Over the past few months, Israel’s hi-tech sector has faced a crisis it had never seen before: mass layoffs. Some of the largest companies in the country began cutting their workforce 10-20%, sometimes more, in a number of restructurings and staff optimizations. As a result, thousands of hi-tech workers who had thought they had certain job security were now left out to dry and in search of new work.
What happened and did anyone see this coming?
Amid the larger global trend of inflation and sky-high company valuations post-COVID, Israel followed suit. Though at first hit not as hard as larger economies like those in the US and Europe, the cracks were beginning to appear. As companies began to cut valuations since they did not reach previously promised metrics, such as sales numbers and other growth factors, reality set in that in order to stay afloat, they must cut workers.
This is typically seen as a negative aspect of raising money from venture capitalists, who prioritize pouring large sums of money into seemingly small, yet fast-growing companies in hope that the cash infusion and subsequent hirings will boost sales and keep the growth going.
The reality is that often companies are not able to satisfy their “burn rate,” or the amount of money they spend per month, with new revenue. Therefore, they are faced with a choice to either cut workers or close down. The former is typically the path taken.
This has become especially prevalent since it was not unique to see companies with just a pitch deck (presentation) or a prototype raising tens of millions of dollars to flesh out their ideas. The more conservative firms did not engage in this practice, but many others did, resulting in the current reality.
The situation in Israel’s hi-tech sector was the same, with even the largest companies seeing massive valuation cuts that forced them to fire some of their workers. Every day another startup is announcing massive cuts in its workforce. In the past three weeks alone, Equitybee, which raised $55 million last year, cut 20% of its employees; Checkmarx, previously valued at $1.15 billion, fired 10% of its employees; Namogoo, which raised $81 million, let go of 15% of its workers; and the fast-growing OrCam, which had raised $131 million to date and was valued at nearly $2 billion, announced it was laying off 16% of its workforce.
These are only reported firings, with many companies keeping under the hood the fact that they have been laying off employees. In short, tech workers across Israel are hanging in a balance every day, wondering whether or not they will still be working the next day.
Alignment-Labs, a Jerusalem-based data tool for businesses, has been tracking employee perspectives for the last year on a wide range of issues, including the then-impending economic crisis and the current upheaval. Their data points to an interesting conclusion: practically no one saw it coming.
When asking employees questions like, “How is the market situation impacting your company?” in August of 2022, 82% of employees said either no impact at all, or a minor impact; some even thought the impact would be positive. That means that a minuscule 17% of workers thought that the global economic downturn would affect their business and Israel at large.
Alignment-Labs chief product officer (CPO) Alon Blum, who has analyzed the data in depth, believes there is a simple reason that workers did not see this coming: most have only lived in a bull market; they have never experienced a recession. Israel, and Tel Aviv especially, have been going through a year-over-year exponential growth for the last 15 years. All anyone has ever known is an industry accompanied by extreme success. For them, imagining that the tech sector could experience a downturn, especially of this magnitude, was next to impossible.
How has lack of preparation affected workers?
THIS LACK of recognition or preparation for a downturn has had serious implications for these workers. As they did not anticipate losing their jobs, workers did not change their spending habits, polish their resumes, or take proactive steps to find a new job. In fact, according to Alignment-Labs data, employees were asking for more money or the same salary. No one asked to take a cut in wages.
Instead, workers were shocked to wake up one day to an email from the human resources department informing them that they have been fired. I asked some employees, who preferred to remain anonymous, about what happened, and their responses were mostly the same: “It really came out of nowhere. Of course everyone saw the global downtrend, but after our company raised a large round just a few months prior, it did not seem possible that we would also see layoffs,” one former employee at a startup said.
Another said, “I definitely see it as a learning opportunity for the future, but in general it was hard to anticipate because no one thought our ecosystem would be impacted.”
To Blum, it was no surprise. “The data was all there. The vibe, the speech… there was just a huge delay.”
“It was interesting to see the shift from ‘how can we hire at mass scale’ to ‘how can we save a few bucks’ pretty much overnight.”
Alon Blum
The data also indicates that companies weren’t engaging in cost reduction or workplace optimization; to them, it seemed like there was no bubble going on at all. Blum described it as “not even a tsunami, it was like a Nile flood.” Indeed it has been.
One sector that has been hit very hard has been the crypto and decentralized systems. Bitcoin was hailed last year as the definitive industry of the future; however, most of its startups – which had garnered praise and tens of millions in funding – have folded. Just last week, crypto leader FTX, a digital currency exchange, filed for bankruptcy in the US.
The company, which was valued at $16 billion, lost all of its value seemingly overnight, leaving investors and users out of their money. An additional $1-2 billion is missing from investors as the company folded. Though the sector may still come back, it is currently at a standstill.
Companies are now trying to figure out how they got to this situation in the first place. Speaking to Calcalist, CEO Emmanuel Benzaquen of Checkmarx said, “The current situation in global markets is affecting entire industries. This reality requires us to take determined steps that will secure the success of Checkmarx.”
He added: “We will now reorganize the company’s structure and refocus our resources in order to deal with the short-term challenges and secure long-term growth.”
CEOs, reflecting on the downtrend, are making it clear that with a bear market comes the responsibility of business executives to focus on the short term in order to survive in the long term.
Fresh Fund
FRESH FUND, a Jerusalem-based early-stage venture capital fund, is trying to carve out a positive approach to the current employment situation. Junior partner Yoav Anaki has created The Layoffs Project (layoffs.org.il), which tracks layoffs by tech companies and helps those fired to find new opportunities. They have also been tracking data: The firing spiked in the summer, followed by a slowdown around the Jewish holidays, and is now increasing again.
“The Layoffs Project is a community initiative helping Israelis laid off from tech companies find their next roles,” Anaki said. “The project has received incredible support from the local tech community. To date, we’ve helped dozens of people find jobs.”
The website’s data shows that nearly 6,000 Jerusalem employees have been fired, mostly those in sales and marketing or product roles. Not surprisingly, those in engineering or R&D roles have been mostly safe from firings. So far, The Layoffs Project has helped job-seekers find new work, with their list of prospective employees being shared with Israeli startups, according to Anaki. About 400 companies already have broadcasted their interest to hire new employees on Anaki’s website.
I asked employees who were laid off what they would have done differently. One tech employee told me that “looking back, it was clear that things were not going in the right direction. The general vibe was that sales were not supporting our anticipated growth. Management was reassuring, but I should have been more proactive in looking for new job opportunities.”
Another fired employee thought there was nothing to be done. “I don’t think it’s right to assume that tech employees could have predicted these mass layoffs. Unless you are in upper management, the typical employee has no real insights into how well or poorly the company is performing outside of monthly performance reviews. We don’t see the big picture, only an altered frame.” Clearly, the average employee is unaware of what is actually happening behind the scenes.
Another tech employee, who was proactive in his job search and now has a new job, noted that “you do not need to see the whole picture to see that a company is struggling. This was clear to me. So I took a new job prior to my old company starting massive layoffs.” A rare tale, which demonstrates that certain tech workers were proactive when they sensed layoffs were impending.
Firings are still occurring, with new companies announcing mass layoffs every day. Tech company workers at small and large firms should be evaluating their company’s financial health. Some factors to consider include: what has the dialogue been like coming from upper management? Are they halting new projects that were previously touted? Have new office openings or anticipated hirings been pushed back? If you speak to people on the sales team, are they seeing an increase in new business, or have things leveled off? From these questions, it should become clear whether a company is headed toward layoffs or if it is continuing to grow.
Growing companies
DESPITE THE negative news coming from the hi-tech sector, there are still companies that are continuing to grow and are seeking new workers. Job boards such as LinkedIn, Freshboards and Indeed are filled with thousands of job openings across the country. On Anaki’s website, hundreds of companies are advertising their need for skilled workers.
Rather than being an indictment on the sector as a whole, the firings may be a way to elevate the truly strong companies over companies that should never have been funded in the first place. Cautious hi-tech workers should be proactive when seeking new opportunities; at a minimum, they should update their resumes. Doing this will ensure they are protected from any unexpected firings.
Recognizing the current trends, some tech workers who are still employed at different companies are now more cautious than in the past. One employee told me that he is keeping an eye on the news and remaining hopeful that it won’t impact his company.
“I am prepared for the worst, but what more can I do? The best thing I can do to ensure my future is to keep working hard and doing my job to the best of my ability,” he said.
This is the right attitude and one that will keep workers like him successful at their current job or when seeking a new role.
Looking forward, it will hopefully be a blessing in the long term for Israel’s hi-tech industry, since downward trends like this can be spotted when they occur again. It also will be an opportunity for hi-tech employees to be more skeptical regarding their job security, especially when working at startups as opposed to larger, more established companies.
Hi-tech workers need to keep their spending habits in check and always have their resumes polished. This will help them navigate any negativity in the market that inevitably occurs in the natural economic cycle – especially as the country’s hi-tech ecosystem graduates from the Start-up Nation to the Scale-Up Nation. ❖
The writer, a Jerusalem Post staff member, is an entrepreneur and a recent oleh. He also helps oversee the start-up ecosystem in Jerusalem with Made in JLM. On Twitter:
@troyfritzhand.