Second Wave of Tech Layoffs Shifts Startup Landscape for Workers

The latest round of layoffs sweeping through the tech industry has significantly impacted the labor market, particularly for startups. Following job cuts at major companies like Google and Amazon in 2024-25, skilled professionals are entering the workforce in large numbers. This influx creates both opportunities and challenges for startups as they navigate a changing landscape.

With many professionals suddenly available, startups are now in a competitive race for talent that was previously out of reach. Founders are faced with the dual challenge of attracting skilled workers while managing expectations from candidates who are increasingly demanding flexibility and clear career growth paths. Job searches have lengthened, with many candidates now spending six to seven months seeking new roles, particularly those requiring visa support or relocation.

In response to this uncertainty, a notable rise in freelancing and side projects has emerged. According to Bankrate, approximately 36% of American adults are now engaged in side gigs, with over half starting these ventures in the past two years. While many did not initially plan to freelance, the lack of traditional job opportunities has pushed them towards this alternative. Interestingly, internal data indicates that those who have transitioned to freelancing often report higher confidence and job satisfaction compared to their previous corporate roles.

Despite the media attention on overemployment—the phenomenon of holding two jobs—this trend affects a mere 5% of the workforce, according to the Federal Reserve Bank of St. Louis. The more prevalent trend is a mix of contract roles and short-term projects, enabling startups to hire high-caliber talent for fractional roles that would have been unaffordable in previous years.

Redefining Team Structures

Labor costs have always posed a significant challenge for startups, prompting many founders to streamline their teams while simultaneously increasing employee productivity. Remarkable examples illustrate this trend: Midjourney boasts an annual recurring revenue (ARR) of approximately $200 million with just 11 staff members, while Cursor has achieved around $100 million in revenue with a team of 15 to 20.

Data from Carta shows that the average seed-stage team in the consumer and fintech sectors has nearly halved since 2022. This lean approach is not limited to early-stage companies; around 90% of tech executives indicate they are open to hiring freelancers during peak workloads, with more than 28% already integrating freelancers into their daily operations. These developments highlight the effectiveness of smaller, focused teams supplemented by project-based workers, allowing companies to pivot quickly and operate more efficiently.

For workers, the current environment may present a more stable option in startups compared to mid-sized firms, which are often cutting jobs. Startups are typically transparent about their risks but can offer performance-based incentives, such as equity or potential long-term positions. A short-term contract may lead to a more significant commitment in the future.

Conversely, founders are now positioned to attract top engineers, designers, and operators under terms that were previously unattainable. This market shift necessitates a revised approach to compensation flexibility, project-based roles, and expedited hiring processes.

Adapting to New Realities

The recent wave of layoffs has reshaped expectations and the balance of supply and demand within the job market. Workers are increasingly blending traditional employment with freelance opportunities, while startups are proving that small, agile teams can outperform larger competitors.

Adaptability has emerged as the key advantage for both workers and companies. As the landscape continues to evolve, those who can remain nimble are likely to thrive.

Pavel Shynkarenko, founder and CEO of Mellow, is a veteran entrepreneur with over 20 years of experience. He is recognized as a pioneer in the freelance economy, having launched his first HR tech company, Solar Staff, in 2014. The company reported revenues exceeding $10 million for 2022 and 2023. In early 2024, in response to growing demand for specialized solutions in contractor engagement, Solar Staff transitioned to Mellow, achieving a monthly recurring revenue (MRR) of $1 million.

As the tech industry continues to adapt, the implications for both workers and startups are significant, reshaping the future of work in profound ways.