The Big Tech Hiring Reversal

The talent market for tech entered a new era and the rules have changed.

This article will dive into the macro trends behind the meteoric rise of tech jobs over last decade, how this is now changing, and what this means for recruiting teams moving forward.

In hindsight, the emergence of the anti-hustle-culture crowd and the 4 day work week warriors were clear signals of the peak. The last decade can be characterized as ‘the tech worker’s decade’. Since 2012, the number of full-time employees at FANG (minus Amazon) alone has exploded from 131k to 450K and VC money flowing into startups increased from ~$40B to ~$345B. A significant portion of this explosion in funds went towards hiring, payroll, and benefits as startups struggled to compete for top talent against the lavish compensation packages handed out by big tech. What we’re going through right now is the reversal of that trend as big tech’s insatiable hunger for talent has turned into puking. We’ve shifted to a business climate where companies will have to do more with less, putting pressure on tech jobs. As a result, tech hiring in 2023 is going to look very different from what we have grown accustomed to.

Tech Jobs and Compensation went Boom. Here’s why.

A decade of free money…

1. allowed FAANG to perpetually act like growth-stage companies

2. led to explosive growth in VC dollars

3. 
   

The practical implication of free money (near 0% interest rates) is that investors unilaterally flowed into productive assets that can grow (i.e. tech companies). FAANG became a money printing machine during a time when the cost of capital was 0 and where the growth narrative was leading. Absent an incentive to “grow up” and progress to a stage where returning shareholder value is prioritized, they kept growing at all costs instead. From a talent perspective, this meant hiring all the top talent they possibly could with ever-increasing competitive compensation and benefits packages. By the end of 2021, Apple, Meta, Netflix, and Google combined grew their net new FT employee base (hires minus attrition) by ~4,500 per month. In parallel, the boom in VC funding led to a lot more growth-obsessed startups competing in an increasingly tight talent market. These forces culminated in a decade of sharp increases in tech worker jobs, compensation, and benefits. But… the party can’t last forever.

From Boom to Bust

Money is becoming more expensive, which will…

1. make cutting costs just as important as growing revenue across tech (if not more)

2. lead to a slowdown in VC

After a decade of free money, we’ve gotten to a point where there is way more money in existence than there are products and services to spend it on. This causes inflation and has prompted the fed to increase the cost of capital to destroy demand and stabilize prices. Investor money can now find returns in other assets again and all of that money that has flowed into growth companies over the last decade is now flowing out. This is reflected in the stock price of public tech companies (down) and the valuations of startups (also down).

The ramifications for the tech talent market are enormous, and we’re only just starting to witness them. It is highly unlikely that we will see the V-shaped recovery that happened earlier in the pandemic. After the pandemic layoffs, big tech was still hiring, money was still free, and most affected workers found new roles quickly. This time will be different: the pressure on Big Tech to prioritize cost control through 2023 and beyond will be strong and there is a high probability their hiring velocity will stagnate significantly as a result. In other words: FAANG’s (minus Amazon) demand for its 4,500 net new employees every month is no longer there — the structural demand for top tech talent that has been here for a decade now looks completely different. In parallel, the deployment of VC dollars is likely to slow (at least temporarily), and with it the number of well-funded startups that are hiring. Those who do get funded are also likely to be more thoughtful about their growth rather than adopting a “growth at all costs” mindset. All of this means that a slowdown and even a reduction in tech jobs in the short to medium term is likely and marks a fundamental shift in the status quo we’ve come to know over the last decade.

What this all means for talent teams in 2023

Optimizing for the candidate experience above all else has been a top priority for many talent teams in order to achieve hires in a hyper-competitive environment. While delivering a stellar candidate experience will remain important, it’s not going to be enough to be a top performing recruiting team in 2023. In the upcoming year, the most successful talent teams will optimize their process for internal clarity, empathy, and confidence. Teams that know what they are looking for and how to look for it will win.

As companies are forced to do less with more, so will hiring managers.

Hiring managers will have to hit their objectives with less resources — meaning that each individual hire becomes increasingly critical. There will be a temptation towards behavior that can unintentionally sabotage the recruiting process and set the recruiter up for failure. Hiring managers may start to package multiple roles into one role that no candidate can live up to. Hesitation on whether a certain candidate is “really a fit” can creep in, delaying decisions to make an offer (time kills all deals!) and increasing the probability of false negatives.

Empathizing with the hiring manager is going to be crucial and means we must re-optimize our recruiting process to reflect this new reality and guide them away from potential pitfalls. This means helping hiring teams prioritize the most urgent needs embedded in a hiring profile and identifying what competencies are less important so that we don’t over-index on them. The hiring process candidates go through must generate a crystal clear signal of their fit for the role, setting the team up to make hiring decisions with high confidence. At times, this may clash with optimizing for the best possible candidate experience, introducing a fine balancing act for recruiting teams to navigate. Tools, such as well-defined competencies that are weighted appropriately and that the entire hiring team is bought into, are going to be invaluable.

Candidates will be increasingly risk-averse, yet are more likely to join startups.

During times of economic instability, risk appetite of candidates tends to lower as they’ll increasingly value security in their next opportunity. Typically this means startups will have to try extra hard to convince candidates to join and topics such as financial runway become the core topic in their pitch. While these conditions are true today the truth is that the availability of low-risk roles is much lower as big tech has slowed hiring. A large number of people affected by layoffs won’t be able to afford the luxury of optimizing for security absent demand of such jobs and with pressure to find a new job quickly. We’re going to see a dynamic play out where big tech will be laser-focused on quarterly earnings while startups will adopt a longer time horizon. There are numerous downstream effects of this dynamic but from a hiring perspective, this means big tech will become increasingly lean whereas startups will continue to grow. The macro stage is being set for a textbook “innovator’s dilemma” scenario to play out and it’s likely we’ll see startups significantly disrupt big tech before we enter the 2030s — I’ll do a deep dive about why that is and why right now is a great time to join a startup in my next post!