech companies at various levels. According to layoffs.fyi, 629 tech companies have laid off 185,136 employees in 2023, and we’re not even halfway through the year. Companies are getting absolutely gutted so the market is saturated with talent (for better or worse). Every role I’ve seen posted has thousands of applicants.
The rise of AI is the second force of nature. It seems everyone changed their web3 .yxz domains to .ai overnight. Time will tell how AI plays out in the industry, but right now, it looks like it’s here to stay. Unlike web3, AI has more understandable value props of application: generative content creation, GPTs, and LLMs. Chat GPT looks to be the first threat to search engines. In addition to continued layoffs, companies will continue looking at ways to reduce workforce size through AI.
Finally, we are still recovering from the recession that started in 2020. As I reflect from the gut (I am not an expert), it seems like we are not quite out of it yet.
What have we learned from all this? Though it's sad about people losing their job through a layoff, I do believe tech has become way too bloated. What started with lean teams, raising just enough money for the runway, we over-indexed on company size, growth, and valuations. The recession has been a humbling experience and that can disappear. 2020 and 2021 are what I like to call the Clubhouse Valuation phase in tech. We over-indexed on companies that showed high value in a pandemic without considering what would happen on the road to recovery—a reminder that long-term thinking is crucial. Clubhouse, Peloton, and other companies that optimized for staying at home then dropped in 2022.
Looking at the new bloom
At our Palm Springs house, we are lucky to have part of the San Janito Mountains be our next-door neighbor. Like many places in California, we saw much rain in February and March. We got a bit of snow light flooding too! I noticed on our walk how many flowers are on the side of the mountains in a landscape that's usually just rocks.
Going through storms are difficult, but it is also the substance that allows new life to bloom. I truly believe we'll see good coming from these challenges moving forward. In a world where you can get laid off from what you thought was a stable job, there is no difference in the risk of being a full-time employee or starting your own thing. It's a great time to be a contractor and startup founder.
AI is often in the discussion of replacing humans completely and their job. Though it'll require learning new skills, I am optimistic it can empower people to do more of what they want. For example, I strongly believe that brand designers and people in creative will do what product designers do today. As a result, product designers might do what engineers do, and engineers may work on complex tasks. Identify the cause and effect of how these changes affect the ecosystem vs. attempting to find a direct correlation.
The factory reset has already been hit, and it's booting. It's not about good or bad, but figuring out how to move forward. The future path is unwritten, and I can't tell you what the path forward for you is. Perhaps it's time to get out of tech and work on the retirement farm. It might be leaning in on how things are shifting and finding the role and scope you're excited about.
Whenever I have to do a factory reset on my device, it's usually because something is broken or running slow. Despite not wanting to do it, I look forward to starting from scratch and figuring out what the next cycle looks like.
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