Author: Helen Bruno
Even though Stripe is one of the well-known, prominent, and valuable companies in Silicon Valley, it recently announced that it is laying off 14% of its workforce.
Recently, this tech finance company laid off 1,120 of its 8,000 workforce.
Stripe founders, Patrick Collison and John Collison took full responsibility for their memo about stripping off a huge percentage of their workforce, stating that the reason for the decision was the company’s “very consequential mistakes.
One of the company’s “very consequential mistakes” is being too optimistic about its growth but overlooked and failed to rein in costs.
Little did the company know that fast growth would lead to a swift downfall. There has been a misjudgment about how much the internet economy will grow in 2022 and 2023.
Remarkably, Stripe is not the only technology company that has started to lay off workers. As a matter of fact, other tech giants also implemented hiring freeze decisions as an effort to effectively cut down expenses.
The company’s founders stated they overhired during the pandemic. Currently, their employee headcount is back down to 7,000 as the company dismissed 14% of its workforce. Fortunately, Stripe is not the only tech company that used that excuse.
Shopify also expanded its workforce as a result of growth and high demand for online shopping. After the growth eased, it laid off 10% of its workers in July.
Based on estimation, about 100,000 tech workers have already been laid off in 2022.
Failure to keep other costs in check
Stripe experienced an aggressive and overwhelming expansion in 2021. But being a startup, it encountered struggles with experience.
Its founders admitted the mistake of keeping a tight hand on costs during expansion. In short, there has been a failure in terms of maintaining healthy profit margins.
It didn’t account for a slowdown
No doubt, Stripe experienced massive growth in 2020 and 2021. What’s unfortunate is that the tech company paid more attention to its success and little to its growth slowdown.
A large percentage of the company revenue is tied to transaction fees, but it seems the founders forgot to realize that being on the top doesn’t mean business operations will have no troubles.
Even streaming giant Netflix and popular social media platform, Facebook experienced a downfall. This explains why startups must be ready for everything, which Stripe has failed to do.
Post Pandemic Effect
It is safe to say that Stripe has been too comfortable seeing significantly higher growth rates throughout 2020 and 2021. The rapid and almost overnight success of e-commerce has blinded Stripe. Too bad, the pandemic is the major player.
In fact, as the pandemic eased, e-commerce growth rates returned to how they previously were.
The prediction about e-commerce was wrong because consumers returned to shopping in physical stores. Tech companies experienced the harsh reality of managing business operations, which resorted to laying off workers. Definitely, trusting too much of fast growth was their mistake.
Although it is such an unfortunate decision, Stripe’s announcement about laying off some of its workers doesn’t surprise some people, because major tech companies are doing the same. Stripe’s leadership errors in judgment are the primary highlight of dismissing workers as the company promises to “reset, recalibrate, and move forward.” Hopefully, the company will keep that promise.