Schumpeter's Gale
Not Boring #4: The Upside of Layoffs
Hi friends 👋🏻,
Happy today! Look at us, we’re all making it. Proud of us.
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A Note About Today’s Not Boring Take
Today’s Not Boring Take is about the optimistic view of unemployment.
This is a tricky one to write about, because unemployment is not something that most people view optimistically. It is scary and stressful and it feels embarrassing. There is rent to pay and dinner to get on the table and, for many, a family to care for. For better or worse, regardless of your financial situation, employment can be deeply tied to your sense of self-worth.
The coronavirus has highlighted and exacerbated America’s growing inequality in real ways - temporary unemployment hits some groups much harder than it hits others. I am currently unemployed, but I made that choice. I am fortunate to have savings and a support system. So, let me acknowledge from the start I can only write from my own privileged perspective, as someone who understands some of what people are going through but surely not all of it.
The group I will be focusing on - people laid off from startups - are broadly in a similar boat to mine, but each person’s circumstances are different.
That said, levity and optimism are a necessary and important counterbalance to the doom and gloom, and I hope today’s post makes you feel more hopeful.
Now let’s get to it.
Schumpeter’s Gale, or The Upside of Layoffs
Every day in my Twitter feed, a new list appears with names like “2020 Amazing Ex-Opendoor People” or “Managed by Q Team Members Looking For New Roles” or, “Lola employees on the market.”
The most comprehensive list that I have seen, from layoffs.fyi, highlights 259 startups that have laid off 24,969 employees. There are companies that I know have laid off employees who aren’t on there; that number is only going to get higher.
In the midst of it, the layoffs seem terrifying. But on the balance, we will be OK. For many people on the layoff lists, in fact, this might be the best thing that could have happened to them.
At a time like this, optimism feels out of place, but it’s the only speed I have. So we’re going with optimistic. Here’s that take:
Large-scale job loss from industry upheaval has happened many times before. So many times that it has an economics name, Creative Destruction, and it has a badass name, Schumpeter’s Gale.
This was happening already, albeit more slowly and messily, as overfunded startups shifted from “growth at all costs” to “profitability at all costs.”
This is going to unlock talent and be the best thing that could have happened to many of the people on those lists.
To understand how layoffs could possibly be a good thing, let’s go back to explore the work of some of history’s greats: Karl Marx, Joseph Schumpeter, and Britney Spears.
Joseph Schumpeter, Meet M-I-C-K-E-Y M-O-U-S-E
In his 1857 book Grundrisse, German socialist revolutionary Karl Marx wrote about the cyclical and destructive nature of capitalism, in which capital must be destroyed in order to preserve itself:
These contradictions lead to explosions, cataclysms, crises, in which ... momentaneous suspension of labour and annihilation of a great portion of capital ... violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide.
To Marx, this was a critique of capitalism. An inherent flaw. A bug. To Joseph Schumpeter, it was a feature: not just destruction, but creative destruction.
In 1942, Schumpeter, an Austrian economist, re-interpreted Marx’s concept in his book Capitalism, Socialism, and Democracy. He described “the gale of creative destruction” as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
According to W. Michael Cox and Richard Alm, both of the Dallas Fed: “The saving grace comes from recognizing the good that comes from the turmoil.”
Capitalist societies that allow creative destruction to occur, Schumpeter says, see increased productivity, better products, more wealth, and a higher quality of life than socialist or communist societies that intervene to keep workers and capital in dying industries.
Cox and Alm cite confirmatory examples of professions that died, and in dying, unlocked talent to work in more productive roles. They cite carriage and harness makers, boilermakers, and switchboard operators.
I already put you through a lot of economics for a Monday morning, though, so let’s look at a more fun example: The Mickey Mouse Club.
In 1993, fifty-one years after Schumpeter coined the term creative destruction, six young performers joined the sixth season of the popular Disney Channel show, The All-New Mickey Mouse Club (MMC). See if you can recognize them.
Previously unknown, Justin Timberlake, Keri Russell, Christina Aguilera, JC Chasez, Britney Spears, and Ryan Gosling (“the Six”) all got their start on MMC. All six, with the exception of Russell who left after Season 6, performed together in the shows 6th and 7th seasons.
Those young future stars must have had so much fun performing together. One day, they were regular, unknown kids, and the next, they were part of a group of highly talented people just like them, performing on the Disney Channel for hundreds of thousands of other kids. There was creativity, there was fame, and there was even romance (looking at you, Britney and Justin). Then all of a sudden, Disney decided to cancel the show after the seventh season.
The Mouseketeers must have been devastated. They probably cried and feared that their fifteen minutes were up.
Twenty-six years later, the six of them are worth a combined $719 million and boast fourteen Billboard #1 albums, twenty Grammys, two Golden Globes, and an Oscar.
Russell appeared in bit roles on a variety of TV shows before landing the title role in Felicity. Gosling did the same and began acting in movies, launching a career that has earned him an Oscar for Best Actor in 2017. Aguilera moved to Japan and recorded a proto-version of her breakout hit, All I Wanna Do. Spears went back to high school in Mississippi for a few years before releasing ...Baby One More Time. And Timberlake recruited Chasez to join him in a new boy band, NSYNC.
With the benefit of hindsight, the show’s cancelation was the best thing that could have happened to their careers. Instead of being one of a dozen kids (there were other, less famous Mouseketeers) on a weekly TV show, Disney’s decision to cancel MMC was an act of creative destruction that unlocked them to go on to bigger and better things. It was a necessary (but not sufficient - the Six’s talent and the Disney spotlight played a major role) condition for their future success.
(An aside for my economist friends...Joseph Schumpeter is buried in the Salisbury Cemetery in Salisbury, CT. If you’re reading this near Salisbury, you might hear the faint sound of bones knocking on wood. That’s Schumpeter rolling over in his grave. MMC is not a perfect example of the causes of Schumpeter’s Gale, but it is a useful illustration of its effects.)
Non-Essential Workers
Now imagine an alternate scenario in which Disney decided to keep the show going, spend a lot of money, and keep its stars on the air as they grew the show around them.
As the show grew, the Six’s roles would have been diminished, their pay increased, and their talents underutilized. At some point, Disney would have had to try to figure out how to lay them off to save costs.
If that sounds familiar, it’s because that’s pretty much what has been happening with startups over the past decade.
The past ten years have been about one thing: growth. Encouraged by the fundraising success of Uber, WeWork, and dozens of other high-growth, high-burn companies, startups developed a playbook:
Raise as much money as possible
Spend as quickly as possible on supply, marketing, employees, perks, and whatever else it takes to grow quickly
Raise more money, expand to more markets
Rinse, wash, repeat
Headcount wasn’t a cost to be minimized, it was a badge of honor. Many startup founders answered the question, “How big is the company now?” not with their revenue or profit numbers, but with their employee count. The bigger the better.
As a result, startups became “big companies” so quickly that talented employees who thought they were joining a startup where they would be able to have a big impact ended up working at a big company that underutilized their talents.
Instead of directly working to build and create, these employees get trapped in jobs full of meetings, processes, and TPS reports. Remove any one person from any one of these companies, and almost nothing changes. Probably not in the company, and definitely not in the wider world.
Author David Graeber calls these Bullshit Jobs:
Those who work bullshit jobs are often surrounded by honor and prestige; they are respected as professionals, well paid, and treated as high achievers—as the sort of people who can be justly proud of what they do. Yet secretly they are aware that they have achieved nothing…
As companies grow quickly, more jobs become Bullshit Jobs, each employee utilizing a decreasing percentage of her potential. In other words, trapped inside a large, overspending company, even the best employee can become a non-essential employee.
Even before Coronavirus, though, this period was coming to a close. “Growth at all costs” was beginning to give way to “profitability at all costs.” Before there were hundreds of COVID layoff lists, there were hundreds of WeWork, Uber, and Casper employees laid off. Across industries, startups scrambled to cut costs and show, if not profitability itself, at least a path to profitability.
In the transition from growth to profitability, many companies were going to have to do massive layoffs anyway. It was a near inevitability.
And then the Coronavirus blew in, and Schumpeter’s Gale with it.
The Unlock
Over the past month, 22 million Americans have filed for unemployment. Before diving into the positives, I need to acknowledge something just so that it doesn’t seem like I’m viewing this situation with a pollyanaish amount of naive optimism:
Being laid off sucks. There are two particularly shitty things about being laid off:
Financial Instability: laid off employees don’t know where their next paycheck is going to come from when the severance runs out or how they’re going to pay for the health insurance that was tied to their job.
Sense of Self-Worth: No one wants to admit, to themselves or others, that they were a non-essential employee, that the company they worked so hard for might be as good or better off without them.
This is undoubtedly a financially difficult time for many. That is an unavoidable fact of this situation, and thankfully, increased unemployment benefit payments are a small silver lining of being laid off now as opposed to before or after the crisis.
The sense of self-worth piece is trickier. When you get let go, and many of your co-workers don’t, it’s natural to question whether they are better than you. The truth is: probably not.
Broadly, there are three types of laid off employees:
People who actually were not that good at their jobs: the company was just waiting for a good time to let this person go.
People who were great at their role, but the company no longer needs that role: these are people like engineers at WeWork who may have been excellent, but the company decided that it was not going to invest in technology any more.
People who were great at their role, but their company needed to make really deep cuts: in some cases, the company has no choice to lay off otherwise very talented people from every department.
In the first case, these people at least have the benefit of cover from the fact that so many are being laid off. They can tell their friends, family, and employees that they were laid off because of the Coronavirus, and everyone will understand.
The second and third types of laid off employees are the ones I want to focus on. These are the potential Justin Timberlakes and Britney Spears.
Typically, creative destruction occurs because a new way of doing things upends the old ways.
What is unique about the current situation is that it is a pandemic, and not a new technology, driving the creative destruction. But since the Coronvirus has accelerated trends that were already underway, it’s almost as if it jumped in front of the creative destruction that was bound to occur anyway and took credit for it. The results will be the same, they’re just coming more swiftly and simultaneously.
That means that all at once, tens of thousands of skilled, ambitious ex-startup employees have been liberated from comfortable roles in which they likely were not living up to their full potential. Suddenly, they are all thinking about what to do next. In most cases, what they do next will be a better use of their time, talent, and potential than what they were doing before.
So what is a newly liberated future Timberlake to do? There are four options.
1. Start a company
On Wednesday, Jeff Morris Jr., a seed investor who runs Chapter One, announced he was creating a “Future Founders” list of people impacted by COVID who are interested in starting a company.
Within the first thirty minutes, he received thirty submissions. Within twenty hours, over four hundred people joined the list.
Crises create a powerful mix of new opportunities and talent liberated to work on them. Out of this crisis, I suspect we will see more people looking to start three types of businesses:
Small, Profitable Businesses: Riding the shift from growth to profitability, entrepreneurs will build niche software tools, communications and social tools, right-sized e-commerce businesses, and maybe even restaurant, retail, and experiential businesses that fill the void left by those forced to shut down during COVID.
Passion Economy Businesses: COVID has shown many people the importance of having a skill that they can monetize directly with their followers and audiences. I suspect that we will see a proliferation of one-or-two person creative businesses like newsletters, podcasts, courses, design, and coaching. We will also see these business models evolve.
BUILD THINGS Businesses: Marc Andreesen posted IT’S TIME TO BUILD on Saturday. In it he calls for businesses to build the big, audacious things that move all of society forward - vaccines, new modes of transportation, skyscrapers to eradicate housing issues, better and bigger universities, and yes, even flying cars. While these might be hard to get funded right now, I do believe that this crisis will herald the shift from “innovation” businesses to “progress” businesses.
It is important to note that while small, profitable businesses and Passion Economy businesses are open to everyone, BUILD THINGS Businesses are likely to be founded and funded by highly technical, well-connected entrepreneurs.
2. Join a leaner company in a similar industry and role
No company is wasting money right now and companies that were too bloated have been laying off, not hiring, so by definition, the companies that are hiring have been running leaner and have an actual need for the role.
3. Learn new skills and switch roles
This is the classic creative destruction path. In the 1920s, a blacksmith might have learned to become an automobile assembler. Today, an operations manager might attend an online coding bootcamp to become an engineer.
4.Join a big, stable company
A dirty little secret is that in all but a small handful of cases, being anything but a founder or very early employee at a startup is a bad financial decision. Working for a big, stable company instead of a fast-growing, unprofitable startup means trading often illusory upside potential for a more certain, easy-to-calculate compensation package.
All four options represent a move away from middle-ground Bullshit Jobs into the extremes - either very safe jobs, or riskier, higher-impact, potential-maximizing jobs.
Creativity Out of Destruction
We are in the middle of the “destruction” portion of creative destruction. Things seem bleak. Startup employees are losing their dream jobs, the ones in which they thought they would change the world.
The hard truth is, though, that as one of two thousand employees at a company that sells some product that does something a little bit faster or cheaper than any number of competitors, you probably weren’t changing the world. Odds are better that you were in a Bullshit Job. That’s cool, a lot of us were.
You probably felt it, that your company wasn’t using you to your full potential. And you probably thought about leaving, at some point, once your options were vested, or your savings account hit a certain threshold.
Now, that decision has been made for you. You’ve lost a paycheck but you’ve gained an opportunity.
Schumpeter’s Gale leaves many victims in its wake, but it also liberates talented people from comfortable jobs that waste their talent and from industries that won’t be in the future what they were in the past.
The Coronavirus is a unique form of creative destruction. It is deadlier and more terrifying than technological innovation. It has shut down the economy. It impacts everyone, but it has hit certain groups harder. And it has accelerated the demise of high-growth, high-burn companies that were already in trouble before the first case hit.
But because it is such a powerful accelerant, it is also pulling forward positive trends that may have otherwise taken years or decades to develop. Small, profitable businesses are going to be in vogue, creating solid opportunities that were previously obfuscated by the need to hit home runs. The Passion Economy has arrived, creating a path for individual creators to make a living sharing what they love with others. And the need for big, bold progress is as apparent as it has been in my lifetime.
The opportunities, big and small, are there. The talent has been unlocked.
In a decade, we will look back at the Coronavirus as a terrible tragedy and as the starting point for an incredible wave of progress led by people freed to maximize their potential. Let’s get to it.
If you enjoyed or learned something from today’s Not Boring Take, I would appreciate it if you help spread the optimism by sharing it with someone who would find it valuable. 🙏🏻
P.O.T.W.
Product of the Week: Do Not Pay’s Unemployment Insurance Claim product.
Do Not Pay is one of my favorite companies that I’ve discovered in the past year. Joshua Browder, a 23-year-old Stanford graduate and the son of Red Notice author Bill Browder, founded the company when he was 17 to help people in the UK get out of parking tickets.
Now, the company has expanded to the US, and handles everything from parking tickets to suing people and companies in small claims court. Last summer, it launched a virtual credit card that subscribers can enter when they’re signing up for free trials so that they’re not auto-charged when the trial expires. DoNotPay is the closest thing we have to Robin Hood.
Just last week, they launched a new product that allows subscribers to claim their unemployment payments at the press of a button. Filing for unemployment has been a nightmare for many. They desperately need the money, but they aren’t able to figure out the forms, the websites are overloaded, and they can’t get through when they try to call in. DoNotPay will handle all of that. It guides them through the claim form via a chat interface, submits the form for them, and in states that require a phone call, calls the unemployment office every hour until it gets through. Once benefits are approved, it also automatically handles the weekly certifications of unemployment necessary to keep receiving checks. It makes a painful process easy.
If you or someone you know is having difficulty filing for unemployment, give DoNotPay a try.
What’s Next?
As you’ve probably noticed, I’ve started writing more in-depth essays and analyses in this newsletter, and I’m loving it. I hope you’re enjoying them, too.
As a result, the Links & Listens and What I’m Reading sections were getting lost below a mountain of words. At the same time, I want to start talking to the people producing some of the great, not boring content that I share.
So I’m experimenting with something this week: splitting the newsletter in half.
Today, you just read a Not Boring Take, an original essay. I want to make these the Monday focus going forward.
On Thursday morning, I’ll send another e-mail featuring:
Links and Listens and What I’m Reading
A Giant COVID Survey that I’m working on with my friend Anja, which we will need you to share with your overactive family text chains
Maybe a bonus surprise 🤷🏻♂️
Before you unsubscribe, I would love your feedback at the end of the week. Hate it? Love it? Let me know. We’re going to keep making this thing bigger, better, and more informative together.
Speaking of which, here’s our growth for the past week:
We passed 700, our little family is growing quickly. There are 83 more of us here than there were last week - thanks for spreading the word!
I asked the 700th subscriber, Adam Murray, what message he’d want to share with all of you. He didn’t know the theme of today’s newsletter when he wrote it, but I think it’s perfect advice for anyone dealing with job uncertainty right now.
Every night as I’m putting my 17-month daughter to bed I tell her that she’s smart, she’s strong and she’s confident. I’ve said it to her every day since she was born and she now smiles every time she hears it. These are qualities that I always want her to know she possesses, but the more I think about it, it’s something even us grown ups should hear every now and then. So for those of us reading this: you’re smart, you’re strong, you’re confident. Go be the very best version of yourself today.
My ask this week: if you know someone who has been laid off and could use a little optimism boost (or an easy way to apply for and maintain unemployment benefits), I’d love it if you shared this e-mail with them.
That’s all for now, but don’t worry - I’ll see you again on Thursday!
Thanks for reading,
Packy
Big thanks to Dan, Meghan, Puja, and Ali for providing feedback on this week’s essay.
Packs, The juxtapositions were entertaining and I learned quite a few thing. Thanks, Mark Kesti
Have you read Jason Brennan’s Why Not Capitalism? A fantastic response to GA Cohen’s Why Not Socialism. Asking because He also uses the Mickey Mouse Clubhouse to explain why capitalism (including creative destruction) is ultimately a positive force; albeit the 2006 animated version.