10 % cut is managing expenses, 20-30 % is going for profitability

The number of announced personell reductions at larger US tech firms continue, just in the last day or so with Coinbase cutting 20 % (after cutting 18 % in June 2022), Flexport also cutting 20 % and Carta cutting 10 %.

It is new proof points of the reset many companies are doing, and probably a combination of cutting personell to get better financial results (duh!) and not getting bad press (“as everyone is cutting”).

For high growth tech businesses that have had the focus on revenue growth, there is quite significant difference between a 10 % cut and a 20-30 % cut.

A 10 % cut is in reality mostly a slightly more conservative way of managing overall expenses, and not enough to drive significant improvement to profitability. Profit improvements need to come from relatively significant revenue and gross profit growth.

A 20-30 % cut of all personell has more significant profit impact and combined with other savings measures can take a company closer to profitability alone. Even if some gross profit growth is often needed to.

Author: Henrik Torstensson

Partner at Alliance VC. Investing in Nordic early-stage tech startups.

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