Industry Insights 5 Why Tech Layoffs Fueling People To Become Entrepreneurs

Industry Insights


Why Tech Layoffs Fueling People To Become Entrepreneurs

by | May 16, 2023 | All, Featured, Leadership, Nearshoring

About The Author Steve Taplin

Steve Taplin, CEO of Sonatafy Technology, is a serial entrepreneur with extensive expertise in software development, MVP product development and the management of staff augmentation services.

Layoffs in the tech industry started in Q4 last year and have continued (even progressed) in 2023. Technology companies are still letting go of thousands of workers in subsequent rounds of layoffs, raising many questions for everyone, even casual observers. Is the tech industry going under? Is there an economic recession on the horizon? Where will all the unemployed go?

While some may see losing their job as a crisis, others see it as an opportunity. Many have gone to work for smaller tech firms with significant growth opportunities. The most innovative tech employees are seizing the opportunity to become entrepreneurs and start their own firms.

Massive Tech Layoffs

According to (via Vox), at least 160,000 people who were working in the tech industry lost their jobs in 2022. By the first four weeks of this year, an additional 78,000 people had been released from their positions in the tech industry.

These layoffs may seem only to be affecting tech giants like Microsoft, Apple, Google and Amazon. However, even small to midsized private firms are also laying off employees in droves, as this thorough TechCrunch list reveals.

Increase In Talent Pool

But where there is a crisis, there is also an opportunity, and there is no bigger opportunity than for midsize tech firms and non-technology companies that are looking to increase their tech talent. They are experiencing an explosion in the talent pool available.

Due to the might of the big tech firms, these smaller firms would have never had access to the talent available today. Small and midsize tech firms are capitalizing by offering the recently fired employees better terms for tech jobs.

Working for a startup may be riskier than for a large tech firm. However, the layoffs have proven there needs to be more security and stability in the tech industry right now. Therefore, a worker’s risk may be better placed with a smaller firm where at least they have some ownership compared to a big firm where their future is uncertain.

Layoffs Driving Startups

Employees who were let go in the past year are using it as an opportunity to strike out on their own. They are focused on putting together capital from savings, friends, and family, cashing out former stock options, angel investors, and venture capital. They then use the money as startup capital to start what one Wall Street Journal article calls “revenge startups.”

Financing will be an issue because many investors are currently wary of the tech industry. Unless you have a proven track record or product portfolio, going into your pocket is the most viable option for most entrepreneurs.

On the other hand, some investors will be more willing to risk their capital on a promising startup than put it in the dwindling stocks of a blue-chip tech company. After years of diminishing returns in the tech industry, some cash-heavy investors are seizing new opportunities, and their difficulty is in selecting suitable investments because there are so many.

New startups are agile and have very few costs. Some space, several computers and some equipment are all a tech startup needs in some cases. If they can prove they have a sellable product that customers find value in, they can grow rampantly at this stage.

Tech professionals with valuable skills like programming, designing and software development are joining forces to start companies offering something different but of high quality to the market.

Tech employees with the requisite skills and excellent ideas only need the financing to start their own companies. As a result, we could see big tech firms face stiffer competition in the near future.

Evidence Of New Startups

The evidence of these new startups rising from the ashes may be hard to see now. However, early indicators show how much these entrepreneurship ventures are increasing.

Startup accelerator Y Combinator says its applications rose by 20% in 2022 alone, according to Benzinga. The company also notes that the number of applications submitted in January 2023 grew by five times compared to the year prior. The World Economic Forum states that economic disruption will continue throughout 2023, and it lays out the ideal conditions for new businesses to emerge. It also notes that while younger generations have had difficulty entering the labor market, “Young entrepreneurs are bypassing the traditional labor market.”

The cost of capital is the highest it has been for years due to the rise of interest rates by the Fed to try and curb inflation. Investors and investment firms that had substantial cash on the sidelines are reaping the rewards due to the surge in startups. According to the aforementioned Benzinga article, “A survey of 1,000 laid-off tech workers conducted by Clarify Capital LLC found 63% of the respondents started their own company after their layoff.”

The Entrepreneurship Bug Bites

It is difficult for tech employees to demand the same compensation as they did at their previous employers. There is too much competition, which often makes entrepreneurship an intriguing option. I believe those that take advantage of their opportunities will be sufficiently rewarded, as bold entrepreneurs in the past have.

Those with excellent, viable ideas will receive funding even in a challenging capital market. It may take some time to see the fruits of their labor, but fortune favors the brave.

These layoffs have shaken the tech industry to its core, but entrepreneurship may serve as a lifeline for former tech employees.

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