From labor shortages to mass layoffs: Challenges or opportunities for startups?

Since the beginning of this year, we’ve been seeing massive layoffs in the tech sector. Several startups and fintechs have made significant layoffs in recent months, for example Coinsquare, Wealthsimple and Shopify. This trend is global. According to the tracker Layoffs.fyi, 575 startups have laid off more than 76,000 employees so far this year. These layoffs are happening while we are still hearing about labour scarcity. 

Does this mean layoffs will solve talent scarcity problems? It’s hard to say. 

Perpetual labour scarcity

Labour issues have been making headlines in Quebec for several years now as more and more companies have specific talent needs. This situation is due, in part, to a demographic context that creates a distortion between the supply of work – which is too high – and the ability to find employees to fill that supply. 

In the technology sector, the talent issue takes on a different dimension as the workers needed are highly skilled and companies are constantly competing to hire the best talent. With the COVID-19 pandemic and the normalisation of telecommuting, the competition among tech employers is now international. American GAFAMs are hiring Canadian talent because of a favourable exchange rate and lower cost of living. As a result, Quebec startups are looking to Eastern Europe, South America, and Asia for qualified talent. 

According to Technocompétences’ workforce training specialists, Quebec is likely to continue to experience a talent shortage, given the evolving needs in ICT and the fact that we are not yet able to train enough to meet market needs. In fact, according to some of the startups we spoke to, such as Alayacare, RenoRun, and Clearco, the types of jobs that are being laid off are often related to administration or human resources and not necessarily to tech talent per se. 

So, we can assume that the labour issues startups are facing will continue, which is a significant contributor to stunting the growth of these young tech companies.

Will layoffs continue?

In the long run, the layoff situation is not alarming for tech companies. The companies that have had to make these layoffs have been making bets on the market since 2020. These bets were based on a belief that technology would grow exponentially due to the pandemic. Yes, in the particular pandemic environment, technology companies have grown to an unprecedented level. This growth is supported by hiring waves which require ever-increasing capital raising. This also explains the record injection of venture capital in 2021.

What we are now seeing is a corrective action, quite normal from a macroeconomic point of view, as the adoption trends of new technologies are returning to a pre-pandemic state. Startups are forced to downsize and revise product delivery schedules in the face of this shift in customer demand, but also in the face of rising inflation in most Western societies.

Growth will eventually resume, especially since our ecosystem is dynamic. We have several startups that are leading in certain industries: think of Hopper in tourism, which is having a record year; or Paper in edtech, which continues to grow at a good pace. 

Startups, here are some solutions to keep your talent!

By analysing best practices, we see four trends that promote talent retention within startups:

1. Offer training, like what Technocompétences offers in the ICT sector. It is important to have a skills management plan for your employees.
2. Anticipate operational efficiency and strategic succession planning management. 
3. Think about your HR model and recruitment plan in terms of your values, your business objectives, but also the economic context. In particular, be attentive to market signals. 
4. Be more competitive with larger corporations by leveraging your corporate culture and developing your advantages in terms of integration and sense of belonging. Also make better use of your employees’ skills and demonstrate the opportunity they have to grow faster within your startup.

Talents, explore all opportunities

Of course, we should not minimise the impact on people that these important layoffs can have, especially in the context of post-pandemic inflation. We are seeing a groundswell of solidarity with the individuals who have been laid off, and job postings are already circulating to recruit this talent, including through The Help List, a Communitech initiative.

We believe that this is a transitional phase that is just as likely to have positive effects. Some people who have left large technology companies have taken the opportunity to start their own companies, such as Gadget, a startup founded by former Shopify employees. With the knowledge and experience gained from these corporations, these future entrepreneurs have rare tools to help them succeed and integrate into the support programs available to them.

To go further

Did this article make you want to know more about our initiatives at Startup Montreal? Sign up for our startup/talent recruitment activities by filling out the form, depending on whether you are a  startup or a talent. Also, stay tuned to the initiatives we propose regarding Talent issues in our Our Projects section.