Why Coinbase’s latest layoffs feel bigger than they are

A version of this article first appeared in the Morning Brief. Get the Morning Roundup delivered directly to your inbox every Monday through Friday from 6:30am ET. Subscribe

Wednesday, January 11, 2023

Today’s newsletter is from Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo Finance app.

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

As Yahoo Finance’s David Hollerith reported, this brings the company’s total layoffs since spring 2022 to more than 2,000 employees.

Coming just days after data from the Bureau of Labor Statistics revealed that 223,000 jobs were created in December — and 4.5 million jobs were added to the U.S. economy in 2022 — it’s hard to see Coinbase’s cuts as much more than an indicator. that steam continues to emerge from the latest. crypto bull market.

As David noted in his reporting, even in the context of a tech industry that has seen a softening job market, crypto barely registers. According to data from layoffs.fyi, the tech industry saw roughly 151,600 job cuts through 2022, with crypto cuts contributing 6.2% of the total.

Painful for those who lost their jobs, no doubt, but something close to a footnote in the context of a labor market that continues to see demand for workers outstrip supply.

But one line from Coinbase CEO Brian Armstrong’s message to employees stood out, signaling that while the cuts may be modest at first, a long-term shift is underway in a sector that defined the economy for most of the decade. lastly.

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

From Armstrong’s note, emphasis added:

This is also a moment where I’d like us to focus on our startup culture and remember what it’s like to have small, nimble teams that are able to do more. As Coinbase grew so quickly in 2021, we all felt the headwind of coordination that made us move slower. Over the past 10 years, we, along with most technology companies, have focused heavily on headcount growth as an indicator of success. Especially in this economic environment, it is important to shift our focus to operational efficiency.

The story continues

The investment culture in which Coinbase and many other new tech companies were born said that the only things that mattered were growth and scale. Find a great market. Attack that market. Think about how to make money later.

This is the era that is now closing.

So the real chill caused by tech layoffs isn’t from today’s job losses, but the future jobs companies are signaling they won’t create.

In the heady days of the post-pandemic bull market, headcount became a defining OKR for so many companies looking to capture the energy of an economy in turmoil.

Every grand statement about how technology would reshape where people wanted to live, or how they would work, or what work they would do, seemed to be on its way to fruition.

The only limiting factor was physics – how much could a business, an industry or a technology use 24 hours a day? And how many people can you get the job done?

It’s no wonder that this period without a “metaverse” took a turn as the most enticing idea for the tech industry. What better way to grow faster than humanly possible than by removing actual humans.

Of course, as investors learned in 2022, all it takes is a rise in interest rates to turn what seemed like a game limited only by ambition and capital into its component parts: Can you sell a product or service for more than it costs you to make?

For now, Coinbase is focused on answering that question. And they are not alone in that pursuit.

In trying to adjust the unit economics of any business, companies have two levers to pull. Either sell more products, or make products for less. It’s a simple equation: either the numerator gets bigger, or the denominator gets smaller.

And the fast track to cutting costs goes through your employee base. Both today and tomorrow.

What to watch today

The economy

gains

–

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn and YouTube