How employers cope with hiring freezes and layoffs in the tech industry
Tech industry changes: Turning tides in technology
The tech industry has seen massive growth in the last two years, but we seem to have reached a point of stagnation as more than 17,000 workers in the U.S tech industry have been laid off already this year. Large tech companies such as Netflix, Cameo and the Facebook parent company Meta are altering their employment plans and report large hiring freezes along with reductions in their workforce, but what is causing this drastic change?
Two major factors seem to be at play here, a combination of over-hiring during the pandemic in a response to the massive growth of the time and the current geopolitical climate making investors and venture capitalist concerned about their ROI. Because of this, tech companies and their recruiters are going to have to become much more adaptive to keep up with the fluidity of the industries hiring needs.
Why are tech companies so “fired” up?
Many tech jobs shifted to remote work, and new roles were established to adapt our stay-at-home lifestyle. As we transition into this post pandemic period of slowly opening the world back up – tech companies are evaluating their workforce needs and finding themselves overstaffed and needing to make hefty cuts. The pandemic also caused a huge increase in the use of automation technologies, which has led to even more job losses in the tech sector.
The largest factor however has to be the rising interest rates and the unstable political climate that has investors in both private and public markets changing how they value tech companies. They are focused less on the high growth which we saw at the beginning of 2020 and are more concerned with strong cash flow. This is forcing companies to concentrate on their profitability rather than their growth potential.
The short-term outlook for the tech jobs might not be great but the market is nowhere near collapsing. In fact, the U.S. Department of Labor reported the economy added 428,000 new jobs last week, beating the Dow Jones estimate of around 400,000. The days of rapid growth may be on-hold while companies worry more about short-term profitability and there may indeed be more layoffs as companies try to adjust to the new reality.
The industry will continue to grow as always but at a more measured pace and companies will need to be adjust their methodology to avoid these periods of stagnation going forward.
Controlled cash burn
Technology is a growth industry that ebbs and flows. At the beginning of the pandemic, we saw a huge increase in startups and early investors were champing at the bit to get in on the ground floor, especially in online retail and work-from-home tech. Cash burn, the rate at which a startup is spending its venture capital, is especially important for venture-backed startups as they are not traditionally profitable in their first few years. Any revenue these businesses generated is poured back into the business to scale as quickly as possible.
Now that we are in a downturn, many investors are asking to see returns on their investments and some are even asking for their money back. This is causing venture-based startups to lay off staff and go through other cost-saving measures. However, this hiring hold won’t last forever and soon the tech industry will be on the growth cycle again. This presents quite the conundrum. How do these companies maintain their sales and marketing quotas while keeping their general and administrative expenses in line during these down times?
To stay afloat, tech companies need to focus on controlled cash burn. This means reducing unnecessary expenses and only investing in projects that will generate a return.
The pros and cons of contingent labor
One major solution tech companies are turning to is hiring contingent labor to help them cope with the current slump. Contingent labor offers a number of advantages over full-time employees. They are generally cheaper to temporarily bring onboard and can be hired on a project-by-project basis. This allows companies to scale up and down as needed without taking too much of a risk on over staffing. Contingent workers also have a lot of flexibility.
They can work from anywhere in the world and often have a wide range of skills and experience collected from a wide range of niches. They can also be a great way to test the waters before decided to hire them on as long-term or full-time employees. Of course, there is also a risk that they will be poached by other companies once the market picks up again, so it is important to identify the “keepers” and presenting them with a competitive offer.
The downside to temp workers is that they are not always as reliable as full-time employees. They will take on multiple clients in order to compensate for a lack of full-time work which means you can’t guarantee their minds are always on your company’s needs. Because we consider them temporary workers the onboarding process can be rushed or even non-existent.
Companies that have previously never worked with contingent labor probably don’t have an expedited hiring process set in place yet but taking them through the complete onboarding process can costs precious time and money (which is what they are trying to save by hiring freelancers in the first place.) Additionally, you may have to manage multiple freelancers at once if you’re working on a large project which does increase the workload for recruiters and hiring managers.
So, what’s next?
While the technology market is in flux, it is up to individual companies to determine exactly where their needs fall in this sector and what they need to address in terms of hiring freezes, job cuts and what roles to fill with temporary workers. The Arya recruitment platform specializes in finding candidates, both contingent and longer term, for technology companies big and small to stay ahead of the game.
We access our huge database of qualified, tech candidates and use artificial intelligence and intuitive algorithms to match the candidates to the specific job, regardless of location and niche. Whether you’re looking for short-term projects or long-term employees to augment staff, Arya can help you start in overcoming your recruiting woes.