In an unprecedented move last week, Meta fired 11000 employees. The company is going through a tough time. CEO Mark Zuckerberg said that letting people go this round has been one of the most difficult decisions he had to take while outlining the reasons for the layoffs. He admitted to making strategic decisions that did not pan out as he expected.
How did Meta Get to this Point?
There is a multitude of reasons behind Meta’s current predicament. To understand the situation, we must go back to the height of the COVID-19 pandemic. Due to the lockdown, companies predicted growth in e-commerce and revenue grew drastically. Meta invested heavily in e-commerce, hoping that the shift would be permanent. The situation did not evolve as Chief Zuck hoped, and Meta faced losses.
Meta’s expenses stand at $22 billion in Q3 of this year. The revenue hasn’t kept pace with rising costs, with sales declining by 4% and revenue dropping 46% to $5.66 billion. More recently, tech companies are bracing for an economic downturn in 2023 since the federal interest rates have risen over the last few months.
Meta had been looking for ways to cut costs. The company wanted to use funds efficiently, choosing to invest in fewer projects critical for the company’s future, such as the Metaverse. Mark Zuckerberg announced a virtual hiring freeze earlier this year, stating that the company won’t hire new talent as aggressively as they have previously.
Metaverse is a passion project for Meta, currently developing in their Reality Labs. As such, Meta doesn’t expect to earn profits from Metaverse soon. Reality Labs has incurred more than $9 billion in losses in the last quarter.
Meta’s revenue took a steep dive when Apple launched App Tracking Transparency on its platform. Meta is also facing stiff competition from TikTok in all significant markets. Further, ad spending across the industry resulted in declining revenues for Meta.
Lessons for Budding Entrepreneurs
A savvy entrepreneur learns from others’ mistakes because you don’t have the time to make all of them yourself. Here are a few lessons startups can learn from Meta’s circumstances:
Facebook expanded its workforce aggressively and grew the company rapidly. The tendency to capitalize on opportunities is understandable. It is important to pace ourselves and play the long while scaling. Former Twitter CEO Jack Dorsey also recently admitted that they developed the company too quickly, contributing to the recent sacking of half of its workforce.
The macroeconomic environment is unpredictable. When the economy is booming, money flows, which supports growth. When the economy inevitably goes the other way, it’s hard to stay afloat, and businesses struggle to thrive.
Changes in unrelated businesses can impact your revenue streams. The threat comes in addition to competitors in your domain
Plan your investments in the long run. Ensure your revenue streams are solid before pumping money into future passion projects.
It is prudent to cultivate multiple revenue streams in case your external factors adversely impact your primary source of revenue.
Take a more than generous estimate of how long your passion projects will start earning you stable revenue. You can plan your budget and expenses over the development period.
Unpredictability in business is a double-edged sword. You can’t plan for everything and have all the answers at the beginning. Entrepreneurs need to be adaptable and play the situation. Your business will encounter a storm eventually. When it does, remember that your ship will sail through if the captain prepares well when sailing through smooth seas.
Kamal Rastogi is a serial IT entrepreneur with 25 yrs plus experience. Currently his focus area is Data Science business, ERP Consulting, IT Staffing and Experttal.com (Fastest growing US based platform to hire verified / Risk Compliant Expert IT resources from talent rich countries like India, Romania, Philippines etc...directly). His firms service clients like KPMG, Deloitte, EnY, Samsung, Wipro, NCR Corporation etc in India and USA.