A recession is coming. As someone whose career has endured two big ones, I want to prepare you, the person who hasn't lived through one yet, for what will come.
There are three broad trends that will impact the tech-industry pretty hard.
- VC will stop, or become very dear.
- Customers won't have money either, so they'll buy less of your stuff.
- Bond issues (what companies do when VC can't fill a need) will become very expensive.
If you're aware of how your company makes and spends money this should scare the pants off of you. You don't need to read the rest of this.
But for the rest of you...
Do we know what kind of recession it'll be?
Not yet. The crystal-ball at this stage is suggesting two different kinds of recession:
- A stock-market panic. Sharp, deep, but ultimately short since the fundamentals are still OKish. Will topple the most leveraged companies.
- The Trump trade-wars trigger a global sell-off. Long, but shallow. Will affect the whole industry, but won't be a rerun of the 2008-2010 disaster.
If the market is jittery about the trade-wars, a Trump re-election might be the trigger.
Beware of October. While 2008 was a summer recession, the dot-com bust, and the two before it were triggered by a crash in October.
What about twitter? They don't make money. Will they fail?
No, their service is way too valuable. What will happen is that new investment will be incredibly hard to get, making improving shareholder value really hard, which in turn will incentivise them to cut costs. That means layoffs. That means they'll invest even less in safety tools.
It means they may enter and leave bankruptcy several times. Once the corner of the recession is turned, they will be bought by a company that does make money. Possibly an old-guard tech corp like Microsoft or Cisco.
This pattern will follow for any company that depends on continuous investment to remain operational.
What about Uber? They don't make money.
Uber's business model is to break the taxi industry with the support of the stock-market. When the money supply dries up, they'll need to turn a profit. This means layoffs. It also means they'll pull out of their especially unprofitable cities. It will mean rate increases. If they fall as far as bankruptcy, expect big rate increases.
People will learn what Uber/Lyft's true costs are by the end of the recession.
Will my private company fail?
The biggest change will be that living on the runway will become extremely expensive. Any investment will cost larger portions of the company, which means employees will get less in a merger or in an IPO.
If your company can actually get into the black (not on the runway), you're in much better shape. You won't be hiring as fast or at all, but you're much more likely to continue to have a job.
But if you can't get off the runway, and can't earn investment? In the early stages of the recession this will be bankruptcies, layoffs, no-notice shutterings, and sadness. In later stages, when profitable companies start bargain hunting, it will mean buy-outs.
What about my stock-options (private company)?
If your company makes it through the recession, expect them to come out highly diluted.
If your company doesn't make it through the recession, you'll only get paid for the shares you exercise. And even then, you may not get much at all.
What about my RSUs (public company)?
Expect the stock price to tank. That $100K grant, vested over four years? May only be worth $60K by the time it is fully exercised. This is exactly the risk you take by agreeing to be compensated through stock. Your company doesn't owe you the difference between promised and actual value.
The bottom line: start budgeting your year on your salary only, not your stock exercises.
What about my bonuses?
Most bonus programs I've seen have some component in company performance. Expect that to be negative for a few years. Which means expecting to get under, to well under your bonus targets.
If the bonus program isn't suspended entirely. This can happen, especially if they're getting shareholder pressure to cut costs.
What about my benefits?
They'll stay the same for at least the first year. If the recession drags on, you may see some changes. The first to go will be 'wellness' benefits like gym memberships. Next will be continuing education benefits, expect to have to self-finance conferences work previously paid for. Expect work-paid travel to be cut way down. In the second or third year expect to have to cover more of your health-care premium.
There are whole benefits that were standard during the first dot-com boom, and went away after the crash and shareholders demanded more value. It took years for some of them to come back. It happened after the 2008 crash, and it will happen again this time. This will impact even the FAANG companies.
What does bankruptcy really mean?
It means someone outside of your company is holding your company to certain cost targets. Depending on the chapter, this may have power to break employment agreements; capitalism is about creditors getting paid.
Sometimes the court overseer can force the sale of the company to another company. The rules for this are very different than free market sales, it could be the only thing you get out of it is to still have a job. And maybe not that.
Bankruptcies are no fun.
What if I get fired?
You'll get some kind of severance. How much depends on a lot, like whether or not your now-ex company is in bankruptcy. In the early stages, it'll be some cash and an offer to cover your medical expenses for a few months. In a bankruptcy termination, your severance will be the last paycheck and nothing else.
Start building your emergency fund now while the money is still good. If you end up coming to work one morning and can't get past the lobby? You'll be so much happier if you did.
What if I don't work in the bay area? Am I completely screwed?
This will matter less than you think -- hiring in the Bay Area will slump or stop -- but will hit areas that aren't Bay Area, NYC, DC Metro Area, even harder. All areas will have very illiquid if not frozen hiring markets. For the first time in many tech-workers experience, the tech hiring market may become a buyers market. Our salaries are the way they are now because it's been a seller's market for over a decade.
This means that offers will be lower than you'd expect, and your annual raise may not happen. Tech salaries dropped during the dot-com crash. They dropped, for a few quarters, during the Great Recession. The Bureau of Labor Statistics tracks this stuff. It can happen again.