Ailing Economy Nibbling at Tech Jobs

Eric Best, CEO, Mercent Corp.

The Seattle-area tech sector is feeling the pinch of layoffs as the nation’s economy staggers, with various local employers laying off scores of workers.

Over the past several weeks, prominent startups such as Redfin, Zillow, WildTangent, Daptiv, Avelle and Intrepid Learning Solutions have cut staff, and more companies are expected to follow.

For many in the local tech sector, the succession of job cuts carries unsettling echoes of the dot-com bust, when the region lost thousands of technology jobs. But the industry, chastened by the excesses of the tech bubble era, is in many ways smaller and more frugal today than it was a decade ago. And it’s that scaled-down approach that some believe can help the industry weather the downturn gripping the economy now.

“You don’t need $10 million to advertise your way to greatness,” said Eric Best, CEO of Mercent Corp., a Seattle startup that helps merchants sell products on online shopping sites. “The result is, technology companies are better situated this time.”

For anyone working at a money-losing startup, the recent layoffs are undoubtedly a scary trend. The last time wide-scale cutbacks started in the state’s tech industry, they never seemed to end. More than 20,000 technology workers lost jobs in the state from 2000 to 2004 — a meltdown that is still fresh in the minds of many who lived through it.

But there are key differences between the situation today and that earlier era. Most startups these days don’t have access to the same amount of capital they did in 1999 and 2000, at the height of the tech bubble. And many have been more prudent about their spending and hiring. Gone are the TV advertising campaigns, elaborate product-launch parties and fancy office spaces that housed hundreds of workers.

That kind of excess has been largely replaced by a more thrifty mentality better suited to money-losing companies.

Best, who sold two companies during the dot-com boom, said he recalls spending thousands of dollars during that era taking staff to technology trade shows to create brand awareness. These days, his Seattle-based company Mercent tries to justify every expense in terms of actual deals and customers generated.

Still, Best is taking steps to preserve cash in the current economy. His company recently renegotiated its data center and public relations contracts. He also cut six jobs from his staff of 50 last month.

“In case that things go much worse than anticipated next year, we’ve provided ourselves with a slightly larger cushion,” he said.

Other startups are trimming their payrolls.

Redmond online-game company WildTangent cut an entire business unit — its nearly decade-old game development studio (Alex St. John also stepped down as CEO, but he remains chairman).

WildTangent spokesman Sean Sundwall said the studio, which produced just three games in the past two years, was no longer critical to WildTangent’s business, which is selling online games from an array of developers and placing ads around them.

“In an environment where resources are constrained, you have to look at the businesses that will give you the best return in the shortest period of time,” Sundwall said.

Bruce Helberg, Northwest market manager at Silicon Valley Bank, which works with many Seattle-area startups, said companies are looking at their current funding and trying to find ways to extend it.

“Cash is king for these companies,” Helberg said. Their goal now is “reducing expenses and trying to extend their runway as long as they can to make sure they have enough cash to get through this.”

WildTangent, Redfin, Mercent, Avelle and Intrepid Learning Solutions, all of which have laid off employees in recent weeks, are portfolio companies of Madrona Venture Group, of Seattle, one of several West Coast venture capital firms that have warned startups about tougher times ahead. Madrona on Oct. 21 held a closed-door meeting with its CEOs on strategies for survival in the current economy.

As of Nov. 4, technology industry blog TechCrunch had compiled a list of more than 42,000 layoffs in the sector nationwide since late August. Many of those layoffs occurred at large tech companies — such as eBay, Dell, Yahoo and Xerox — though there were many small startups on the list.

Local layoffs aren’t limited to web and software companies. Last week, pharmaceutical giant Merck announced it will shut down its facility in Seattle’s South Lake Union neighborhood — a unit that was once an independent company, Rosetta Inpharmatics, before

Merck & Co. Inc. bought it in 2001. Some of the 300 workers there will be offered positions in Boston, but the fate of the rest is unclear.

While most startup companies are taking a close look at company expenses, not all are reducing the size of their staffs. Dan Shapiro, chief executive of Seattle-based Ontela, said his company is cautiously hiring. The mobile application provider has one open developer position and probably will be adding two more.

“We made some decisions on expenditures, but what we really need is great people,” said Shapiro, whose company employs about 35. “We are growing in staff, but we are being very careful on who we hire.”

Shapiro said local layoffs have actually made the job of recruiting a lot harder. Each job opening now attracts a bigger influx of résumés, he said, which require more time to sift through to identify the best candidates.