What Did We Learn From Tech's Summer of Pain?
It was a cruel summer for many folks working in tech. What seemed like a never-ending upward trend — that soared even higher for many startups during the last few years — ended. We are years after a bull market for technology hype (think AI, crypto, virtual reality) where the promised future seemed too good to be true. You need only open up LinkedIn to see the toll poignantly expressed in people’s own words. Every day it seems like there is a new announcement about professional heartbreak.
Layoffs, hiring freezes, rescinded offers — now rumors of slashed annual bonuses. It all added up to a summer of pain.
It has been hard for me to watch. As someone who has worked in Silicon Valley since the 1990s, I have certainly seen the ups and downs — including the extreme angst of the .com crash. And while what we are experiencing right now might not be eviscerating the industry in the same way, the pain is still far-reaching. You almost certainly know someone who has been impacted. Thankfully it seems that the hiring landscape remains competitive and people are finding new roles quickly.
I posted on LinkedIn recently about the public reasoning from CEOs about the need to stabilize the business or streamline operations. Even though there were likely many decisions (some misguided, some just bad) that brought us to today, I do have empathy for everyone involved. It is certainly tough to lead a group of people over a sustained period of time. Yet it is even harder in an environment that prioritizes growth over all else and at any cost.
Most of the turnover turmoil is happening in venture capital-backed startups. In the past, layoffs could be avoided with yet another round of funding. It was better to lose more money than to let people go, because people were so hard to hire in the first place. And the cycle continued — until it did not. But that was only after buying soared, inflation exploded, and international instability tipped the scales.
Things may feel uncertain, but the message is clear: Shore up capital and cut costs. I believe it is a necessary right-sizing, even if it hurts.
There is another story though. It is not overflowing with drama so it often gets overlooked. In many ways it is actually quite boring. I am referring to the many businesses who rejected the hype machine and chose a different approach are quietly thriving. Maybe their growth is not as rapid as it was, but they are still healthfully growing.
These are self-funded, highly profitable, and focused businesses like Aha! — we are champions of bootstrapping and the benefit of doing so has never been clearer. No budgets to slash, no layoffs, and no offers rescinded. (This summer we actually hired folks in every part of the business.)
Setbacks can almost always be reframed for deeper learning. Because spending time ruminating on what went wrong and how bad many folks feel right now will not move us forward. So what can we learn from tech’s summer of pain?
Purpose is an anchor
Hype is ephemeral. How many of the companies who are in trouble now were honestly evaluating themselves with relentless clarity during the boom days? Unrealistic promises always come due — as we are seeing now. Those who lead with purpose are better able to avoid making compromised decisions.
Waste is a weakness
Runways eventually end. That is why VC-funded startups talk about the cliff. When startups were stuffed with cash, there often seemed to be an unspoken mandate to burn through it as quickly as possible to get to that cliff. Because a bridge was always extended. But how much does it really cost to build software these days? Not a lot in relation to other types of industries. I just heard about someone who spent $7,000 to build a completely functional social network for athletes. There is strength in being forced to only spend on what is essential.
Profit is the only path
Losing money should not be the goal. Too many startups (even some of the most “successful” billion-dollar household names) never turn a profit. Not long ago, there was a general acceptance that growth was what mattered. Somehow this was the most important metric, with profitability a secondary consideration. But now valuation resets are coming — cutting budgets and laying off staff can only take you so far. The companies with a viable path to profit have the edge.
Sustainable growth is lasting
Some analysts are calling it durable growth. I have always referred to it as sustainable growth. It is not just about whether you can keep growing the top line. It is about doing it in a way that can be maintained — that is what lasting companies achieve. The essence is that the founders who invest in building a business that can endure inevitably make choices to put purpose, people, and profit first. You can understand the implications of today’s decisions, while also looking ahead to the future.
Companies that focus on a path to profit, value creation, and sustainable growth are able to take a long-range view.
It does not mean that bootstrapped companies will not have moments of angst. Building a business is an adventure and there will always be challenges. And there is no doubt that some fail. But choosing to embrace the bootstrap mindset does give you the latitude to evaluate, understand, and solve based on what you believe will bring the most value to everyone involved.
If this summer of pain is to be remembered for anything, I hope it will be a re-centering towards a more grounded approach that reminds us all that business fundamentals are... fundamental. That is true and good.
Aha! is purpose-driven and profitable. Are you ready to join our team?