The God delusion: How tech-bros mistook operating leverage for genius

During the boom, tech-heads spruiked their investment records while belittling traditional jobs. But the tides have turned. Instead of soaking in the schadenfreude, we should learn from their mistakes

“The God delusion” by DALL•E 2

It's been a rough couple of years for software companies. Tech stocks, which were propelled ever higher by low-interest rates and investor imagination, have been falling. Many employees at these firms have lost their jobs. According to TrueUp, a tech company tracker, the firms they watch have fired 447,000 workers in the past year—that's more than 1,200 sackings a day. Many laid-off workers can't find a new job as the number of software development job listings has dwindled.

But why has the market and economy punished these previous high-fliers so? The operating leverage in their business models, and their stakeholders' ignorance of its downside, are to blame. Those companies did well when interest rates were low, and the economy boomed. Investors praised their high-fixed, low-variable cost structures. Bosses ignored the pitfalls of leverage and hired like mad, not expecting the good times to end. But on the way down, workers and bosses have discovered tha…