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  • Writer's pictureMatthew Lerner

Was firing 50% of Twitter employees a smart move?

These big tech layoffs remind me of another crazy PayPal story… this one’s about how to avoid corporate bloat in your startup.

“The executive’s shock”

Late in my time there, maybe ten years ago, we acquired a company, and I was invited to meet one of the founders. I arrived early so we chatted. He'd just gotten to PayPal’s campus, and he was in shock.

He'd walked across campus and couldn't understand why we had so many employees. "I've run a payments company, it's not that complicated. I cannot imagine what these people do all day."

He continued, "Honestly, I bet you could fire 70% of them and the company would keep running just fine. I just wouldn't know which 70% to fire."

I remember thinking "I would."

I'd completely forgotten about that conversation until Elon Musk announced that he would "fire 75% of Twitter employees." Could Twitter survive?

PayPal’s corporate bloat

I don't know Twitter, but if you study PayPal's history, you'll see that 90% of their early customer acquisition came from about 5 levers: getting on to eBay, a simple self-serve email & HTML-based payments product, partnering with shopping carts and e-commerce platforms, and international expansion.

So what about the other 10K+ employees? After the acquisition, eBay hired a bunch of "grownups" to run the business, mainly from Visa, Amex, McKinsey, Bain, and some banks. Each grownup had a big corporate playbook and built huge teams with huge budgets. Some of this was necessary, but a lot of it really wasn't.*

(In eBay's defence, there were risks in the business. PayPal needed to get its act together in terms of risk, compliance, customer service, and the core tech stack. But corporate bloat doesn't stop with sensible projects, it grows unchecked).

This scenario is not unique to PayPal. People used to joke that Google had 60K employees, but only needed 1K (search + ads). If you study any big tech company, you'll see that 90% of their growth comes from 10% of the stuff they do, and everything else is bunting.

The never-ending cycle of “good ideas”

Now, looking at your company, do you know your 10%? I think a lot of startups struggle with this.

And once you're on that treadmill, it never stops. Even when PayPal had 20K employees and $10B in revenue, everyone still complained that they "couldn't get resources." Everyone (including me) was busy making PowerPoints and pitching for money, headcount, and engineering.

We fall in love with our ideas, and everybody wants to do their special thing. But they're not all good ideas. And large organizations are terrible at making those hard decisions. (Until the economic cycle turns, and they need to make huge cuts.)

A CEO on CNBC says, "We have no choice..." But he did have a choice. He had a lot of choices. But they were hard ones, so he put them off.

Simple next step

But, while you're still a startup, there's hope. Just assume you'll never have enough resources, and fundraising is a distraction. Instead of trying to get more resources, focus on finding your 10% - your big growth levers.

And be honest with yourself about the bunting. (Maybe that's not so simple.) Here are a few questions you can use to help your team prioritize the most impactful work:

  1. If this works, how big could it be?

  2. What are the riskiest assumptions behind this idea?

  3. What’s the quickest way we can test those assumptions?

And remember, sevens kill companies.

I hope this helps!

* This is a complicated issue, so here's bit more nuance... When I re-read this post, it sounds like I'm calling the leaders at eBay and PayPal dumb, and that couldn't be further from the truth. They were actually brilliant: Visa, McKinsey, Harvard, and Stanford. But they were working within an incentive structure that rewarded bold proposals and investments, not restraint or fiscal probity.

High-growth tech companies are very profitable, and they need to invest their profits back into growth. Otherwise, the cash will pile up and investors will demand a dividend. If the companies return cash, they’ll lose their status as a "growth stocks," and their price-to-earnings multiples will collapse, wiping out their execs' compensation packages, which are mainly comprised of stock.

But maybe your company doesn't have all those complicated incentives. Maybe you can just focus on high-impact work, delight lots of customers, and earn money. And maybe, just maybe, that's a huge advantage.

I should also clarify, this all happened over ten years ago.It's not meant to disparage PayPal's current leadership.

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