M&Ms: Diversify Out

Why now is a good time to need big tech companies a little less.

There has never been a better time to consider diversifying out of needing to work at a big tech company than now.

First, big tech companies always needed fewer people compared to past industries, but they might soon need even fewer people. I was reminded of this reality in a clip where Peter Thiel roasts Google & Big Tech*. Paraphrasing the host who says: "140 characters are nice, but they don't employ a lot of people compared to GM in its heyday."*

But Twitter now supports more than 140 characters and needs even fewer people to run. Jason Calacanis, who was there, said Twitter laid off 80% of its workforce (not 75% as was initially reported) after Elon Musk acquired it. We can argue that Twitter's ads business is declining all day, but the tech is mostly fine. And it wasn't just Twitter. Almost every big tech company has had record layoffs in the last two years, and in every one of them, the tech is mostly doing just fine.

I called this out as a warning in 2022. I asked, please don’t shoot the messenger… they shot anyway.

But these layoffs at these big firms were all baked in before generative AI was even in their calculus.

Large language models and generative AI, I'd confidently say, make 80% of what software engineers do 80% faster. I know because I use the stuff to build, and not too long ago, I used to manage a lot of engineers, too.

So, what does all that mean for big companies and their expectations out of their software engineers? I am no matha-magician, but what's coming to these big companies looks a lot like asking fewer people to do more things.

Second, more competition is coming. The barrier to entry in business in terms of tech has decreased significantly, even before AI. In November 2022, in my newsletter "The End of The Tech Moats," I wrote:

"The hard truth is that much of what made Big Tech untouchable before, like building things for scale, is available to many now. And those technical challenges are far cheaper to pull off and with far fewer people needed because we can build on the shoulders of giants. [libraries, frameworks, open source, infrastructure, cloud, and now AI, etc.]

Of course, hiring software engineers who understand distributed systems still costs big bucks, but you can find them today [and you need fewer of them].

Back in the early 2010s, those people only existed in Big Tech. It took us two years at Jet in 2015 to build an eCommerce system that supported 10 million plus customers and a billion a year in sales. It had taken others over a decade to do the same before us."

So, a lower barrier to entry to get to scale means more competition for these big companies.

More competition in the tech industry will likely mean lowered margins for big companies. And more widely available and commoditized skill sets mean lower pay for software engineers. This doesn't even factor in the impacts of remote work, the fact that a company can hire from anywhere globally, and so on.

But lower margins for these big companies in the future almost certainly mean more pressure on the people there and fewer perks.

Third, the pressure and the layoffs at these big companies compound. People forget that bad things compound, too.

The likelihood that some firms can and might be disrupted by smaller, nimbler firms that need even fewer people is now much higher.

To get an idea of what hiring software engineers looks like, for a top tech firm, they sift through maybe 400 qualified people, screen down to 50, bring 10 for on-site/interview, and hire 1-2. That was our process at Jet.

This is all to say that the people working at these tech companies are capable. So when they fire and take away perks, it almost always sends a message to the remaining talent to leave, too. These moves often push away some of the best people, compounding their problems. Smart people rarely hang out in sinking ships. Big Tech's ability to hang on to that talent and acquihire talent has been a huge reason for their chokehold on the industry and the tech moats of the past.

As their top talent leaves, the odds that talent might start competing things increase, and the odds they can hang on to their edge decreases.

Don't get me wrong, I doubt the likes of Amazon, Microsoft, or Apple will get disrupted head-on in their core business, and that’s because their advantage is more than just tech. But we are already seeing a great decentralization of Big Tech, it could be a slow decline by a thousand cuts.

To summarize, first, we've got an industry that already needs fewer people than most. And now, AI is coming into the picture.

Second, a lower barrier to entry and more competition in various niches seems inevitable. Third, layoffs have already triggered some of the best talent to re-think being in a big company, and you can start to see why I am so pessimistic about the future of big tech companies. The decline may take a long time. After all, even IBM is still standing.

But it is a paradox that I am pessimistic about big tech companies, but I am very optimistic about tech skills continuing to be valuable and useful. It is just where those tech skills might be most useful may not be in the places they used to be valued most before.

You see, I believe the Cambrian Explosion of software is coming. Up until now, making software was expensive, complex, and difficult. That is why we got all this centralization into these huge companies. That's why we had tech moats.

Now, with AI, tons of software will be made. More crap software might get to money than ever before.

But that could be a very different profile of a company that needs a software engineer to clean up, extend, or do more with that software that makes money than we had in the past.

This is why so many smart people in tech that I know are diversifying out of needing a big tech company for their livelihood. This does not mean you need to quit your tech job tomorrow. They still pay well:

A very recent tweet highlighting just how well Big Tech is still paying.

But it does mean that you should get yourself into a position where if they let you go, or there are fewer jobs in big tech companies in the future, you'll be ok.

Over the last two years, I have seen many people diversify out of needing a big tech company.

Just recently, I tweeted about Amazon Engeener Steve Hyunh doing this:

But I personally know a bunch of Amazon engineers in the Small Bets community alone that have done this. I am a business partner with one of them, Daniel Vassallo. Another one, Kunal Modi, I had beers with on Friday.

So what are these people diversifying out of needing a big company doing?

Many are diversifying out into media. Two former engineers I've seen on this journey doing incredibly well are Alex Xu and Gergely Orosz, with their paid newsletters and books. But more recently, my friend Franco Fernando is doing it with his newsletter:

The Polymathic Engineer

His consistency to chip away at growth over the last two years has been inspiring.

But media is not the only way. For some small-time developers like Tony Dinh:

My solopreneur story: zero to $45K/mo in 2 years

Who quit a tech company job, it meant building multiple apps and talking about them publicly on places like Twitter. And others like Daniel Nguyen and Dmytro Krasun are on the wings, using a similar model.

The recipe for success for many of these folks is to go to a place with algorithms and network effects, give away their expertise, and talk about what they are doing. This drives attention and traffic to their products. The reach, combined with solid products that people want, is the secret sauce to make it on your own.

But what if no matter what you do, you can't crack the social game, you can't get the algorithms to favor you? How, then, can you diversify?

Well, one way is to ride the organic reach of platforms with people searching for things on them. My friends Greg Lim and Hassan Osman rely on platforms like Udemy and Amazon KDP to send sales to their books and courses. They put minimal effort into social media. And any social media effort is a bonus on top of an already working model that brings in income for them.

But just because you may be in a big tech company, I'd like to remind you not to sleep on traditional businesses. There is no chance AI will disrupt real estate anytime soon. People need a place to sleep and live, so rental properties will keep working. This is how I started diversifying out of needing a big tech company for my livelihood.

But it's not just rental properties; Codie Sanchez made serious money with laundrymats and Nick Huber with storage facilities. Personally, I find those businesses to be a little too much effort for me. And I could see them pulling me too far from my strengths in general. As I said, tech skills I still think will continue to be valuable. But rental real estate, a few hours a week max, is the right level of low effort, safety, diversity, and income for me to justify investing all my surplus into it.

Diversifying out of needing a big tech company is a balance of resources, like time, effort, and capital. Depending on which resources you can put to work more, this will likely dictate your best path out.

But in my opinion, the best path of all might be to try all of it. Increase your odds of success as much as possible. That's what I did.

But I also know that using this whole Creator Economy thing to diversify out has almost become a cliche. After all, how much room is there still, and how big can it get?

According to Goldman Sachs, the creator economy could double over the next three years, from a quarter trillion dollars to half a trillion. Now I get it; compared to the big tech companies, this sounds like peanuts, but that's just the next three years. All of this is still in its infancy.

In my experience, this creator economy thing lends itself well to tech-savvy people. It's a natural option to begin to diversify.

As evidence of its infancy, from something I am familiar with, If you search for viral tweets before 2018, you'll see that almost anyone who went viral was a celebrity, prominent politician, or a company. The idea that individuals can carve out a little corner of the internet for themselves is still new.

So, the bad news is big tech companies exist in a place where they are forced to become increasingly hostile to their people. But the good news is, it has never been easier to diversify out of needing them.

And it goes without saying that diversifying out of needing a big company is going to be a little work. Nobody will give you something for nothing. But it might turn out to be the best decision you make, given what may be coming for those companies.

*The clip: Thiel: Google has $50B, doesn't innovate

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A Small Promo from Me:

Ed Latimore has inspired me for a long time, since my days as a lurker on Twitter in 2020.

Ed Latimore is inspiring because he is a man of many talents - he's got a knack for mastering diverse skills, from academics to athletics and everything in between. His new ebook breaks down the universal methods he's developed over the years for effective learning.

Many of you know that I am an immigrant who came up from poverty through tech, and now I'm going after entrepreneurship. But this is a big reason I am drawn to Ed's content and wisdom. It's been relatable and useful to me the entire time. Ed came up by becoming amazing at mastering things; his unusual combination of a physics degree, his Spanish fluency, his past as a championship boxer, his mastery of social media, and getting attention are just a few examples.

Very few people can claim that range of mastery.

Ed's core approach boils down to grasping fundamentals, recognizing that teachers and books alone can't replace true understanding, and deeply analyzing problems rather than jumping to solutions.

While Ed and I have followed different paths, I believe that anyone looking to excel - whether in starting a business, learning to code, or grasping abstract concepts - can benefit immensely from adopting his learning principles. They promote simplicity over complexity and quality knowledge rather than just information volume. If you want to build better products, grow your career, raise capital, or just broaden your mind, Ed's got you covered.

Needless to say, I am a huge fan of Ed's. When he asked if I would share his free eBook with my readers, "The Five Pillars of Learning Mastery," I was happy to dig into it and recommend it to you:

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Three Memes for the Laughs:

The spirit of this meme is on point.

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Climate protesters threw soup on the Mona Lisa this week.

What an unfortunate way to protest and possibly lose supporters in the process, too.

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This is one way to do it.

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Thank you for reading!

—Louie

P.S. You can reply directly to this email; I will read it and try to reply to everyone.