The tech balloon
by Matt May
It’s been another week of layoffs and other trouble signs for tech companies. You may be hearing the word “bubble” mentioned, echoing historical downturns such as the dot-com bubble circa 2000. But I think that’s the wrong analogy. I think we should be talking about balloons.
A hot-air balloon has a few critical parts. You need:
- an envelope that can contain a large amount of air, with large opening on the bottom (and, importantly, a smaller one on the top);
- a supply of hot air, to provide lift; and
- a supply of weight, to provide stability, limit upward thrust, and carry crew and passengers
In the tech balloon, capital is the hot air, which lifts the company’s market capitalization. Costs are the ballast. That includes most companies’ #1 cost, which is labor, but also cost of goods sold (COGS) and overhead like customer acquisition costs and administration.
When you’re piloting a balloon, your goal of course to go up, but not so high or so fast as to be unstable. This may lead to your balloon losing structural integrity, which is, in a word, bad. Balloonists are also subject to the constraints of the climate, and more specifically, the weather. If the conditions are poor, you may not get far, and you may decide not to take off at all. In any case, there’s no guarantee of safety.
Once you’ve launched, you have a finite amount of fuel to produce more hot air. While it’s flowing freely, passengers get the sense that they could ascend forever. It’s kind of euphoric. And actually, if you have an awful lot of fuel, you can make all kinds of goofy-shaped envelopes take flight… for a short while.
It may be fun to blast through all your fuel, but seeing your fuel meter approaching “E” limits your options. All the weight you’re carrying means, sooner or later, you’re going to start descending.
One big difference between hot air ballooning and tech is that tech balloons only want to go up. There’s no prize for a long, controlled flight with a safe landing. Not only that, tech ballooning is a contest. You don’t just want to go up, you are trying to do it faster than the other balloons around you. And many pilots will do whatever they can to be on top of the world. At some point, with all the fuel spent, those who are the most keen on going higher will find a way do so. And that’s where they start looking to toss some weight overboard.
So, here’s the thing. There’s a fuel shortage in Tech Balloon World. Capital is hard to come by. Borrowing is expensive, thanks to high interest rates, and other sources of working capital now need to be convinced that they’ll make a lot more than parking it in bonds and CDs paying around 5% interest. Venture capital funds are sitting on more “dry powder,” or uninvested assets, than ever before. In other words, nobody wants to launch more balloons, because they don’t like their chances on takeoff.
This was another miserable week for layoffs. Microsoft’s Activision Blizzard merger led to an 1800-person layoff across both parties. Salesforce and eBay each had layoffs of their own. Meanwhile, Brazil’s GOL discount airline filed for bankruptcy, and Spirit Airlines in the US is expected to go bankrupt any day.
I’ve been working in tech a long time, which means I’ve seen my share of balloon crashes. This is a pattern I swear I recognize. This is how it starts: with a few small companies closing up, and a few big companies doing small to moderate layoffs. Don’t worry, they’ll say. We’re just shifting our focus. This is normal. From here, the job openings start to dry up: partly due to recently laid-off workers landing new gigs, but also because companies stop hiring for the positions that are already open. It’s likely that this is already happening, since a good number of companies have let some of their recruiters go back in 2023.
Next up are the suspensions of incentive programs and the hard hiring freezes. These are moves that temporarily stave off the end game: capitulation. Once all the accounting tricks and workforce games are over, and the market has turned for the worse, it behooves a company to actually admit things are bad. Corporate officers and other insiders, knowing how bad a look it is, start dumping large amounts of their holdings anyway. And with that come the big drops in stock price, and the big layoffs, and the bankruptcies and liquidations, and the government intervention, and finally, the corporate welfare that refuels the bigger balloons. A brief period of heavy losses which the discriminating investor will weather in order to go back to steady gains in a year or two.
If you’re wondering where DEI is in all this, well, it depends on how the organization was built. I have been railing against relying on business cases for DEI progress for a very long time, and the situation we’re in right now is the reason. It takes an immense amount of time and energy to create advocates within an organization. Laying the groundwork is critical if you want to avoid falling into the return-on-investment (ROI) trap. DEI work is systems work, and systems work isn’t measured in earnings per share. The right thing is the right thing, in any cycle.
Making an ROI case is a cheap shortcut. Once you have focused a company on how much money it can make by doing the right thing, once they’re not making money—for any reason—they will blame it on doing the right thing. If you’re scratching your head as to why railing against the very term “DEI” is a rallying cry for soulless turbocapitalists, there’s your answer. When things are going great for a company, they’ll take a flyer on all kinds of projects they see as beneficial to the brand—not because they are morally or ethically “right,” but because they believe it’ll make them richer. When times are tight, though, see how they turn on those same initiatives.
Which brings us back to our balloons.
Your pilot just depleted her last canister of fuel, and saw her golfing buddy smirk and wave as their craft continued upward. She’s not gonna get anywhere just guiding the vessel down to a safe landing. No! Ad astra per aspera! We must ascend at all costs!
While she looks around at her options, think about yourself for a second.
Are you the crew, or the ballast?
Office hours…
…are not enough to keep me busy. I have given it until the end of January, as promised, to become something I can hang my hat on, but it hasn’t worked out that way, so I’m making room to focus on other things. (No worries. This is how I want Practical to work: ethically, thoughtfully, and with partners I trust.)
Paid and free office hours will be Thursdays-only starting this week.
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Practical Trips
I will be going to the CSUN conference in March. I won’t be speaking, but I’ll be hanging out for the hallway catch-ups and evening events. (Forgive me for saying so, but as a veteran of 20 of these things, at least 90% of the value of CSUN is outside of the session rooms.) Drop me a line if you’re going to be around.
Have a great week!