5 Business Predictions for 2023 Following the Downward Spiral in Tech
The most prominent tech titans announced tens of thousands of layoffs this year. With markets down over 30%, what's next in 2023, and how do we prepare for the recession?
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At the beginning of the quarter, one share of Meta Platforms Inc, the parent company of Facebook, Instagram and WhatsApp, was traded at $378. Less than two months in, the technological juggernaut collapsed to under $89 a share — reaching the trading levels of 2015.
But Meta is not alone. The Nasdaq 100 took a 38% hit from its peak.
Layoffs have followed suit across the titans of technology — with tens of thousands of employees losing jobs across Meta, Amazon, Microsoft and Twitter alone.
Heading into 2023, the future is tumultuous. What geoeconomic changes are about to resurface in the new year?
1. Reassessment of the "Hockey Stick."
A favorite trend of venture capital funds and investors is the promise of the "hockey stick" growth curve. This translates to a predictable and scalable influx of new users (or revenue) subject to doubling down on sales or paid acquisition channels.
The premise is straightforward — market penetration or even domination. Obtaining unicorn status and acquiring users at all costs. The model works in theory, but in the land of funding, this usually comes at the expense of piles of debt and no profit whatsoever.
It's easy to scale a business with a freemium model that gets funded by investors. But infrastructure, staff, warehouses and vendors are entitled to their own funding. And unless this model converts at the same pace as a standard business cost plus a profit margin, companies will face severe consequences.
Prioritizing profitability again will become a reality check of 2023.
2. More layoffs
Over 910 tech companies laid off over 143,000 employees in 2022 alone. The tracker relies on public data that doesn't account for medium and large businesses outside the public purview (whereas the numbers are likely to exceed 200,000 or even 250,000 at the time).
Financial scrutiny, combined with unfavored financing tools thanks to the aggressive interest rate hikes by the Federal Reserve, is limiting access to funding to combat the effects of hyperinflation.
With unlimited resources, it's easy to get sidetracked and keep pouring more people, money and servers into a problem. This anecdotally conflicts with Brooks's law (a known adagio in project and product management), where adding workforce to a software project that's running late is dragging it even further.
While unemployment rates are still normalized, the pressure on high-tech and communications will disrupt the current numbers over the first two quarters of 2023.
3. Salary normalization in IT
TCI Fund Management, an Alphabet (Google's parent company) stakeholder, issued an open letter to CEO Sundar Pichai. Billionaire Christopher Hohn called out Google's overhiring practices and its passive actions compared to other industry leaders.
Moreover, the letter pointed at the disparity of salaries in high tech and even among Google compared to other competitive companies where "median compensation totaled $295,884 in 2021". Hohn's further analysis quantified the comp offer as "67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US."
Competitive salaries are a key instrument for leading brands to acquire top talent. However, scrutinizing the future of existing business models — such as the downside of advertising businesses in social companies or tens of billions invested in the metaverse by Meta requires careful consideration and getting back to operational efficiency first and foremost.
4. Pushback on remote work
Remote work has been a conflicting topic at best. In 2010, I was openly advocating for the adoption of remote work, quoting Cisco's 2009 study of cost savings and employee satisfaction and success stories by companies like Automattic or Basecamp.
As the 2020 pandemic made it possible for office jobs, it was a blessing to tens of millions of workers. However, several conflicts arose:
- Public records on social media and interviews with employees taking endless lunch breaks, leaving their computers on, or casually responding to emails while playing video games or at the gym
- Managers trying to combat the lack of remote principles with endless waves of Zoom and Teams meetings, taking over 20 hours a week for senior leaders and experts
- The goal of becoming "over employed" while being shielded from office peers or monitoring gathered over 120,000 disciples on Reddit alone
- Workers moving across the country or even internationally - causing actual employment violations in adhering to insurance or health policies in most countries, lacking working permits, and masking their locations
During the boom of 2021, corporations negating remote work opportunities were dismissed or even publicly banished. With a recession coming in, this talent pool is the first one to crack for many business leaders.
5. Limited innovation
The reality check and the renowned focus on profitability come at the hidden cost of innovation. A key reason why most technology leaders are taking a hit is a dip in revenue.
Facebook, Instagram, Twitter, Snapchat and YouTube rely heavily on ads to support their freemium networks. Other businesses are also pressured to cut costs due to limited business opportunities and expectations of salary raises. For many, sales and marketing (especially advertising) expenses are the first lines of cuts.
Microsoft's computer sales plummeted, and Amazon's shipped revenue is declining as hyperinflation raises costs while employees' net worth stays flat.
The international energy crisis is fueling inflation further, making the problem worse.
As tech companies get pressured, and layoffs occur, this often starts with sectors that lose money. Innovation and R&D — think of autonomous vehicles, the Metaverse, new cryptocurrencies or digital wallets, or blockchain adoption for networks that currently operate on a client-server model — slow down or get frozen for the time being.
As spare money is no longer available, this hits consumers and other tangible markets — from the broader crypto world (with several large exchanges filing for bankruptcy) to a massive dip in selling NFTs or any unproven asset classes only made popular due to stable income and influx of capital during the past few years.
Everyone is affected
The most important takeaway here is that everyone is affected by the recent crash in tech.
The Great Recession of 2008 started with real estate and banking, but this carried over consumers losing their households due to interest hikes, construction companies going out of business, unemployment rates going from 5 to 10%, and negative GDP affecting retail, restaurants, travel, logistics, manufacturing. The house of cards trickles down to dependent people and businesses.
Even if your business appears to be doing well at the time, buckle up and keep an eye on the latest industry news. Recessions come and go - and making the most out of the coming year would set you up for success forward.