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RIFfed

Author: Micael E. Duffy
February, 2016 Issue
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Michael E. Duffy
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Author: Micael E. Duffy
February, 2016 Issue

I’m fortunate I have a skill set that (I think) remains in demand.

From the stories you read in the paper, people in technology are in high demand. Every company seems to be hiring, and technology moguls just seem to be getting richer. But it’s not all rainbows and unicorns. Take me, for instance: I went into work on Monday of Christmas week and found I was part of a reduction in force (RIF) which affected our entire engineering department: two software developers, four mechanical engineers, three electrical engineers, two soft goods designers, two engineering technicians, the partridge in a pear tree and me, the chief software architect.

How can a company close its engineering department? Obviously, it’s not something done lightly. My erstwhile company, AlterG, has a fine little business, with revenues growing year on year. Of course, revenues are only part of the story. Margins—the difference between what it costs to make something and what you’re paid for it—are what determine the long-term health of a business. In the software-only businesses I’ve worked in before, margins are usually extremely good. Sure, the first copy of an application might cost $1 million, but every copy after that is essentially free. And not every application costs $1 million to create—prices dropped dramatically over the last 15 years, which has let individuals create applications with huge followings.

But the engineering of physical goods, unlike whipping up the next smartphone app, takes investment in prototypes, industrial design, tooling, production lines, parts inventory and all the rest. That makes it relatively expensive to create new products like the Anti-Gravity Treadmill and the Bionic Leg, the two rehabilitation products currently sold by my former company. The sad truth is that we were spending more on product development than we could afford, based on our margins. Our existing products sell well and make money—and any new product should do the same. Sadly, things weren’t looking like that would be the case. So, the company decided it could afford to do without an expensive new product development effort for the time being and instead recover from a bit of excess spending.

Having been a C-level executive earlier in my career, I totally understand why the decision needed to be made—and, in fact, it’s the same decision I would’ve made. One can argue about how those circumstances came about, but at some point, you make the decisions you have to make. As a product development guy, I’m disappointed and sad that something into which I’ve invested a couple of years of effort may never see the light of day. Certainly, it’s unlikely that any of the original team will return to work on it, but the designs, code and everything else are all archived, waiting for someday. The risk is that, by the time the company can afford to develop this product, the market may make it irrelevant. And you can’t underestimate the loss of institutional product knowledge that goes along with the loss of the people who created the product line. It’s more than a little depressing.

Now I begin the process of finding a new job. I’m updating my résumé, networking with my existing contacts, freshening my LinkedIn page (just search for Michael Duffy if you’re interested) and searching on relevant job-related websites like dice.com, careerbuilder.com, indeed.com and others. I hope the hype about the abundance of opportunities in tech is true and that, by the time you read this in late January, I’ll be back at work. I’ll let you know how it works out.

To its credit, AlterG gave its engineering refugees reasonable severance packages, which it could do because the company is fundamentally healthy (once you stop throwing money into new product development). That’s much better than coming to work one day and discovering you’re out of a job because the company went out of business. I’m fortunate I have a skill set that (I think) remains in demand, and that became broader and deeper during the time I’ve spent at AlterG.

Like many employees of small, venture-funded tech companies, I’ve received stock options along the way (the option to purchase a share of stock at a fixed price). Because I’ve been let go, I have 90 days to decide whether to exercise some or all of those options (i.e., shelling out cold cash for the shares they represent). Those shares represent an opportunity to derive some—possibly significant— future value from the time I spent with the company. On the other hand, the shares may never be worth anything at all.

In most cases, a company must be acquired or go public for shares to be worth the price. In those cases, arrangements usually let employees simultaneously exercise their options and sell the resulting stock (thus avoiding the cash outlay I’m facing by deducting the option cost of the share from the market price of the share). A big increase in the value of the company is most likely to come from a new product or significant innovation. But that’s unlikely to happen until the company once more ramps up its product development efforts. You can understand my dilemma.

I’ve made the bet of working for a company where I can get a piece of the action through equity or options several times in my career. It’s paid off in the past, but it’s also a risk, and being RIFfed brings that risk into stark relief. But I’m pretty sure I’ll be looking for those odds again in my next job.

Am I crazy? Tell me what you think at mduffy@northbaybiz.com.

 

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