The RIF Heard 'Round The World: Jack Dorsey Blames AI...But Don't Fall For It

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The stated reason for the layoffs was artificial intelligence. Here is what Jack wrote in his memo to the team : “we're not making this decision because we're in trouble. our business is strong. gross profit continues to grow, we continue to serve more and more customers, and profitability is improving. but something has changed. we're already seeing that the intelligence tools we’re creating and using, paired with smaller and flatter teams, are enabling a new way of working which fundamentally changes what it means to build and run a company. and that's accelerating rapidly.” Given the recent attention to AI’s impact on the labor market, the media and online commentators immediately started using this story as an example of AI’s negative impact on humans. CNBC’s Diedra Boss wrote “This is a profitable, growing company cutting nearly half its workforce. If Jack Dorsey executes well post-cut, this becomes a template. 3 days ago everyone was calling the Citrini piece “science fiction”... now it’s hitting a little closer to home.” But this is the wrong take. And it didn’t take long for the internet to quickly realize that the AI “excuse” may just be a coverup for a poorly managed business. Will Slaughter explains : “ In 3 years from December 2019 to December 2022, Block $XYZ more than tripled its headcount from 3,900 to 12,500. Unwinding less than half an insane COVID overhiring binge has much more to do with Jack Dorsey’s managerial incompetence than whether AI is going to take your job.” In addition to this take, we can see that other software companies are run much leaner than Block. Austin Reif writes : “Robinhood has 2500 employees (market cap of $70b). Coinbase has 4500 employees (market cap $50b). Square (market cap $30b) just cut to 6000 employees. I wouldnt say this is all the sudden a symbol of AI transformation and leanness.” I agree with Austin. The most obvious comp to Square/Block is Stripe and they are more than 5x larger in market cap than Block, yet they only have 8,000 total employees. And don’t forget, Jack Dorsey is not exactly known for running lean organizations. Elon Musk bought Twitter and immediately fired about 80% of the employees. That company is doing better than ever according to various metrics. In response to the mismanagement allegations, Jack Dorsey acknowledged the business had been bloated (“ yes we over-hired during covid ”), so it seems fair to say these layoffs are more driven by a business that needed to get lean, rather than some important data point around AI layoffs. But guess what? The truth doesn’t matter anymore. People are going to take the stated reason as fact and you are going to see two big repercussions: the media is likely to keep pointing to this example when discussing the negative side effects of AI. More CEOs are going to use this moment as motivation to lay off a large portion of their employees and blame AI as the reason. Regarding the media, the doomsday predicting will continue and it will be a headwind for software stocks in the short-term. I believe that is the wrong conclusion for investors though. Block just announced a large reduction in force and the stock went up 20% in overnight trading. Investors should love a trend where companies can become more productive and profitable, but the existential risk of “will this company be around in 5 years?” has spooked many investors into a risk-off mentality. Regarding other CEOs, this will be the same playbook we saw during COVID. As soon as executives realized there was a boogeyman they could leverage to make hard decisions, they all rushed to exploit the opportunity. There is nothing better than telling your affected employees, and your concerned shareholders, that you are laying off a large portion of your staff because of the positive development of AI, rather than having to admit you mismanaged your business and over-hired. This copy cat approach to larger layoffs is not as concerning to me, because the businesses who engage in it were going to do the layoffs at some point anyways. My advice to investors is to pay extra attention to your portfolio over the next 12 months. There should be higher levels of volatility as the world tries to digest what is happening. Two things are going to be true: (1) AI will automate many jobs that were previously thought to be insulated from technology disruption, and (2) many companies are going to use this opportunity to create change inside their organizations. The AI layoffs are coming. It is going to happen faster and more broadly than people expect. But this is not what is happening at Block. Don’t let the mainstream conversation fool you into thinking otherwise. Hope you have a great end to your week. I will talk to everyone on Monday. - Anthony J. Pompliano Founder & CEO, Professional Capital Management Why the Wealthy Love Bitcoin Crashes Chris Kline is the COO & Co-Founder of Bitcoin IRA. In this conversation , we discuss how wealthy investors use retirement accounts to reduce taxes, why volatility can create opportunities like Roth conversions, and the mistakes people make by holding assets in the wrong account. We also cover bitcoin in retirement portfolios, estate planning strategies, and how macro conditions like inflation, deflation, and Fed policy may impact long-term asset allocation. Enjoy! Podcast Sponsors Figure – True DeFi Democratized Prime to earn ~9% APY! 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