By Paul Gasparro

The economic downturn in the U.S. has hit every industry including high tech. Sun Microsystems (18% of workforce), Teradyne (5% of workforce), National Semiconductor (330 people), and Applied Materials (1,800 people). The list goes on in the telecom ecosystem that MapleWorks is part of. Gigaom identified dramatic cuts at Nokia (600), Motorola (3,000), and Nortel (10% of its work force).

In spite of the layoffs, tech companies are under pressure to get products to market with reduced staffs. How does the CEO address this issue? The answer is not to nibble at the problem, but to take drastic actions. The aggressive action will create an environment of rethinking the going forward model. So instead of cutting 10% or even 20%, set a plan to cut by 30% or 40%.

With this plan in place, the next move is to take advantage of Canada’s excellent telecom R&D skills and cost advantages. Working with MapleWorks Technology gives you access to the best development resources available in the world (see Larry Dignan’s report on Gartner findings) at a cost reduction of up to 40% from the US resources, and on the same continent.

An experienced engineer in the US will cost a company about $200K (salary, benefits, overhead) annually. This means that a staff of 20 represents a $4M fixed expense. The company could reduce the staff by 75%, and add 15 people in Canada at a cost of about $90K per person annually. The new expense rate will be $2.4M, or about 40% less. The quality and efficiency of the staff will not suffer. Future staff additions can be made at MapleWorks without losing a beat from the development perspective, and without investing in the capital associated with typical US hiring.

(Paul Gasparro is Co-founder and Vice President of Business Development for MapleWorks – the smart choice for on-shore software development.)

Private companies are also feeling the hatchet. The October 21, 2008 edition of VentureWire Alert identified a whole batch of layoffs. Online video company Heavy Inc.cut 14% of its staff, online wiki provider Wikia Inc. has laid off about than 10% of its staff in a “restructuring,” and other companies to announce layoffs in recent days include Hi5 Networks Inc., Pandora Media Inc., SearchMe Inc., Zillow.com, Zivity Inc., AdBrite Inc., Jive Software Inc., Redfin Corp., and Seesmic Inc. These companies are under pressure to reduce burn rates and preserve cash. The prospects of getting more are poor.

The pressure is being applied as Venture Capitalists are being pressured by their limited partners to conserve cash. These limited partners are in many cases forced to rethink their high risk investment strategy as their portfolios dwindle with the sinking of the stock markets. Hence they are hedging on their commitments to fund the VC’s, or in some extreme cases trying to recover previously committed funds. VCs have adopted a combat field position. Save the bleeding companies with a reasonable chance of survival, let the dying companies die, and let the walking wounded stay in pain. This philosophy was best articulated at a Sequoia Capital at a now well-documented meeting with all its portfolio companies on Oct. 7 to warn them that the “good times” were over.

This entry was posted on Friday, November 28th, 2008 at 7:37 pm and is filed under Outsourcing Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.