If tech’s untrammeled period of growth is in fact coming to an end, it's time to start rethinking your management approach.
Spend any time around tech companies in the last decade and it’s hard not to feel confident about the sector. Tech has gone through unparalleled boom times in recent years, from big tech all the way down to the thriving startup landscape.
First coined back in 2008, hypergrowth is a term that attempted to capture the unique ability of certain technology companies to continuously grow their revenues faster than traditional companies could ever dream of. It's an idea that drove the entire sector forwards, with a grow-at-all-costs mindset, minting big winners – and plenty of losers – along the way.
However, the times are a-changin’, and in the second quarter of 2023 US startups raised the lowest amount of investment from venture capital (VC) firms since the first quarter of 2018, at just $35 billion, according to Dealroom data.
The picture was similar globally. Since a peak of $24 billion in the first quarter of 2022, global VC activity in early-stage startups has dropped every quarter, reaching just $16 billion between April and June 2023.
The same is true for breakout and late-stage startups. Just 16 new unicorns – private companies valued at more than $1 billion – were minted in the same quarter this year, down enormously from a peak of nearly 220 around two years ago.
Paired with runaway inflation, tech companies have finally had to reckon with the idea of slowing their spending in 2023. Then the March 2023 collapse of Silicon Valley Bank had a figurative and literal impact on confidence in the tech sector.
Entering the slowdown era
When money dries up, jobs start to disappear, too. More staff have been laid off from tech companies in the first seven months of 2023 – 223,089, according to Layoffs.fyi, a site which tracks industry layoffs – than the 164,744 who lost their job in the entirety of 2022.
In some ways, the slowing down of hypergrowth is being driven by extenuating financial circumstances, rather than the ability of technology companies themselves to innovate and grow. Inflation is hitting hard, and high interest rates have a chilling effect on the whole sector, reducing easy access to money.
“To the extent to which hypergrowth was a zero-interest phenomenon, it is in trouble,” says Azeem Azhar, the founder of the Exponential View newsletter. “But great technologies that are needed will still benefit from the infrastructure that allows a rapid route to and scaling in the market.”
Likewise, Hussein Kanji, a partner at London-based VC firm Hoxton Ventures is less worried about the long-term health of the tech industry. “I’m not sure hypergrowth is over for everything,” he says.
Small signs to be less worried?
Kanji points to a number of circumstances that suggest that a doom and gloom-laden forecast isn’t necessarily correct.
“Macro tech spend is still on the rise and I think there will be pockets where there is exponential scale,” he says. This can be seen strongly in certain new sectors, such as artificial intelligence, where there has been mass adoption of large language models based on the success of ChatGPT and its competitors in the last nine months.
For that reason, success – and hypergrowth – will still be possible. “It’s just going to be harder to find,” says Kanji. “We were all blessed with a general market pull up that made everything look strong.” And now we’re seeing a rightsizing more suitable to the circumstances in which businesses are now beginning to be established.
It’s a stark difference to what’s gone before. But it’s also a course correction that may be necessary now we are no longer in the boom times. “We overreacted, and now the pendulum is swinging the other direction, but we're going to correct back to some kind of a regression to a mean,” Art Zeile, president and CEO of DHI Group told CIO Dive in March. “That's what we're in the midst of doing right now.”
Parsing the impact on engineering managers
You only need to look at the data to see the scale of the problem. Employment levels in “computer and mathematical operations” – the area within which most jobs in the tech sector fall – are down to 6.4 million, according to the US Bureau of Labor Statistics. Businesses are being hollowed out of their staff, and managers are being tasked to get more out of their teams with less.
That requires a reprioritization of projects that better suit the needs of the business, and align with the short-term goals of the company, rather than trying moonshot projects that may not pay off.
That same ethos is what’s believed to be behind Meta’s mass layoffs in recent months: ghosts in the machine were working on projects that the company launched, then abandoned, but whose staff remained.
Changing the mindset of staff who are used to operating within a business when times are good can be tricky – but it’s important that they acclimatize to the new normal within an organization.
Unfortunately, that includes being more realistic on salary expectations. While tech salaries appear to have continued on an upward trend based on pure numbers, the real terms value of them has dropped precipitously as inflation bites. The days of huge salaries, and even bigger vesting periods, may be long gone, and managers need to be upfront about that to applicants, as well as existing staffers.
Likewise, managers’ jobs are doubly hard because they’ve likely seen good friends and colleagues of theirs leave the business. “It’s important to help people understand what’s going on, why things have happened, and being as transparent as possible,” says Lena Reinhard, executive coach and former VP of engineering at CircleCI and Travis CI.
“Talking with people honestly about how responsibilities will change, and who is going to take ownership over services that now don’t have any anymore is also important,” says Reinhard. This is a key step towards managing feelings of layoff survivors’ guilt.
It’s important to try and keep morale up and to point out that while the era of enormous returns and superfast growth may be coming to a close, that doesn’t mean that a business will automatically fail. Nor is sustainable growth a bad thing. In the race between the tortoise and the hare, after all, the tortoise is the one that ends up victorious.