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The last decade has been a gold rush for Silicon Valley tech companies – capped off by the (somewhat perverse) pandemic boom, which rocketed companies like Netflix, Facebook, Shopify and DoorDash to new heights as they served customers who were stuck at home.
Back in February, I discussed the post-Covid tech decline, which was mostly about customers going “back to normal” and reducing their at-home tech spending. Since then, the Federal Reserve has responded to rising inflation by raising interest rates, which has wreaked havoc on the ability of tech companies to obtain new venture capital financing. Companies responded by laying off workers to “lengthen their runways.” Then came disappointing third-quarter earnings for companies like Meta and Amazon, which caused their stocks to decline and justified even more layoffs and hiring freezes. Throw Twitter’s ownership change into the mix, and tens of thousands of tech workers have lost their jobs in the past month.
Needless to say, things are shaky in Silicon Valley. But here in the WordPress industry, we are somewhat removed from that. We’re geographically decentralized and our business models are much more bread-and-butter than many Big Tech companies. Rather than selling targeted ads with shady algorithms, we build real things for clients and sell real software to knowledgeable customers. Still, we are tech companies at heart – so let’s look at the case for and against the Big Tech layoffs spiraling into the WordPress industry.
The Risk: Venture Capital Runways are Shrinking
There is a significant risk to companies that rely on venture-capital funding to finance their operations – particuarly those that are not yet profitable. For example, Weglot recently raised $50 million, but since that round closed in March, it’s become significantly more difficult for companies to receive venture capital. Companies like Weglot may need to rethink their runways and make their current rounds of capital last a few extra years as they ride out changes that are resulting from higher interest rates. (The short version is that when interest rates go up, risky venture-capital deals are less enticing because investors can put their money elsewhere and get high rates with low or no risk.)
In fact, we already saw Elementor lay off 15 percent of its team in June, citing the high-inflation environment. The other shoe hasn’t dropped yet – in the sense that we haven’t seen widespread layoffs at other WordPress companies – but if your company relies on venture capital funding, your job security is definitely more tenuous today than it was a year ago.
Similarly, there is some risk to publicly traded companies that are adjacent to Big Tech, since they may be associated with their Silicon Valley counterparts. For example, GoDaddy’s stock dipped in the week after Meta’s bad earnings report (which caused many tech stocks – but not the whole stock market – to drop). At the extremes, even relatively old-school companies like GoDaddy could suffer if tech in general suffers. The flip side of this is that bad macroeconomic events sometimes lead to lots of new small-business formations, which helps companies that sell things like domains and small-business website services.
The Bright Side: Strong, Simple Businesses
One of the reasons I like the WordPress-agency and WordPress-software-developer business models is that they are simple and proven. In many ways, we are more like architects, carpenters ane electricians than we are like the folks in Silicon Valley, who are often toxic and ludicrous, play with lots of borderline-fake money, and seem brilliant until they crash and burn. (It was hard for me to choose links for the previous sentence because there are so many examples.)
Because WordPress is open-source, entrepreneur- and freelancer-friendly, and just generally a “down to earth” community, I think we are insulated from many of the worst impulses of our peers at the big Silicon Valley companies. (I would also venture that, despite their hubris, we could consistently out-code them, too.) Most of our companies (even the ones that sell software) are at least partially based on simple client-service-agency and web-hosting cash flow, both of which seem unlikely to completely crash, even in a period of significant economic decline.
By virtue of being smaller, more profitable and more distributed, the WordPress industry is likely to be more resilient to a future recession. By virtue of being less financialized and less reliant on venture capital and stock prices, we’re able to keep our heads down, keep it real, and do good work rather than fret about interest rates. Yes, our costs of living will still go up, and some of our clients may feel the pinch of the recession – but I think a healthily diversified client-service, plugin-sales or web-hosting business should be able to weather the upcoming financial storm reasonably well, which means WordPress may be a bastion of normalcy even if things get rocky in tech over the next year.