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👋 Hi, this is Gergely with a 🔒 subscriber-only issue of the Pragmatic Engineer Newsletter. In every issue, I cover challenges at Big Tech and high-growth startups through the lens of engineering managers and senior engineers. Subscribe to get this newsletter every week 👇

The Scoop is a bonus series, covering patterns and trends I observe and hear about within Big Tech and at high-growth startups. Have a scoop to share? Send me a message!

I’ve been talking with people who went through the Dotcom Bust in 2001 to understand what it was like. The past week, several things happened that are oddly familiar stories to things that happened during that time as well. These are not nearly at the scale, or the frequency of 2001. Still, the below, unrelated topics, when lined up, paint a similar pattern to events also common during that time. In this issue we cover:

  1. What Facebook “turning up the heat” in performance management means. Zuck dropped a bomb on last week’s company-wide Q&A. The media has been speculating about what it all means. I’ve talked with close to a dozen current Facebook engineers and engineering managers to get the scoop. Exclusive details.

  2. What is “default alive” and why is it important for startups? Investors are pushing startups to be ‘default alive,’ and layoffs are more likely at startups not at this stage. But what is ‘default alive?’

  3. Klarna’s historic down-round and what its software engineers think of it. The company’s valuation is getting slashed from $45.6B to $6.5B. Lots of employees are losing money thanks to the strange RSU (restricted stock units) policy, as a result. I talked with employees to get the scoop on morale and their outlook on the company. 

  4. Peloton’s repricing of options. The company did something we’ve not seen much since the Dotcom bust of 2001: repriced options to retain more employees. Will this become more common?

  5. Dotcom bust vibes at BlockFi. Having raised $1.2B in funding and valued at $3B, BlockFi has been sold in a fire sale for a fraction of its funding amount.

  6. Sheltering during this upcoming, rough period. I talked with an engineer who used to work at Big Tech, then took a risk on a hyped startup and got burnt. Now they are looking for somewhere to sit out the coming storm. Is this a growing trend?

  7. Recruiter layoffs: canaries in the coalmine? Recruiters being laid off has picked up, especially in Europe. Could we be seeing an early signal of more layoffs and hiring freezes at more companies, ahead?

1. What Facebook “turning up the heat” in performance management means

On Thursday, 30th June, Meta held its usual weekly Q&A session. Employees ask questions over Facebook Workplace, upvote them, and then CEO Mark Zuckeberg answers a selection.

On this Q&A, Zuck shared that the company will cut its engineering hiring plans by 30% and, according to Reuters, he also shared:

“If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history.”

Later, Zuck answered another question and said something that would be heavily quoted across the media (emphasis mine):

“Realistically, there are probably a bunch of people at the company who shouldn’t be here. Part of my hope by raising expectations and having more aggressive goals, and just kind of turning up the heat a little bit, is that I think some of you might decide that this place isn’t for you, and that self-selection is okay with me.”

Over the following days, much of the media covering Facebook reported this sentence, focusing on the term “turning up the heat”. The Washington Examiner running an article titled Meta ‘turning up the heat’ to weed out employees who fall short of goals, or the Daily Mail running with the incredibly long headline; ‘Mark Zuckerberg gets tough on Meta workers for the first time and vows to ‘weed out a bunch of people who shouldn’t be here’ as company slashes hiring and braces for economic turndown’.

I talked with software engineers and engineering managers at the company to figure out what is really happening, from those on the ground. I talked to nearly a dozen people working at the company, and their take is quite different from what you’d read in the mainstream media’s reports. Here’s what they told me:

“The media has over-blown this one sentence fragment.” Everyone I talked with told me that they feel the media is doing what is common: take a sentence out of context, and zoom in on it. In this case, that sentence was “turning up the heat”.

People told me there’s a lot of context, Zuck was talking questions live and was speaking in the moment, there’s history being referred to on the Adjusted Expectations program. Let me unpack some of this nuance I gathered below. As a reminder, in this publication I focus mostly on software engineers and engineering managers and zoom in on details important to this group – this is the case with the below details as well.

“The heat has always been on.” This is what a current senior engineer shared. Performance management has never been a walk in the park. I go into plenty of detail about Meta’s performance review process in Inside Facebook’s Engineering Culture: Part 2, where I also write about the “Meets Most” risk:

“The risk of meeting “only” most expectations is real. Facebook is a culture of high performance and while at many places meeting “most” expectations is acceptable, at Facebook getting MM is a warning. Every year, roughly 10-15% of the workforce at the E3-E5 levels get MM, according to managers at Facebook I’ve talked with. (…)

Getting two MM ratings in a row results in the employee being put into a PIP, a Performance Improvement Plan.”

Let’s see what the next PSC brings.” PSC stands for Performance Summary Cycle. Several other engineers have shared the pragmatic view that there’s little to worry about until the next PSC. Meta used to run PSCs every 6 months, so one would not be due on that cadence. However, as covered in Inside Facebook’s Engineering Culture, this cycle has been pushed out to once a year, starting from this year for the reasons I cover in Part 1 of the Facebook deep dive.

Given the next PSC is due only next January, plenty of things can change before then: the economy, the stock market, Meta’s revenue, and so on.

“Internally, there are two groups on the ‘extreme’ sides.” Zuck’s comments do have several people in engineering talking about them. Of those who are louder about their views, I’ve found two camps:

  1. “Good! This is the Zuck I like to see! My colleagues have been slacking off: it’s about time to get to work!” 

  2. “Are you kidding me? I am working like crazy, the stock and my compensation is down, and NOW you tell me to work even harder? I’m upset!”

I’m told most people feel #1 is more prominent among people who take a side. Everyone I talked to with strong views thought it’s actually good Zuck made it clear how he expects hard work.

However, the majority of Meta engineers are not making a big deal out of this.

“I like that Zuck is straightforward.” I heard this several times. Many engineers appreciate that Zuck did not resort to corporate-style fluffy talk, but spoke his mind and didn’t dilute what he had to say.

Most people are still in “wait and see” mode. When talking with managers, they told me they got a pulse check on their teams and the majority of folks aren’t jumping to conclusions. Managers also don’t have any additional details, and there is nothing specific coming from what Zuck said. Plus, PSC is quite a while away.

On the worry that PSC will get tougher. A few engineers told me they are worried that what might follow Zuck’s comments, is the PSC process becoming stricter. For example, a higher percentage of people could get an MM, or there could be some forced stack ranking.

I ran these fears by managers with long tenure at Facebook, who all dismissed them. They told me that while the PSC process can be changed; if this was to happen, they’d expect transparency for the engineering population. As a long-time engineering manager put it:

“I’d definitely consider it a fail if there was some actual change that only became obvious at the time of PSC – I think people would legitimately ask why wasn’t it announced earlier.

If there is going to be any actual material change – it should be announced shortly, the very least to managers.”

Zuck has had enough of “why can’t we work less and be paid more” types of questions. One important piece of context missing from all the media coverage I read – but which was echoed by several people I talked with – is how Zuck’s comment that “there are probably a bunch of people at the company who shouldn’t be here” was not made in a vacuum.

For one, Zuck has admirably restrained from answering questions like “why can’t we work 4 days a week going forward,” for the past couple of years.

Also, Meta put in place an Adjusted Expectations starting in 2020, which allowed people to keep their jobs while performing below what was expected of them. I go into more detail on this program in Inside Facebook’s Engineering Culture in the ‘COVID and the Adjusted Expectations program’ section. The program is still active as of now.

During the Q&A, Zuck mentioned many people who would normally be looking for a job elsewhere, are not doing so because the current job climate makes it risky to change employers.

A few people shared they thought Zuck meant that without the Adjusted Expectations program, many people would no longer be at Meta, and he meant “there are probably a bunch of people at the company who wouldn’t be here [without the Adjusted Expectations program.]” Some speculated that perhaps the Adjusted Expectations program will end in 2022, and not be an option in 2023 any more.

My take is that Zuck said out loud what many CEOs keep to themselves. We have rapidly gone from the most-heated job market less than a year ago, to the tech boom being over. Many people are still in denial about how radically the tech job market has changed. As I write in The Scoop #16:

“In tech, we’ve seen a decade of nothing but growth on the stock markets, and of many private companies following this growth trajectory. I regularly talk with software engineers who feel confused and angry about this situation.

Many people have never seen a downturn in tech like it. This is particularly true for people who have joined the industry since 2009, when the last major crash ended.”

We’re seeing layoffs upon layoffs at venture-funded companies, which were some of the hottest places to apply to in 2021. Revenue growth will be much slower at most companies in 2022 than it was last year or in 2020.

I talked with another founder at a Series B startup who sent a similar message to his company. They told people that going forward, there will be more work to do, with fewer colleagues. They offered two months’ salary to those who leave in the next week, and a higher workload for those who stay.

In this case, this CEO needs to cut operating expenses by 15-20%. They are hoping to do this through attrition, but if not enough people leave, there will be layoffs. There are no backfills, and the workload will stay as is. This is dictated by slowing business prospects and their balance sheet; it’s still strong, but the CEO wants to further extend the runway.

In this gloomy environment, it should not be taken for granted that companies do not do layoffs. Although layoffs have a terrible impact on company culture – as I cover in Preparing for Layoffs in Tech – the reality is they do significantly reduce costs. Also, the stigma is gone from layoffs, as there are so many companies doing them. Another layoff only hits headlines if it’s at a well-known company.

Meta – formerly Facebook – has never done layoffs in the 18-year history of the company and I expect this will remain the case. However, in the current economic climate, Zuck is right to get frustrated when people use the Q&A to ask questions along the lines of “we want more money”. 

In section “6. Sheltering during this upcoming, rough period” I’ll reflect more on why I think it’s relatable that Zuck is frustrated, and how Meta is a “safe shelter” option for engineers who have been burnt at hyped startups that are running out of money.

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