Workforce growth is slowing as startups brace for worst-case scenarios

Recent headlines have been dominated by announcements of major cutbacks in the tech industry, particularly giants like Meta, Amazon and Twitter. But it’s not just the big names that are cutting staff: private SaaS companies have also been hiring and cutting staff for almost half a year.

This is not surprising given that earlier this summer VCs pushed for a greater focus on capital efficiency and the “Rule of 40”, when it became clear that the “grow at all costs” mentality was losing popularity and purpose around the runway it extended. to face the storm.

To better understand headcount fluctuations in the private market, we programmatically tracked the workforce of 150 SaaS startups of private B2B companies from Series A to Series C over 24 months.

Here are the highlights of our research:

Companies are reducing staff growth to widen the runway

The number has increased by an average of about 2% per month over the past four months, compared to the 10% we previously saw. In addition, the 25th percentile of new businesses saw headcount declines, suggesting many companies are taking drastic steps to expand their runways.

This is a dismal indicator as startups need to prepare for additional macroeconomic headwinds and price reversals.

Another round of cuts is likely to follow early next year.

Unless the macroeconomic environment improves, we expect another wave of job cuts after the company’s board meetings in the fourth quarter (usually in January or February).

Many companies will be discussing their 2023 tax guidelines, and hiring staff is always a lever to extend leadership as it can account for up to 80% of a startup’s costs. As many companies retain their staff, we may be forced to lay off employees to cut costs.

Tighter recruitments started in May 2022

Private companies started to slow down around May 2022 and more companies started to take collective action, as evidenced by the smaller range of the interquartile count rate, which fell sharply but has now leveled off.

Companies offering recruitment and selection services recorded the strongest decreases

As these services declined across the industry, companies that provide technology to HR and procurement professionals saw the sharpest declines in headcount growth. However, all tracked customer profiles tend to reduce recruitment efforts.

there is a lot of talent

On the upside, this is a great time for companies that fit the product market (and support investors) to hire the right talent as the large tech team shrinks and the market is flooded with exceptional talent.

From aggressive staff growth to stagnation

As of April, most companies were aggressively hiring new employees, with headcount growing more than 10% month-over-month and the 75th percentile increasing nearly 20%.

In contrast, the current median is +1% and the 75th percentile is +4%.

This downward trend started in May and continues to this day. The interquartile range continues to narrow, with the median eventually moving towards a stable workforce (i.e., replacing attrition, but not hiring more). The 25th percentile fell into layoff territory in August, but the 10th and 25th percentiles have already retired.

Now that we’ve set up the scene: