Saturday, December 24, 2022

2022 Tech downturn

Tldr; The market is going through a period of downturn as a chain reaction of the world's economy. Lavish startup life is over, lean time is here. Product-market fit will be tested. But tech is here to stay and top engineers are highly sought after.

2022 was not a great year for tech. The industry was plagued with widespread layoffs, weak earning calls, plummeting stock prices, and an investment market that shifted from equity to debt. It was another link in a chain reaction of the world's economy: pandemic aftershocks, the war between Russia and Ukraine, oil prices, energy concerns, and weaker buying power. It just happened that this link hit me the closest.

How exactly did the tech sector get tangled in this whole mess? I think firstly that is what you get from a flat world (not earth), everything is more connected than ever. The very definition of "tech" or "big tech" is ambiguous. It can be anything from social networking companies to EVs and phone makers. Really, the concept of the tech sector is no longer as relevant as it used to be because every company is a tech company to some degree. The whole world economy didn't do well and tech was an integral part of it.

Secondly, the industry has operated with a free flow of cheap money for decades. Since the collapse of the housing bubble in 2008, the FED had kept a low interest rate for almost a decade - an unprecedented event in the 60-year-plus history of the organization. Even the increase in 2015 was described at the time as "a vote of confidence in the American economy". For a long time, the availability of cheap money meant there were strong cases for borrowing money from banks and making profits via investment, including tech ventures. The high ride however ended with the interest rate hike as the FED tried to control the US inflation. I however entered the workforce in 2010, as so did many other startup founders and workers. We thought tech as an infinite source of growth was a norm. We have never experienced a real lean time before. 

The third point, the greater force of macroeconomy throws much of future forecast out of the window. Boardgames such as Agricola or Splendor, or computer games such as Factorio are known to be resembling what it is like to run a business. And in all of them, a common theme is that the move you want to do now must be planned a few turns ago. Much of what a business does today relies on what it is expected to deliver in the future. So when the future prediction is skewed, it drags the businesses into the mud.

And oh boy are we bad at predicting 2022. I mentioned no one was expecting a war between European countries in the 21st century but there were more. Social isolation throughout the pandemic yielded great returns for tech companies in 2020 and 2021. But then the demand dropped as the world reopened. Turned out, it took more than a pandemic to alter behavior. E-commerce and food delivery offered great convenience and indeed enjoyed a higher adoption rate compared to pre-pandemic but they didn't replace traditional means. Working from home didn't become the dominant working mode. And consuming power was limited to necessities as the world braced for economic difficulties.

The combination of cheap money and an over-focus on future delivery means most startups had chosen growth over profit for a long time. It had always been about acquiring the biggest slice of the market pie and only then turning to increase the profit margin. You had to because all your competitors were doing the same. There would only be a little room to grow if you had a tiny slice of the market regardless of how healthy your margin was. The cheap money guaranteed that if slow and steady was your strategy you would end up in a hostile takeover. That also means sometimes companies found themselves running faster than they should have. The widespread layoff we saw was the direct response to a decline in forecast demand and a need to reduce the cash flow till a better time.

It was easy to pick up a sage voice and describe the crazy world that was 2022 with much hindsight clarity. Being on the ground, running a team of 100+ head counts, and experiencing the first lean time sucked monkeys balls though.

Alright, so that was how we got here. Where do we go from here?

The last time tech recessed in the 2000s, it went down in a blast. NASDAQ was tech-heavy and it took 8 years to climb back to where it was previously. Yet there are reasons to believe this downturn wouldn't be as bad. During the dot com bubble, we were in the exploration stage. There was this internet thing that was supposed to be a new era but nobody was quite sure what it could do so everything went. Great ideas mixed with crazy evaluation fueled by FOMO money. was arguably the most famous flop. Kozmo and Webvan burned through billions of dollars as their grocery delivery models were not sustainable. Think Tools AG evaluated at CHF 2.5B without having a product. The noise was so bad that after the burst people believed the whole internet thing would just fade away, contributing to the long recovery. 

The time around, other than the crypto scene which is going down the exact same path, the rest of the market is a lot more mature. Companies stay much closer to reality, solve real problems, and have clear plans for monetization (at least I hope so). Tech is here to stay and people are just preparing to weather the storm.

That being said, 2023 is not going to be a great year to raise equity. People who set out for a funding round would be less likely to receive favorable evaluations and terms. The formula used to be that you can plan for a round every 18 - 24 months, one led to another on the basis of momentum, and hope that Tiger or SoftBank will come in with a massive Series C or D and allow you to have some sort of secondary exit and just build the momentum, and maybe a SPAC will you liquidity quickly. Didn't work out quite well for Grab and Sea.

At the same time, the general decline in demand across B2B and B2C remains a threat. The product-market fit (pain killer vs vitamin) is once again brought to the forefront. Startups solving more critical problems are more likely to survive. Long-term strategic product programs might be put on hold to make room for initiatives contributing immediately and directly to the bottom line. Some unfortunately will run out of time before things got better. While others are presented with a unique opportunity if the product-market fit is good in the new reality.

Interestingly for startups to remain competitive, they need to invest in technology. The performance of a tech team grows slowly, depends much on ad-hoc knowledge management, and is the bottleneck of any innovation. Even though layoffs were spreading, the core of tech teams was protected. Ones that do not spend in the near term will undoubtedly fall behind in the medium term and risk not being around in the long run.

The spending pattern might change. Software development in particular has always been one of those fields where the performance gap between top and average performers is tremendous. The term 10x engineer has been saturated to the point now it is more of a meme, but there is a kernel of truth there. In sports, running 1% faster than the next guy results in 10x compensation. But that's it, if a 1% gain costs 10x more, might as well get 10 of the slower ones. Engineering is different. A top performer can provide solutions that bad ones can't come up with, regardless of how many of them, and doesn't cost 10x as much. Then computer automation and scalability come in to multiply this productivity difference many magnitudes more. With cash flow running lower than before, recruitment is no longer a number game. Companies would pay top dollar for a few strategic positions but otherwise not double their team size any time soon.

The startup boom has lasted for a decade. It has also faced so many scares, each time more money and power were poured in. But maybe it really is different this time.

Sunday, December 18, 2022

2022 - Could this year have been better? Yes.

It was a lovely afternoon at the beginning of December when I wrote these lines.

Vy was at her class in the uni and I had the entire apartment just for myself.  So it was quiet. Golden sunshine cast on everything, the breeze was pleasing, and the view over the canal was gorgeous. Despite that. I felt uneasy. Felt like there was something I should be doing, that I was losing my time but I couldn't figure out which. And that had been how I felt this whole year - things were dashing by and I was just trying to catch up.

A little reminder for future people about what kind of year 2022 was. It was the year when Tuan-Anh got married, Soc was born, and the whole world finally came out of Covid-19 after three years of social isolation and economic stagnation hoping for post-pandemic growth. Things perhaps would finally feel normal again. Except Putin said fuck that and evaded Ukraine with his little special military operation. The oil price was all over the place. No country seemed to agree with one another. In Vietnam, there were widespread layoffs because orders in the West were drying up. And in Saigon just last October you literally could not find gas for your motorbike.

The master's degree.

No, it wasn't me. That was why Vy was at the uni on a lovely Sunday afternoon. She got a scholarship at the same place I got my bachelor's.

I was told that a master's degree is like doping. You use it when your career hits a plateau and you need a little push to go to the next level. And for a really long time, it was one of the most popular pieces of life advice I propelled. Watching Vy though, I learned something new. Once you pass a certain point in your life, you can no longer be schooled. That is, you can no longer entertain someone telling you where to look, what to do, and how to do it. You can no longer fathom the thought of slaving your days and nights away for a thankless assignment solving an imaginary problem just so some old dude can put a no less imaginary score on it. Guess I would not be educatable for a while.

Vy was crushing it though. She worked hard in her day job, got home, and then put on the second shift for her study, be it preparing for the next day's slides, writing assignments, or working out problematic drama queens in her group. You would not believe how childish some of these master's students could be. Perhaps that constituted their educatability. Anyhow, like any good partner, as Vy slaved away at school, I had been pulling my weight in the kitchen. To be clear, I was not setting up a gym in the kitchen. I looked after the place, prepared meals, and might or might not write a programming assignment recently. Felt like that was the least I could do to support her. She was working so hard, I wish she would be successful. Also, my retirement plan depended on that.

I got anxious though, it was hard to watch someone working that hard and not do a round of introspection. Was I growing in my career, that I had been better than who I was last year? Was I prepared to continue this path for another decade? Should I be doing something else other than sitting here writing? To be frank, I was a bit scared, like in those recurring dreams where just as you realized the exam was today, you also realized you haven't studied shit. No? Just me? There was a fear of missing out, a fear that something wrong was brewing and by the time you realized it was too late to rectify. I was sure English had a phobia name for that, or German.

The apartment

During the pandemic, however, I learned to appreciate the importance of a proper home and how rewarding it could be if you got it right. For a long time, all that I did in terms of housing was alternating between piggybacking in one of my previous companies' apartment, sleeping on the floor at offices, and for the most part, shuttling between a cheap tiny rental unit close to my office during the week and my parents' second home at the weekend. While I thoroughly enjoyed the short commute and my parents never collected rent or embossed any restriction on my freedom, neither place gave me the certainty of ownership. I found it hard to put words into this feeling. Say, the sense of ownership at its core is the difference between working on someone else's code and just wanting to get shit done vs working on your own code, something you know intimately, and wanting not only to do the right thing but also to do it right. For my non-developer friends, err... it's a rental.

The criteria for my "repository" were straightforward: close to my office (and hoped that the office was not moving), bare concrete for minimal waste and maximum customization, and a view that didn't constantly remind me I was living in stacked boxes. For the kind of budget I had, that didn't leave a lot of options, I started looking by Oct 2021 and got the paper done by Nov.

Because the place was concrete and nothing else, I went through the whole process of briefing my needs, finding an architect, feedback loops (3 months), and construction (another 3 months). All in all, it was almost a full year from when I bought the place until I moved in. As the nature of construction dictated, the process was waterfall where mistakes in one phase would get really expensive to fix or even unfixable in later phases. With the same attention I used to examine a technical design, I 3D-rendered the apartment in my mind, suggested modifications, and browsed the second page of Google to find the right material. Only desperate people visit the second page of Google. There were plenty of things to think through, like the placement of built-in electrical sockets or the layout of cabinets, as I had neither the budget to redo nor the skills to DIY. 

From start to end, the journey was exciting and fun. Building up a physical space left a tangible spark of joy that was usually missing from my profession - software engineering. But because of how involved it was, for a while, it was imprinted in my mind that at any point in time, there was something else in the design I had neglected, a modification made, and an article read. I would often find myself on a fine afternoon like today and wonder, should I be doing something else?

It had been 2 months since I moved in and the imprinting was fading away. While it lasted though, I realized that, for me, the fear of either leaving something out or being left out that would lead to cumulative damage was real and primal. I can reason to myself that this too shall pass, that in the grand scheme of things it wouldn't matter, that I have done the best that I could but I can't shake off the feeling. There had been several moments this year where I got an acute "tic" that something wrong was happening without me knowing and by the time I knew what it was, it would have been too long.

The tech downturn

2022 was not a great year for tech. The industry was plagued with widespread layoffs, weak earning calls, plummeting stock prices, and an investment market that shifted from equity to debt. It was another link in a chain reaction of the world's economy: pandemic aftershocks, the war between Russia and Ukraine, oil prices, energy concerns, and weaker buying power. It just happened that this link hit me the closest.

I noted down some of my thoughts on the downturn in another post where I said the greater forces of the macroeconomy were making it really hard to go against where the industry was going. Didn't help with the emotions though, did it? No one working in a startup would be happy with just cruising along the "industry average" path. Startup people are competitive and hold on to exceptionalism. Without those traits, who in his right mind would invest years of hard work charging against bigger corporates with deeper pockets and higher headcounts? So this setback was a blow of defeat.

Here I had my phantom fear materialized. Had I written better code, spent more time with my colleagues, or initiated better technical investment, could I have soared above the average? I hoped so. I wished I could do better because this feeling that I was not enough, that I was asking for more than I could give was the most tangible sense of helplessness I experienced in a really long time.


By the time I got to these lines, the sun was on the horizon and I had already moved to the shade of a small dock overseeing a peaceful turn of a canal. I know this canal well, I have traversed countless trips on it, and yet its beauty never fails to capture my attention. I always feel attached to bodies of water. The tranquility made me nostalgic. I recalled the time when I was on kayak often, when life was easier, and when the net outcome of action was more direct and calculatable. But life moves on. Tomorrow I would board the first flight to Singapore to discuss how we could best weather the coming storm. 2023 will be challenging but did I say startup people are stupidly competitive?

Stay strong.