13 percent (free edition)

Why are so many companies laying off exactly this many workers? Also, 7 other things worth knowing today.

Dec 08, 2022

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I don't like writing about layoffs; not for the subject in general, and not for the people affected.

But in the latest rounds of layoffs at big tech companies across, a single, odd, specific thing keeps coming up over and over and over. It's that one company after another seems to lay off almost the exact same percentage of its workforce: 13 percent, give or take a point.

Meta, Facebook's parent company, is laying off 11,000 workers, which works out to 13 percent of its workforce.
Redfin, the online real estate company that got into home-flipping for a while, is laying off 862 positions. Again, that's 13 percent.
I wrote about Stripe's layoffs recently; while the CEO's message was about as nice as a layoff notice could be, it wasn't enough to save 1,120 jobs, or else 14 percent of the workforce.

We can keep going down the line:

Lyft: about 700 employees, or 13% of its workforce.
Chime: 160 workers, which is about 12%.
GoFundMe: 94 employees, which means about 12%.
Peloton: another 500 employees, or 12%.
Goto: 1,300 people, or again: 12%.
Buzzfeed: This week, another 12% of its workforce.

Heck, this week I’ve been sitting in on a really fantastic course on how to build and run a successful newsletter business, put on by some of the guys who started Morning Brew (and who now run a competitor to Substack called Beehiiv). But even Morning Brew announced it's laying off 14 percent of its workforce.

So, why 13 percent (or 12 or 14, but often enough, exactly 13)?

I mean, we understand the economic reasons why companies might decide to reduce their employment base right now. But, how can it be that company after company crunches the numbers, does the math, and comes up with the exact same percentage reduction?

Leave aside the obvious exception of Twitter, which is a special circumstance and where Elon Musk has shed significantly more than half the workforce. Beyond that example, the pattern is striking.

So, is 13 percent some kind of magic number?

I don't have a definitive answer to this question, but I reached out to a lot of entrepreneurs and CEOs to see what they thought might be the rationale. We came up with four possible explanations, which I'll rank in increasing order of likelihood.

1. Pure coincidence

I think this is the least likely and least satisfying explanation, as it really doesn't explain much. Still, we should consider it, as several CEOs I talked with suggested.

All other things being equal, one number would have to come up more often than others. But the sheer preponderance of 12, 13, and 14 percent layoffs makes this seem less likely.

2. Investor signals

Next up is the suggestion that 13 percent is more about sending a message to investors that a company is making serious cuts, but not so serious that its ability to function will be impeded. It also would imply that tech companies generally keep their headcount about 10 percent above what they need in order to account for attrition.

"The 13% number is just enough to signal that a company is making serious cost-saving measures without coming across as too drastic," suggested Dylan Kaplan of EnjoyMachineLearning.com. "This can help to ease any concerns that investors or customers may have about the company's financial stability."

3. Inflation

Next explanation: Companies are looking at the rate of inflation, or perhaps an absolute worst-case inflation scenario, and trying to cut a similar amount from their payrolls to accommodate higher prices.

"The rebuttal would be that inflation is, let's say 8 percent, so the [layoffs] number is still high, which I would agree with," suggested Dennis Schlegel Jr., co-founder of Emeritus Wealth. "However, it is much easier for these companies to do an overcorrection with layoffs and hire workers back if needed, rather than risk having to do another round."

In fairness, #2 and #3 on this list are close to a tie; either is as likely as the other, because at least they'd be based on math.

4. Groupthink

Even if we can't positively identify the reason 13 percent (+/-) kept coming up in the past, I think it becomes easier to see why it will keep coming up, in the future.

When one company after another announces they're laying off the same percentage, the decision simply to do the same thing, whether based on sound math or not, becomes easier at other companies.

In other words, it's easier to defend laying off this percentage of people to a board of directors or others when so many other companies have laid off that percentage that it amounts to an industry standard. Never underestimate the power of groupthink.

Here's to the economy improving, confidence returning, and the whole question becoming moot sooner rather than later. And if you have another idea why 13 percent might have emerged as the magic number, I hope you’ll let us know.

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7 other things worth knowing today

Authorities in Germany arrested 25 people on Wednesday who are suspected of planning to violently overthrow the government in a far-right extremist plot. Suspects from the so-far unnamed group include a nobleman with a historic royal title and various armed forces veterans. It is centered on the so-called Reichsbürger, or Reich Citizens, movement which is motivated by conspiracy theories about the role and legitimacy of the modern German state. (NBC News)
After a series of crypto-collapses, scandals and bankruptcies, Americans’ views on cryptocurrency have soured sharply. A survey finds 43% of the public with a negative view of cryptocurrencies, up from 25% in March. The percentage with a positive view plummeted to just 8% from 19%, and those who are neutral fell almost in half to 18% from 31%. (CNBC)
The F.B.I. team investigating last month’s shooting at an LGBTQ nightclub in Colorado that left five dead and 17 others injured is looking at a website forum alleged created by Anderson Lee Aldrich, charged with 305 criminal counts including first-degree murder. The sites allegedly allowed people to post racist and antisemitic memes, language and videos. (NBC News)
Apple is scaling back the design of its first self-driving car and even delaying the launch. The latest intel said it would be released in 2025, but now the vehicle will reportedly be delayed until 2026. (Mashable)
If you’ve ever wanted an island entirely to yourself off of Palm Beach, now’s your chance. The man-made 10 Tarpon Isle, which includes a soon-to-be-completed 21,406-square-foot massive mansion, has just hit the market for a humble $218 million. (NY Post)
End-to-end encryption is coming to most of Apple's iCloud. The feature including photos, notes, voice memos, reminders, Safari bookmarks, and iCloud backups of the contents of your devices. Not included: calendar and mail. Apple says they are not covered "because of the need to interoperate with the global email, contacts, and calendar systems." (Arstechnica)
Today is the 42nd anniversary of the murder of John Lennon. Long before the Internet, many people learned about his death from watching Monday Night Football, when Howard Cosell shared the news. Here’s the TV video from that night.

Understandably by Bill Murphy Jr.