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Why Coinbase’s latest layoffs feel bigger than they are

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Why Coinbase’s latest layoffs feel bigger than they are


A version of this article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, January 11, 2023

Today’s newsletter is by 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 Yahoo Finance App.

Coinbase (COIN) announced Tuesday it would be laying off 950 staff members, or around another 20% of its team.

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

Coming just days after Bureau of Labor Statistics data revealed 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 signaling much beyond an indication steam continues to come out of the latest crypto bull market.

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

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

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

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)

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, with emphasis added:

This is also a moment where I’d like us to focus on our startup culture, and remember what it feels like to have small, nimble teams that are able to get more done. As Coinbase grew so quickly in 2021, we all felt the coordination headwind that caused us to move more slowly. Over the past 10 years, we, along with most tech companies, became too focused on growing headcount as a metric for success. Especially in this economic environment, it’s important to shift our focus to operational efficiency.

The investment culture in which Coinbase and so many other new tech companies were raised largely said the only things that mattered were growth and scale. Find a big market. Attack that market. Figure out how to make money later.

This is the era now winding down.

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

In the halcyon 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 upheaval.

Every grand pronouncement about the next way technology would reshape where people wanted to live, or how they would work, or what work they would do, seemed to be on the path to coming true.

The only limiting factor was physics — how much could a business or an industry or a technology scale using the 24 hours in a day? And with how many people could you get the job done?

It’s little wonder this period saw “the metaverse” do a turn as the most seductive idea for the tech industry. What better way to grow faster than humanly possible than by removing the actual humans.

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

Right now, Coinbase is focused on answering that question. And they are far from alone in that pursuit.

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

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

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