The Stripe founders’ memo explaining its layoff plan to employees is a remarkably candid look at why so much of tech is in freefall

The Stripe founders’ memo explaining its layoff plan to employees is a remarkably candid look at why so much of tech is in freefall

Patrick Collison (left) and John Collison (right), cofounders of Stripe

The payment software company Stripe is laying off 14% of its workforce.
Its memo to employees highlights the economic headwinds other tech companies are facing.
From Meta to Shopify, tech companies are navigating an uncertain future.

Stripe, a financial services and software company that’s one of Silicon Valley’s most prominent and valuable startups, announced on Thursday it was laying off 14% of its workforce.

Founders Patrick Collison and John Collison took full responsibility in their memo, detailing the company’s “very consequential mistakes” that led to layoffs. Namely, it was far too optimistic about growth and failed to rein in costs as it grew quickly. 

While the founders’ candor about the strategic errors in a public memo is unique, the mistakes themselves are not. The errors Stripe made are the same as many other tech companies. Here’s what they say Stripe did wrong over the last several years — and so did many of its peers.

It over-hired during the pandemic 

“We over-hired for the world we’re in,” the founders wrote. As a result, Stripe is cutting 1,000 workers, about 14% of staff, bringing it headcount back down to 7,000, where it was at in February 2022.

They aren’t the only tech execs to make this mistake. 

E-commerce company Shopify, for instance, began expanding its workforce in 2020 after the growth in online shopping during the pandemic but laid off 10% of its workforce in July. Layoffs at Klarna, Peleton, and Carvana were similarly blamed on over-hiring, particularly for recruiting roles that no longer make sense.

The site Layoffs.fyi estimates nearly 100,000 tech workers have been laid off in 2022 from publicly traded and privately funded startups. 

It failed to keep other costs in check

The founders’ wrote: “We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in.”

Stripe, which handles payment processing for companies like Glossier and Substack, was aggressively expanding in 2021 into arenas like lending, international payments, and fraud monitoring. By the founders’ own admission, they failed to keep a tight hand on costs during expansion.

Companies across the tech spectrum are suddenly finding religion about controlling costs. Where private startups like Stripe once primarily needed to show growth above all else, now investors are looking for companies that can grow while maintaining healthy profit margins. 

At big tech companies moonshot projects are getting killed, companies like Meta have announced plans to reduce spending by 10%, and even the famously generous Google has started restricting business travel and team happy hours.

It didn’t account for a slowdown 

After a positive 2020 and 2021, the founders wrote “we are facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets, and sparser startup funding.”

The founders argue that because it processes payments, Stripe is “not a discretionary service that customers turn off if budget is squeezed.”

But in a general consumer spending downturn, Stripe still is vulnerable — it charges a fee for every transaction it processes. Fewer transactions, less revenue.

Souring consumer sentiment has hit other companies as well. Microsoft reported its slowest revenue growth in five years last month, citing a decrease in computer demand as one reason.

Meta, the owner of Facebook and Instagram, implemented a hiring freeze earlier this year and is looking to reduce headcount for the first time.

“I had hoped the economy would have more clearly stabilized by now,” CEO Mark Zuckerberg told employees in September. “But from what we’re seeing it doesn’t yet seem like it has, so we want to plan somewhat conservatively.”

The streaming giant Netflix saw subscriber losses during both Q1 and Q2, the first time in the company’s history its lost customers for two straight quarters. It’s conducted heavy layoffs this year.

It thought the pandemic e-commerce boom would last

“At the outset of the pandemic in 2020, the world rotated overnight towards e-commerce,” the founders wrote. “We witnessed significantly higher growth rates over the course of 2020 and 2021 compared to what we had seen previously.”

As retail spending shifted rapidly from brick-and-mortar to online during the pandemic, many tech companies made bets that the shift in consumer behavior would be permanent. 

But 2022 has seen e-commerce growth rates return to earth, as consumers return to stores and spend more on travel and live entertainment.

For fintech companies, the new reality has been harsh. Paypal stock is down 6% on Friday after cutting its revenue forecast in its third-quarter earnings report. Stripe, which is still privately held, has seen its own internal valuations marked down twice by investors in 2022.

E-commerce companies like Etsy and Shopify sank earlier this year after posting weak earnings results. Wayfair froze hiring in May for 90 days, citing “a great deal of uncertainty in the overall economy.”

Even Amazon was forced to pump the brakes on building out warehouses and saw its stock dip 13% last month after it gave a gloomy sales forecast for the fourth quarter.

Stripe’s founder ended the memo like many of its peers in tech, promising to “reset, recalibrate, and move forward.” The open question facing Stripe and other tech companies is what that recalibration looks like, beyond simply cutting costs. 

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