An Open Letter to Every Company in Tech
From Zuckerberg's decision to lay off 21,000 employees in the space of six months
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“First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies”.
Clayton M. Christensen, The Innovator's Dilemma
I am of the opinion that this is a worthy area of exploration and personifies the rare act of a large incumbent preemptively trying to protect themself from creative destruction. Whether it works out or not, I don’t know.
"There had to be a reason why good managers consistently made wrong decisions when faced with disruptive technological change. The reason is that good management itself was the root cause. Managers played the game the way it was supposed to be played. The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change”.
Clayton M. Christensen, The Innovator's Dilemma
But who cares about all that nonsense, shares have drifted up to ~$200 per share. The company is no longer a ShitCo. More recently, Meta has been in the news because of Zuckerberg’s ruthlessness. Following the reduction of 11,000 employees back in November 2022, the CEO was back this week to announce another round of payroll slashing; this time to the tune of 10,000 employees and the closure of 5,000 open roles. This follows on from his announcement of Meta’s ‘Year of Efficiency’ in the Q4 ‘22 earnings call. Putting this into perspective, Meta has added 27,000 employees since 2020 and by the summer of this year will have axed 21,000 in the space of 6 months.
People losing their jobs is bleak and yes, Meta was guilty of gorging during times of excess. Some businesses like to pool talent in the good times, even if they don’t necessarily need them, and trim the unwanted fat when the bad times roll around. On Tuesday, alongside the announcement of further payroll reductions, Zuck penned what @modestproposal aptly coined “an open letter to every company in tech”. He would admit that 2022 had been a “humbling wake-up call” and that Meta must become leaner still.
The world economy changed, competitive pressures grew, and our growth slowed considerably. We scaled back budgets, shrunk our real estate footprint, and made the difficult decision to lay off 13% of our workforce.
Mark Zuckerberg, Meta CEO
Regardless of whether or not you have an interest in Meta, this letter speaks to the bad habits that many businesses have accumulated in the last three years.
Here are my highlights from that letter.
1. New economic reality
Zuckerberg feels that this new reality will persist for years to come.
I think we should prepare ourselves for the possibility that this new economic reality will continue for many years. Higher interest rates lead to the economy running leaner, more geopolitical instability leads to more volatility, and increased regulation leads to slower growth and increased costs of innovation. In the face of this new reality, most companies will scale back their long term vision and investments. But we have the opportunity to be bolder and make decisions that other companies can’t. So we put together a financial plan that enables us to invest heavily in the future while also delivering sustainable results as long as we run every team more efficiently.
2. Profitability enables innovation
Operating our business more efficiently will give us the resources and confidence to achieve our long-term vision by delivering sustainable financial results that make us an attractive company to work at and invest in. When I wrote my first letter to investors during our IPO, I described a basic principle that is still true today: “we don’t build services to make money; we make money to build better services.”
3. Leaner is proving to be better
With excess labour falling and low-priority projects cancelled, things at Meta are moving faster.
Since we reduced our workforce last year, one surprising result is that many things have gone faster. In retrospect, I underestimated the indirect costs of lower priority projects. A leaner org will execute its highest priorities faster. People will be more productive, and their work will be more fun and fulfilling. We will become an even greater magnet for the most talented people. That’s why in our Year of Efficiency, we are focused on canceling projects that are duplicative or lower priority and making every organization as lean as possible.
4. Illustrating the accumulation of indirect costs
Zuckerberg demonstrates how effortlessly payroll can get out of hand; which inevitably leads to indirect costs.
It’s tempting to think that a project is net positive as long as it generates more value than its direct costs. But that project needs a leader, so maybe we take someone great from another team or maybe we take a great engineer and put them into a management role, which both diffuses talent and creates more management layers. That project team needs space, and maybe it tips its overall product group into splitting across multiple floors or multiple time zones, which now makes communication harder for everyone. That project team needs laptops and HR benefits and may want to recruit more engineers, so that leads us to hire even more IT, HR and recruiting people, and now those orgs grow and become less efficient and responsive to higher priority teams as well. Maybe the project has overlap with work on another team or maybe it built a bespoke technical system when it should have used general infrastructure we’d already built, so now it will take leadership focus to deduplicate that effort. Indirect costs compound and it’s easy to underestimate them.
5. Middle management, get in line or get out
Neverending layers of hierarchy increase latency and reduce accountability. Meta will be asking managers to get in line to flatten the org structure and improve information flow.
We will make our organization flatter by removing multiple layers of management. As part of this, we will ask many managers to become individual contributors. We’ll also have individual contributors report into almost every level so information flow between people doing the work and management will be faster. Of course, there are tradeoffs. We still believe managing each person is very important, so in general we don’t want managers to have more than 10 direct reports. Today many of our managers have only a few direct reports. That made sense to optimize for ramping up new managers and maintaining buffer capacity when we were growing our organization faster, but now that we don’t expect to grow headcount as quickly, it makes more sense to fully utilize each manager’s capacity and defragment layers as much as possible.
6. Get back to the office, kids
Meta is currently undertaking a study to assess the impact of remote and in-person working. In a similar vein to something I wrote about in ‘The Bit in the Middle’ the evidence suggests that people who joined Meta remotely underperform those who joined in person. Zuck unsubtly suggests employees get their asses back in the office. I suspect many operators have similar views.
Our early analysis of performance data suggests that engineers who either joined Meta in person and then transferred to remote or remained in-person performed better on average than people who joined remotely. This analysis also shows that engineers earlier in their career perform better on average when they work in person with teammates at least three days a week. This requires further study, but our hypothesis is that it is still easier to build trust in person and that those relationships help us work more effectively. In the meantime, I encourage all of you to find more opportunities to work with your colleagues in person.
7. From Metaverse to AI
Zuckerberg feels the leaner structure of Meta will enable them to deliver on their high-stakes ambitions.
I believe that we are working on some of the most transformative technology our industry has ever seen. Our single largest investment is in advancing AI and building it into every one of our products. We have the infrastructure to do this at unprecedented scale and I think the experiences it enables will be amazing. Our leading work building the metaverse and shaping the next generation of computing platforms also remains central to defining the future of social connection. And our apps are growing and continuing to connect almost half of the world’s population in new ways. This work is incredibly important and the stakes are high. The financial plan we’ve set out puts us in position to deliver it.
Thanks for reading,
Christensen suggests that “disruptive technology should be framed as a marketing challenge, not a technological one”. While some credit can be given to Meta for understanding this, their marketing narrative was a poor one. They focussed on the whimsy of a magical world called “the metaverse” instead of framing their mixed reality venture as something which would allow for greater connectivity and immersion. As a result, most were left staring aimlessly at the trees without an afterthought for the forest. I digress.
Note that the 2022 employee count doesn’t represent the full 11,000 that were culled in November.
"In retrospect, I underestimated the indirect costs of lower priority projects."
Subtle but brilliant.💡 NickE Likey! 👍🏾
The supply and demand dynamic of securities is fascinating.
No one is comfortable in buying when they are alone in their decision (Low).
They are always happy to buy when everyone else is buying (High).