Why Coinbase’s latest layoffs feel bigger than they are

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Wednesday, January 11, 2023

Today’s newsletter Miles Abroad, Senior Market Editor at Yahoo Finance. follow him on twitter @MylesUdland and LinkedInRead this and other market news on the go Yahoo finance app.

Coinbase (COIN) announced on Tuesday that it will lay off 950 staff, or about 20% of its team.

As reported by Yahoo Finance’s David Hollerith, this will lead to the company’s total cuts from spring 2022 onwards to over 2,000 employees.

Days after Bureau of Labor Statistics data revealed 223,000 jobs were created in December – and 4.5 million jobs added to the US economy in 2022 – Coinbase cuts is hard to see as a signal that goes far beyond symptoms. Crypto bull market.

As David pointed out in his report, few cryptos are registered even in the context of the tech industry where the labor market is softening. Around 151,600 jobs will be cut in the tech industry by 2022, according to layoffs.fyi data, with cryptocurrency cuts accounting for 6.2% of the total.

It’s no doubt painful for those who have lost their jobs, but in the context of a labor market where demand for workers continues to outstrip supply, there’s something near the footnote.

But Coinbase CEO Brian Armstrong’s message to employees stands out: cuts may be modest in the first instance, but long-term shifts have taken place in sectors that have defined the economy for most of the past decade. It shows that it is in progress.

Coinbase CEO and Co-Founder Brian Armstrong speaks at the Milken Institute Global Conference in Beverly Hills, CA on May 2, 2022. (Photo by Patrick T. FALLON/AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

From Armstrong’s notes, with emphasis:

This is also a moment that we want our startup culture to focus on and remember what it feels like to have a small, agile team that can get more done. It grew so quickly that we all felt the headwinds of adjustment and slowed down. Over the past decade, like most technology companies, we’ve focused too much on headcount growth as a measure of success. Especially in this economic environment, it is important to shift focus to operational efficiency.

The investment culture in which Coinbase and many other new tech companies grew up largely states that growth and scale are all that matters. Find a big market. attack that market. Think of ways to make money later.

This is the time to end now.

So the real chill brought on by tech layoffs doesn’t come from today’s job losses, but from the future jobs that companies suggest they won’t create.

During the heyday of the post-pandemic bull market, headcount became the critical OKR for so many companies trying to capture the energy of a turbulent economy.

All the grand proclamations that technology will transform where people want to live, how they want to work, and how they work, all seemed to be on their way to becoming reality.

The only limiting factor was physics. It’s how much a business, industry, or technology can scale using 24 hours in a day. And how many people were able to get the job done?

No wonder the “metaverse” turned out to be the hottest idea for the tech industry during this time. There is no better way to grow faster than human potential than by eliminating actual humans.

Of course, as investors have learned in 2022, all it takes is a rise in interest rates to bring back to the building blocks what looked like a game limited only by ambition and capital. make?

Coinbase is now focused on answering that question. And they are never alone in their pursuit.

Companies have two levers when trying to get unit economics right for any business. Sell ​​more products or manufacture products for less. This is a simple equation. Either the numerator gets bigger or the denominator gets smaller.

And the fastest path to cost savings is through your employee base. today and tomorrow.

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