The necessary evil of the job market correction
This week, Goldman kicked off the new year by cutting just over 3000 jobs across the firm. They’re hardly an outlier, following in the footsteps of many other high profile firms to announce large redundancies including Credit Suisse, Morgan Stanley, Coinbase, Facebook, Amazon, Salesforce, and many many more. For some of the younger members out there, this may seem like a bit of a shock.
You need to go back to the aftermath of the GFC to find a time when financial services underwent such a retrenchment in terms of headcount. Back then, banks were going bust and it felt like the whole system was about to fall off a cliff. Today, whilst the impact of job losses on individuals no doubt feels similar, both the causes and wider effects are different.
Inevitable chaos
If you compare 2008 to today, you feel much less of a sense of catastrophe and more of a dawning realisation that this slowdown has been heading our way for some time.
The market top and ensuing correction that have taken place over the last 12-24 months are made up of two key factors. Firstly, the global economy got way too hot. Those preconditions collided with a perfect storm of catalysts, including COVID and war. The result? Inflation…and importantly, the end to cheap money and low interest rates.
From equity markets to private valuations to crypto, and all in between, as sure as bust follows boom, a significant correction and a job market contraction were inevitable. That’s not to lessen the effect job losses have on individuals and institutions – it’s just a reminder that this part of the cycle feels like a necessary evil rather than a once-in-a-blue-moon catastrophe.
The laws of the jungle
Aside from the pain they inflict, layoffs in finance are a normal and healthy part of the business cycle. They are an unalterable law of the finance jungle.
At a bank like Goldman, for example, the layoffs we’ve seen written about are actually just the firm reverting to a practice they used to undertake every year, where they cut the bottom 5-10% of the workforce to keep (they’d say) standards high.
Animalistic, yes. But it’s a jungle, and those who make a living in it do so with the understanding that job security isn’t a given. There are lower-risk ways to have a 40-year career and receive a gold watch aged 65. The odds of survival at an investment bank aren’t the most attractive.
“Everything bubble”
But those odds shifted in favour of the employee over the last decade. In the decade after the GFC, we’ve been in an “everything-bubble”, buoyed with cheap money and irrational exuberance, inflated further by the liquidity-heavy reaction of governments and central banks to COVID-19. The tech bull-run and infinite capital ignited a “talent war” the likes of which we’d never seen before, with salaries, and headcounts, going parabolic.
From a headcount perspective, the bubbles were especially frothy in the finance and tech sectors, with astonishing numbers of people being added across the board in a broad range of sub-sectors, departments and geographies. Facebook’s headcount doubled between 2019 and 2021. That may sound mad – but in the same period, its share price (pretty much) doubled, too.
In the good times, money poured in, and finance and tech hired in an effort to make as much as they could whilst the going was good. And fair enough. The sun shone and they made hay.
Hold em or fold em
I’m not surprised that the insane levels of growth in finance and tech over the last decade are starting to abruptly unwind. All good things end, especially if they’re too good to be true.
Mega brands, like Goldman, Facebook and Amazon, are retrenching. But they’re strong businesses and strong balance sheets, so they’ll be fine in the long run. It’s the loss-making VC-fuelled startups and scaleups where the real pain is being felt. As per this fascinating/depressing site that tracks tech layoffs, this current contraction is a big one, but it shouldn’t have been unexpected, either for those being hired or those making hires.
Each mass redundancy is marked by a personal letter from the CEO, with essentially the same story: “we made bets, we hired quick, some came off, some didn’t, and now we must cut.” The bets were in a mix of pandemic-inspired-eCommerce bullishness (Peleton, Stripe), blue-sky tech (Goldman’s Marcus, all of “web3”), and general supply/demand-led markets (M&A and ECM were red hot but have gone ice-cold). In hindsight it’s easy to say that they hired too quick. But in the heat of the moment, most firms probably did what was rational. Former Citi CEO Chuck Prince’s famous line comes to mind, “...as long as the music is playing, you’ve got to get up and dance.”
Upward and steady
Long-time readers of the blog will know that at Origin we’ve always taken a measured approach to hiring. It doesn’t mean we haven’t grown. In Jan 2020, we had 12 full time employees. Today, we are a team of 30. But, we’ve watched others in our space grow a lot faster on far thinner revenues, and it’s these firms that may have to go back a little before they can go forward again.
So despite the turbulence, I’m proud to say that in 2023, we’re still hiring, following our time-tested philosophy of hiring slowly and keeping the bar very high. Our growth curve is steady and upward trending and we’ll stick to this path, bolstered by the talent we onboard. Job cuts in technology and finance are no great surprise – they’re as old as technology and finance. By being wary of boom and bust, we hope to navigate a safer, smoother path for our clients, investors and, crucially, our employees.
Like the sound of this? Join us! You can find our job vacancies here or please reach out directly to me to discuss how you might be able to find the right role for you with us. I’d love to chat.