In 2021, tech companies were living the high life and busy with hiring and expansion binges. Helped by low interest rates, the tech sector reported record profits. Even small companies and startups got in on the fun as 2021 was a record year for IPOs, with over 900 companies raising almost $300 billion through public offerings by November.
“In 2021, it was the best year tech ever had. It was incredible. It was the best buying environment,” Marc Benioff, CEO of software giant Salesforce, said in an interview last week with tech journalist Kara Swisher that aired Monday for New York magazine’s On With Kara Swisher podcast on Monday.
But all good things must come to an end, even for high-flying tech companies.
The tech sector was hard-hit by the bear market that began in 2022. Ever since, investors have been jittery amid rising interest rates, and speculative tech stocks suffered the most. Many giants including Amazon, Meta, and Twitter have spent the past few months laying off staff, tempering growth expectations, and cutting expenses wherever they can.
The months ahead may get even harder for the economy, and tech companies will have to adapt to a “new normal,” Benioff told Swisher. Today’s depressed market could spiral even further, and the downturn could be on par with some of the worst financial crises of the past few decades, he said.
“The key is that this is not my first recession,” Benioff said. “I went through it in 2001 and 2002. That was extremely difficult. We had to have an employment action. We went through 2008 and 2009. We had the same situation. And here we are today.”
Tech’s ongoing rout
When the market soured last year, as the Federal Reserve began trying to cool inflation, things started to change for freewheeling tech companies. Economic growth was no longer guaranteed, and business leaders became more cautious, possibly none more so than tech executives who had spent so wildly in 2021.
“We were all surging employment to get ready for another year like that, because we thought that was the normalized buying environment, but then, we started to see some unusual macro issues,” Benioff said. “Currency has really started to change aggressively. We saw inflation start to come up. The stock market basically imploded. And the buying environment changed, and CEOs, especially, became more measured.”
The tech-heavy Nasdaq Composite index has now fallen 27% since hitting a record high in November 2021, a loss that translated to hundreds of billions in lost market value for large tech companies. The rout has forced every tech company, including Salesforce, to reevaluate their spending and growth strategies.
“When that happened, that’s when, all of a sudden, everybody had to start thinking about, well, we need a slightly different plan here,” Benioff said.
Salesforce has already started cutting costs and reducing risk. In January, the company announced it would lay off 10% of staff, or 8,000 people. The company wants to cut expenses by $3 billion to $5 billion, according to an audio recording of Benioff reported by Coins2Day in January.
Part of the cost-cutting includes reducing office space—which the company expanded as recently as 2020. Slack, a corporate messaging service owned by Salesforce, left its San Francisco headquarters last month and moved into the Salesforce Tower to cut costs.
In an email to staff announcing the layoffs in January, Benioff attributed the cutbacks to preparations for a very different economic reality.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote.