The layoff trends continue… today it’s Avalanche’s turn. The company is laying off 77 people (basically 50%) because they lost two major deals. Sometimes, as in this case, the layoffs come because a company loses deals; but a lot of the layoffs we’ve seen thus far (check out Tech Crunch’s Layoff Tracker here) seem to come from companies who have yet to even develop a business model. You have to wonder: how much are these layoffs a result of a company’s prospects and how much is it about the economy.
Valleywag has an interesting take on the layoff binge. The conclusion is:
Big companies lay people off because of economic conditions; startups lay people off because their managers have fundamentally misjudged some aspect of their business. Any startup CEO who lays people off, from here on out, should be held accountable for his own mistakes. Blaming the economy for your cuts? So mid-October 2008.
Not sure I agree with it, but I think it’s important to note that indeed, the economy is currently being blamed for all layoffs even though some of these layoffs are unique realizations that the business model was not, you know, sponge-worthy.
I never raised VC money, for many reasons frankly. Reasons included:
- VC’s aversion to investing in content,
- Not that many VCs invest in Montreal companies,
- I was sued in May 2006, and that was settled in January 2007, killing any financing momentum we had away,
- My aversion to VC’s draconian terms,
- I don’t think any VC actually ever liked me enough to want to back me; nor did I ever suck up enough to a VC for them to think that they should back me,
- My inability to manipulate the forecasts for the much sought-after hockey curve effect, which to this day I think is hogwash in any forecast.
We can discuss the other points some other day, but the last point is worth noting:
In other words, the massive spike in growth - be it in traffic, adoption, reveunes, profits - is possible, but unlikely and nearly impossible to project. Trying to project it is an insult to anyone’s intelligence. The fact that VCs look for it in presentations shows how lousy they are as entrepreneurs and how gullible they are, because such growth rates suggests “abnormal profits” and the mere presence of abnormal profits draw in a massive amount of competitors.
So when you see MySpace, Google, or anyone else show such spikes, it is an anomaly and not something that could be forecasted in a powerpoint slide.
Anyway, the point I am trying to make is, are these layoffs a result of
- over-estimating demand and growth
or
- under-performing of results
or
- both?
In our case, we’re growing moderately well:
- our revenues will be more than 50% higher in 2008 than they were in 2007.
- our streams will be roughly 100% higher in 2008 than they were in 2007.
I would have liked these numbers to be even better, but the fact is, we did not over-hire to meet some unreasonably high targets (the hockey curve growth curve) so we do not need to lay anyone off, either.
Or do we? After all, if everyone jumps off a bridge, you can’t help but get close to the ledge to see what lies beneath. I mean, if you open a door and find yourself in a hallway and see everyone running left to right, do you head left or right?
I don’t know. But the point I am making is that these companies over-hired and now might very well be over-firing.
To quote Seinfeld, you can’t over-die and you can’t over-dry. But in the world of startups, you certainly can over-hire and I think time will tell if you can over-fire, too.
In the stock market, bullish trends tend to overshoot, but so do the bearish ones. Right now, everyone is in a panic, I wonder, how much of this has to do with their company’s prospects and how much of it has to do with the economy’s fundamentals?
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