sitaram

Unfortunately I think we'll see meaningful layoffs in software this year. And I want to explain why it's just air cover to call them "AI-driven layoffs", even though every company will do so. Yes, AI makes companies more efficient. Developers and marketers can do more. CSMs can have a wider span of control. You can answer 70% of your tier 1 support cases with AI. But that's not really what's going on. But two things are more elemental to the situation, and the actual driver: 1. Valuations have reset, with a totally valid and reasonable focus on free cash flow minus stock compensation. And the math simply doesn't math. 2. Many of these companies staffed up during COVID and never actually took their medicine and got fit. They thought demand would come back and it mostly hasn't. Not in the same way. Illustrative example, to pick on two companies, Atlassian and HubSpot, that I actually really admire: - Age: Atlassian is 24 years old. HubSpot is 19 years old - # of employees: Atlassian has 14k employees at $22B market cap. HubSpot has 9k employees at $15B market cap - SBC-Adjusted FCF: Basically ZERO That's right. After 20 years, the actual cash generated and available to shareholders is ZERO I do think the owners of these businesses understand that is no longer tenable. But they have two issues now: 1. The actual technical talent needs to get paid 2. Their stocks are down 60-70% from recent highs So here's the situation: They need to start making actual money, they have to pay their tech talent, their dollar grants are going to have serious dilution consequences, and their cost structures are completely bloated for their current market cap, especially compared to more nimble competitors. If they keep paying all of these people in stock, their dilution will continue and the stocks will continue to be punished. If they pay them all in cash, they will have no fcf. TL;DR Layoffs are unfortunately the only true answer. They are coming. They will be credited to AI, and that will be air cover for the real problem.