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Why All Tech Workers Should Care About Business: RSU’s and Layoffs
Many people have a helpless mindset towards life, believing that things happen to them. However, the reality is that everything that occurs is a result of both our own actions and the actions of others. It is rare for events to simply happen to us. Although there are extreme cases, like a plane crashing into your house while you code in your bedroom, in most situations, we have some level of agency. If you get laid off or if your startup never reaches IPO, these are often not totally random occurrences. Sometimes, they can be anticipated and understood. In this article, we will explore how software engineers and other tech workers can predict and improve their future compensation and job prospects.
It is by no means my intention to tell people that if they got laid off, it’s their own fault. A lot of layoffs have happened due to many factors. Certainly, the brunt of the responsibility lies somewhere between irresponsible execs scaling negative margins and VC’s investing in bullshit businesses that amount to little more than a “To Do” app.
What I intend to do with this article is to get you thinking about how to improve your career positioning so that you’re less likely to have to endure the misfortunre of layoffs ever again.
Startups: Will Your Options be Worth Anything?
In startups, people are often hired because the company has a successful history of growth. When they pitch you, they show you all these great charts and tell you about how rich those stock options will make you if the company’s growth trajectory continues. It is important to be able to tell if a startup is on the path to success, but how do you know? This article will discuss several warning signs that indicate a startup (or an org within a large company) is not likely to be successful. If these warning signs are present, it is almost certain that the startup will not succeed and the stock options will be worthless. Even if the warning signs are not present, however, it does not guarantee success. But you can rest assured that if there are many of these warning signs, it is likely that the startup will never go public (or have any kind of massively favorable liquidity event) and the stock options will never have any real value.
Big Tech: Foreseeing Layoffs and Knowing if Your Company is a Castle in the Sky
If you work for a big tech company, you don’t get paid in options. However, high pay is typically the enticing factor, and some of this pay comes in the form of RSUs. In many cases, the recruiter also shows you a stock chart and tries to paint the picture in your mind about recent growth rates and how rich you can be if you join this company.
However, those stock charts are often a lie. Many big tech companies have unstable foundations, sort of like WeWork. WeWork was a real estate company that was overhyped and its lack of potential for exponential growth was evident. It is absurd for a real estate company to have such high valuations, and employees should have realized this from the beginning.
The recent VC crunch obliterated most companies that were castles in the sky, but there are still currently many companies with inflated valuations . These valuations will eventually collapse unless the companies significantly increase their profits. It is highly unlikely that a company valued at 100 times its earnings will miraculously achieve a 20x increase in earnings to justify its valuation. Instead, it is more likely that the market will adjust its expectations and the valuation will decrease. This will make the stock price tank and your total comp to evaporate. This is especially relevant for companies with over 200 employees and over $100m revenues, as it is challenging for them to achieve such substantial growth.
If you work at a big tech company, you also want to be able to predict whether your business unit is one that might get hit by a round of layoffs. By understanding the product development process and recognizing red flags, you can determine if your organization will be successful in the long run. If your org exhibits many of these red flags, it is probable that your team will not produce successful products or experience growth, making you and your peers likely candidates for layoffs.
Knowing the future of your company or your org all comes down to the way they choose what to build
Knowing the future success of a company or organization basically comes down to understanding the quality of the thought process through which they make decisions about what to build. If they have a good process, they have a higher chance of succeeding. On the other hand, if they have a bad process that exhibits a lot of the red flags below, they will likely fail.
It needs to be said that having a good product development process doesn’t guarantee success. Success is often unpredictable and relies on luck. But if they do exhibit many of the red flags, it is almost certain they will fail. Overcoming a poor product development process requires an extraordinary amount of luck, which is not a reliable strategy to rely on. You might as well buy a lottery ticket instead.
Red flag: Randomization of Work
Work randomization occurs when planned tasks and projects need to be altered due to pressures from leaders or other entities within a company. This is often experienced in big tech companies, where campaigns occur and elicit some level of randomization. In some cases, randomization is necessary, such as when urgent security issues (like the log4j exploit) arise, requiring immediate attention from all employees. However, there are also instances where randomization is unnecessary. For example, the finance department may request a new report, causing some employees to have to redirect their focus and lose momentum on their ongoing tasks.
Another form of randomization occurs when leaders directly input tasks into a team’s queue. This can be problematic as high-ranking officials’ tickets are often given higher priority, regardless of their actual importance/value. To address this issue, leaders should communicate their requests to the product manager, allowing them to follow the standard process of prioritization and file the ticket accordingly, rather than creating urgency by submitting it themselves.
Red flag: Top-Down Projects
A red flag to watch out for is when there are many top-down projects in a tech company. These projects are decided upon by high-ranking individuals such as the GM, CTO, VP of engineering, or CEO, without much data or customer research to support them. It is usually just one of the leaders of the company being infatuated with their own idea. This situation is sort of related to the phenomenon that Michael Seibel refers to as the “fake Steve Jobs” syndrome. A surprisingly large amount of business leaders think they have a “knack” for knowing what to build and what products to launch. This makes them overly attached to their ideas, which can be problematic if those ideas steer the team’s direction.
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If you find yourself constantly building things because the CEO, VP, or GM believes it should be done, without a strong justification like a signed contract and payment from a customer, then this is a major warning sign. Building something solely because the boss wants it is something that great teams almost never do.
Red flag: No User Research
If a company does not conduct user research, it is a huge sign of concern. While there are other ways for a company to grow without user research, such as through data-driven methods like A/B tests, this growth will eventually plateau. A/B tests will only reach a certain level of success. Within a few years you will have approached the local maxima and experience steeply diminishing returns on further A/B tests. Without a user research culture, the company/org will run out of ways to grow. A user research culture allows the company to discover new opportunities and expansion into new markets that complement existing ones. Without user research, a company’s growth rate will eventually level off.
Red flag: No A/B Tests
Not being data-driven can seriously harm a company’s success. Relying solely on the expertise of product managers and UX designers to make decisions on what to build is a terrible way to operate. Testing the things you plan to build is crucial because what may seem like good ideas often lead to poor results, and what may appear to be bad ideas can actually yield great results. At one of my previous jobs (where they had a fantastic data-driven culture), there were numerous instances where customers expressed dislike for certain features. So we would run A/B tests to drop the feature. Surprise surprise: conversion rates dropped.
Customers may tell you they dislike something, but still respond positively to it by voting with their money. User research is necessary to identify new markets and develop new products, but A/B tests are equally important to avoid building things that customers say they want but don’t actually want. It’s essential to let customers validate your ideas by voting with their money. Like Henry Ford supposedly said, “If I had asked customers what they wanted, they would have said faster horses.”
Red flag: Bad Incentive Structures for Product Managers
Many companies reward product managers for meaningless things like number of user stories written, number of product specifications written, or number of features shipped instead of rewarding them for more direct results. This is a problem because it creates the perfect environment for what is known as the product death cycle. The PMs in these companies are incentivized to contribute to this cycle because they do not prioritize results such as increased retention rates, increased average order values, increased usage, or whatever metric might be applicable to the business.
If the company’s incentive structures reward activity, then this makes every idea be a good idea, and the focus will be on creating as many features as possible. This approach leads to bloated software where 90% of the features are useless. As a result, it becomes difficult to acquire customers because nobody wants to learn to use your bloated dumpster fire SaaS app.
Red flag: “Visionary” Leadership (aka. “Fake Steve Jobs”)
Whenever you hear a business leader who uses the word “vision” a lot, be concerned. The reality is markets don’t give two shits about your CEO’s “vision,” and if your company doesn’t solve real problems it will be out of the game sooner than later.
All of these “visionary” leaders are fake Steve Jobs. One tell-tale sign that you’re dealing with a fake Steve Jobs is when they have long roadmaps of un-validated, high-level ideas.
For example, let’s say your employer is a fintech company. If the CEO is a fake Steve Jobs, the company’s strategy might look something like this: “we will create new point of sale software for merchants in industry X. Then, we will create a new cryptocurrency which will allow us to establish a peer to peer payment network between these merchants. Then we will expand into industry Y, then Z, and eventually we will completely take over all international money transfers.” Meanwhile, they actually haven’t even launched the point-of-sale software and only have two interested customers.
Often, these high level strategies make a lot of sense and sound really exciting. The problem is that these entrepreneurs start working on the second, third, and fourth market expansion before they have even captured the first market. In the example above, the company only has a few merchants interested in their point of sale app, but they are already working on their plans for global domination. This is in my opinion the biggest red flag and companies that do this are certain to fail in an economic sense. Their only hope is that the CEO is as good of a hypeman as Adam Neuman, so that they can have a large exit without actually producing any value.
This red flag happens most often when people with money start companies without any experience in the tech industry or product release. They underestimate the difficulty of getting people to adopt a product. They don’t understand how incredibly hard it will be to get mass adoption for that point of sale app, because their mind is full of survivorship bias stories from all the TV shows they watch about entrepreneurs who succeeded.
The reality is that even without the survivorship bias, whatever worked in 2006 when Zuck launched Facebook doesn’t work any more. The standards and requirements for success are much higher now. The table stakes for launching a D2C app are exponentially higher. The level of noise is higher. Everything is way more difficult than it seems when you watch The Playlist.
Red flag: Product Managers Act Like Waiters
Product managers who simply fulfill customer requests without understanding the underlying problem are akin to waiters, merely taking orders and delivering them. This approach often leads to failure. Instead, product managers should delve deeper when customers ask for specific features. Rather than simply creating the requested button, they should inquire about the problem the customer is trying to solve. By understanding the core issues faced by various customers, product managers can strategically combine multiple customer needs into a single, highly effective feature. Frequently, customers have similar problems but suggest different solutions. Constructing these different solutions individually results in bloated and subpar software, lacking strategic focus.
Red flag: No Institutional Learnings
The last red flag I want to discuss is when a company or team is not working on building institutional learnings. The purpose of a product company is to solve a problem for some type of user. To do this effectively, you must understand the group of people who have that problem. You need to know their interests, how to sell to them, how they make decisions, and more. By continuously refining your mental model and understanding of your customer, you can maximize your profits and growth rate. Unfortunately, many companies do not consider this. They do not think about who their customer is or their journey.
Great companies do understand their customers, their needs, and their journey into finding and using the product. Great companies know the customer journey from the time they are searching for a solution to when they become a regular user of the software. Great companies know the reasons why users don’t retain, the reasons why they do, the reasons why they try, why they buy, etc.
If your company is not investing substantial effort into improving these mental models and learning about customers, it’ll likely fail to maintain any growth it might have had up until this point.
Conclusion: Make Sure You’re Not in the Build Trap
The book “Escaping the Build Trap” is a great resource for learning about product management. As a worker in tech whose job isn’t product management, it is common to overlook the importance of understanding this role. After all, it’s not your actual job..
I think it’s crucial to be concerned about whether your company or team is building the right things. Depending on your role, it can be helpful (sometimes even necessary) to step in and provide input if the company is building the wrong thing, and to offer assistance wherever possible. A good organization will appreciate your help.
Succeeding in business is challenging and requires intense focus. The answer to the question of “what should we build?” does not ever come from executives who spend most of their time in meetings with other execs. To avoid layoffs and financial setbacks, it is important to have a basic understanding of how business success is achieved and how an effective product development process functions.
At the end of the day, the purpose of companies is to make money. In order to make money, they have to solve problems. If we can help the company better solve problems, we’re in a better, more anti-fragile position.