It's clear that nothing stays the same for long. Aside from generative AI disrupting how we now work, the layoff wave of the past two years has been quite disturbing. That, and the funding slump, especially for venture-backed companies, question the prosperity the tech space enjoyed between 2020 and 2021.
However, layoffs appear to be slowing down globally. As of the first week of July 2024, Layoffs.fyi recorded that 104,410 employees have been laid off by 360 tech companies globally, with big guns like Amazon, Google, and Tesla responsible for a huge share of this number.
This is about half of what was recorded around the same time in 2023. For context, layoffs in the first 30 days of 2023 exceeded all recorded in the first six months of 2022.
In June alone, over 53 companies in the HR, data, and education space disclosed reducing their workforces compared to 108 in the same month in 2023.
This is a similar case with African tech companies. Per data provided by Intelpoint, between January and June 2024, only five companies have announced layoffs compared to eight in 2023. It is noteworthy that the 1,060 employees Copia Global laid off after it entered into administration drastically increased the numbers beyond what was recorded last year.
However, since inflation rate, unfavourable socio-economic conditions, and funding slump — the causes of layoffs discussed in this article — persist, one wonders why the number of layoffs has reduced, especially since data for the first half of 2024 shows that funding for African startups has gone down by 50% from December 2023.
Firing vs laying off
Before addressing the possible reasons, let's look at one controversial talking point at the peak of layoffs in 2023 — were some companies firing or laying off?
PR specialist and Founder, Talking Drum Communications, Oluwagbeminiyi Idowu, says there probably wasn't a clear distinction and concerned companies and the media probably documented performance-based dismissals — strategic workforce reduction moves for cost-cutting and survival — as layoffs.
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Using a sales team hired for a new product, a common occurrence, Idowu says letting the sales team for not meeting the set goal is more like firing for a cause than laying off.
An at-will employer's decision to lay off thousands to save costs often makes no sense because of the many severance packages associated with such a move. However, some of these layoffs could have been for performance reasons, and this probably explains why a number of these companies had openings on their websites while layoffs were going on.
An article comparing labour laws in Europe and Africa says that companies laying off because of redundancy can be prosecuted for hiring for the same positions, as laid-off staff can sue for unlawful dismissal. In Nigeria, startups like Moove and Cowrywise were quick to clarify that the announced layoffs were performance-related dismissals or terminations.
Reasons fewer startups are laying off
For Alex Onyia, Founder of Educare, it makes sense that after significant rounds of layoffs in the past two years, companies have streamlined their operations and may now be more focused on retaining critical talent.
The odds could also be against these companies, especially in retaining quality developers looking for better compensation packages due to the economic situation either by relocating or working remotely for international companies.
Startups are more concerned with dissuading the remaining employees from seeking opportunities elsewhere. Idowu agrees and notes that startups that did not shut down reduced their workforce to sustainable sizes while awaiting market stabilisation.
He also believes that it's possible that startups are opting for internal restructuring rather than outright layoffs. Consequently, only those that can't move members of non-performing departments into more critical areas of the business are forced to lay off.
Conversely, another factor that could have influenced the perception of reduced layoffs is the potential underreporting of smaller layoff rounds. Startups may not always announce layoffs, especially if the numbers are not substantial enough to attract media attention.
Have startups learnt their lessons?
One of the recurring reasons for massive layoffs globally is overhiring, following Silicon Valley's "hire fast, fire fast" mantra.
However, Onyia and Idowu express a cautious optimism about future market stabilisation and how African tech companies can learn from all that is happening.
They expect that startups that can weather the storm are now operating with more sustainable workforces and processes.
Perhaps, they will approach future hiring better informed about what works and what doesn't. Clearly, keeping a lean but capable workforce gives room to capitalise on opportunities and avoid premature layoffs.
Time will tell if tech companies will resume uncontrolled recruiting after the Funding Winter.
