What Do Big Tech Layoffs Mean For European Startups?

Elon Musk, pictured, fired Twitter staff via email. (Photo: Daniel Oberhaus (2018)/Flickr)

Thousands of jobs have been axed at US big tech firms. Is this an opportunity for Europe’s startup ecosystem or a sign of what’s to come?

Amazon was the latest big tech to announce mass layoffs. Mid-November, it said it would axe an estimated 10,000 jobs, representing 3% of corporate employees and 1% of global staff. Before that, it was Elon Musk at Twitter shedding 3,700 people, almost half its workforce and not forgetting Meta, which is removing 11,000 (13%) from its global payroll. The scale of layoffs at big tech firms and their mishandling (some Twitter employees learned their fate when they were locked out of work platforms and removed from Slack groups) has attracted massive attention to the tech industry, but not all of it bad. 

In Luxembourg’s tech startup ecosystem, there are murmurings that these actions and behaviour will encourage highly skilled workers to forge their own way.

“Big tech and ‘regular’ startups live in different worlds. Whilst the golden years of the former are coming to an end, seeing them shed some staff is an opportunity for younger teams whose glory days are yet to come,” said Patrick Kersten, a serial entrepreneur and chair of the not-for-profit Luxembourg Startups Association

Tech skills shortage

Europe suffers from a major tech skills shortage. The 2022 Digital Economy and Society Index, a European Commission monitoring tool, found that 55% of enterprises that recruited or tried to recruit ICT specialists reported difficulties filling such vacancies. The continent currently counts 9 million ICT specialists, a number the EU wants to grow to 20 million by 2030 to close the gap on digital skill supply and demand. Could big tech’s big layoffs make the European market more attractive? 

Genna Elvin, co-founder of Tadaweb, a small data firm, reckons that the talent drain at Twitter will be “an opportunity for European companies to attract top talent.”

She said: “The US is a changing place right now. The events at Twitter are a byproduct of this, not a one-off event.”

A 2013 Twitter message flags a bug in the system. (Photo: John Jones/Flickr)

Market reset

Michael Jackson, former Skype COO, partner at Mangrove Capital and fintech advisor, sees the announcements as the first signs of an investor-driven tech reset after a period “buoyed by easy cash from overzealous investors encouraging companies to grow staff faster than they can sell products.” 

He said: “We have seen this in previous tech bubble cycles, and there was the feeling that the merry-go-round had to stop one day.”

However, Jackson was not convinced that the layoffs would benefit Europe. Given that the US IT sector employs over 4 million people with a turnover of 15-20% or 800,000 per year, he said: “The 3.700 people laid off from Twitter can easily be absorbed into a sector that, despite the downturn, remains desperate for staff at all levels.”

On the other hand, the expert points to the worsening economic situation globally, impacting investor behaviour. “A growing lack of confidence in hiring, investors holding their capital back, and of course the reduction in the ‘excess cash’ in the system which is generally the cash used for the more ‘risky’ investments,” Jackson said. 

Challenges for 2023

In the European Commission’s autumn 2022 economic forecast, Commissioner for the economy Paolo Gentiloni said that the “forces driving the post-pandemic expansion have now largely faded away” and he forecasted a difficult year for 2023, in terms of economic growth (0.3%) with EU inflation fluctuating from 9.3% to 6.1% in 2023. This erosion on purchasing power, combined with production cost, supply bottlenecks and tighter financing conditions add further uncertainty for European business.

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