Almost 1000 tech companies laid off more than 150’000 employees in 2022, according to tracking website layoffs.fyi. This is just the tip of the iceberg. Between founders, VCs and recruiters, lists with much more available talent are circulating. Since the outbreak of Covid-19, the website counted 250’000 layoffs in total.

How quickly the tide turns. Only a year ago, the tech sector, especially consumer-facing startups, were flooded with capital. Venture capital (VC) firms pushed their portfolio companies to grow no matter the cost and hence rapidly increase their staff base. An increase in headcount was seen and sometimes defined as a key performance indicator. As a consequence, many startups hired more people than strictly necessary, including some that weren’t highly qualified to fill a position.

This year, this exuberance came to an abrupt halt. Faced with a much less generous funding environment, most companies had to relearn a fundamental truth of business: profitability matters, and growth needs to be sustainable. A high burn rate (which measures how much cash a startup spends per month) isn’t appreciated by VCs in this environment. “Today there is a healthier focus on “controlled growth”: sustainable growth rates, careful tuning of your company’s flywheel mechanics, slow and deliberate team building, and a shared expectation that the company-building journey is long but rewarding”, a recent article from US VC Accel reads. In order to reduce their burn rate, or in the case of listed companies, to please shareholders, tech companies started to fire employees en masse.

Matthieu Pirouelle, who leads executive search firm Zeren’s European business, says that the majority of layoffs happened in the US, and affected later-stage or public tech companies. In Europe, the wave of layoffs was much smaller. Surprisingly, software engineers as well as support functions, like finance and HR were the most commonly impacted roles. Other functions such as product-related ones, marketing, sales and after-sales were spared. While team leads and individuals bore the brunt of dismissals, leadership positions were less affected.

With different times come different aspirations. For a long time, the notion of “working for a good company” was equivalent to working for one of the major brands – the tech giants & earning high salaries. Their job-cutting has started a mentality shift, says Mara Vouleli, Director at Key Search. People are beginning to re-evaluate their career goals and the meaning of a “good company”. Those who have been laid off by large companies, where they were an expendable cog in a machine, now try joining smaller companies, startups or scaleups, where they have more influence on where these companies are heading. This goes together with a boom in sectors that are seen in a more favorable light by a younger generation because of their positive impact such as biotech, energy, and sustainability, says Zena Stevens, Director at SPK Search.

Furthermore, tech companies are playing a waiting game, trying to preempt an anticipated recession, by slowing down their hiring and taking longer to decide. Mara from Key Search points out that leadership hires have decreased three quarters in a row and are down 45%. At a leadership level, you might not get fired, but you also won’t get easily hired.

The illusion of abundance in the job market

The influx of talent in the market in general combined with cooled competition to hire them can create an illusion of abundance. Companies looking to hire a large number of software developers in the US over a short period of time, for example, will find the process much easier than before. It’s not a candidate’s market anymore like it was six months ago. But job seekers with the right skills still have a lot of bargaining power. Founders in Europe that need VPs, directors, team leads, or senior contributors, as well as specialists, will find filling those positions as difficult as before. It is important for employers to understand the dynamics of the local market in order to make the most effective hiring decisions.

With the right hire, a startup’s growth can soar. However, founders first need to be aware of the shortfalls of their organization and identify what senior profiles can fill those gaps, and align with their board and advisors on this in a transparent way. Knowing your weaknesses is a strength.

Hiring top-tier candidates for early-stage startups has always been a challenge, says Matthieu from Zeren, and it’s become even harder in recent years. Startups that maybe hire a dozen persons or so per year expect to find hires of very high quality. The pool of candidates who have the experience and skills to effectively scale a business is limited, meaning that the process of finding and convincing such candidates to join is not getting any easier. Experienced people in sales, product or growth aren’t actively looking for jobs, and if they do, they can hand-pick the job offers of interest to them.

It might be wise to wait until the next financing round is closed to start the hiring process, but waiting on events that might or might not happen in 2023 is likely not to be the best idea, Matthieu adds. The shift to remote and hybrid work has exacerbated the problem of attracting candidates’ attention. Getting someone to work from an office is much more difficult, as many prefer the better balance flexible work arrangements allow.

So what should startups do?

First, startups need to take a step back and look inwards. It’s time to assess whether they have made any bad hires or over-hired in certain areas when they still had plenty of runway. Additionally, they should look at their top talent and make sure to retain it.

Second, they should not solely rely on inbound applications, as this could lead to disappointment. Startups need to get more active in their search for candidates or work with a competent (which means specialized) external partner. Headhunters can provide them with access to a wide range of talent that may otherwise be out of reach for them. They can also act as a safety net in case an original hiring plan fails. Ideally, they understand a company well, know what is needed and provide a wider variety of candidates, which gives an overview of the available potential.

Regardless of whether a company works with referrals or with headhunters, it is essential to offer candidates the same recruitment experience. This helps with employer branding. Small gestures, such as calling candidates to congratulate them on their success or sending a token of appreciation, will help everyone feel more at ease. These touches can make all the difference in the recruitment process and ensure you are making a positive impact on the applicants.

Startups should also be well aware of the challenges that they will face before and after the candidate actually starts working.

The pitfalls in the hiring process

Zena from SPK Search emphasizes how important it is to invest the necessary amount of time in the hiring decision. This means taking into account not just the person’s experience and skills, but also their mindset. A good fit with the organization’s culture is quintessential, which is why it is necessary to identify like-minded candidates. But it’s not just about the candidates. Zena reminds recruiters to ask themselves what messages they are sending to potential candidates.

Zena says that startups need to pitch to senior candidates as much as they do to investors. When interviewing them, it is essential to clearly communicate the company’s vision and mission. Candidates should be inspired by the founder’s vision, and understand the goals of the company. It sounds paradoxical, but this can be especially difficult for founder-led companies. This is because such companies focus very hard on the product, and sometimes not enough on people. To ensure that candidates are fully engaged, it is important to be honest and open about what the company stands for, how it works, what successes it has achieved, and also what problems it is fighting with. Such honesty helps to reduce the risk of them leaving shortly after they joined.

Sometimes, this risk manifests itself even earlier. Companies often lose senior-level candidates in the pre-onboarding phase, cautions Mara from Key Search. The time span from accepting an offer after the recruitment phase until the person actually starts often spans several months. This is a key time for the client and the candidate to connect, says Mara. Failure to do so encourages the candidate to accept a counteroffer from their previous employer or a different offer from another company.

To foster the connection between the candidates and the team, companies should involve them in strategy meetings and invite them to informal events such as team drinks. This will help them warm up to the team and envision themselves in the position prior to starting.

For candidates affected by layoffs that want to make the move from corporate to Startups here’s an excellent article about this big step.