Multiple OT cybersecurity vendors have laid off employees in May and June. The largest layoffs came from two of the largest companies, Dragos and Nozomi. Many smaller vendors have laid off smaller numbers. Why? 

The public answer is a lengthening sales cycle. This is a nice way of saying potential customers are postponing expected purchases. They either lost budget to make the purchase or are displaying caution. They still may buy in the future when they feel more confident with their financial situation.

This is a reasonable answer for self funded or seed round smaller companies. I can write from experience that it is painful and unsustainable to reach into your own pocket each payroll for 5 to 10 talented people who aren’t bringing in any revenue due a hiatus or delay in a large project. 

It is also a reasonable answer for a company who has little VC funding left. Make the cuts to lengthen the runaway until the OT security budgets loosen up, numbers improve, and valuations are trending up.

These two cases have little choice. Wait too long and gets very ugly. 

The more interesting case are the larger companies that have recently raised 100’s of millions in VC funding.  

A common business recommendation is to cut early and deep when a major downturn is upon you. Deep so you don’t have to have multiple layoffs. Early so you maximize the benefit to the company of a move the company will eventually make. Early can be better for the employee as well if some of those saved funds go into the severance plan. 

The layoffs make sense with this rationale. However it does raise some questions and points:

  • The financial rationale for layoffs only makes sense if this is thought to be a prolonged economic issue. Dragos said they did not meet their 2023 Q1 goals. Given the layoff, it’s likely they aren’t meeting their Q2 goals. This is a sunk cost. Do the layoffs this mean they are forecasting they won’t meet Q3, Q4 and onward goals? If the “lengthening sales cycle” is expected to end this year, and these are all people the company wants to keep, financially it would be better to keep them if there is enough capital to weather the downturn.
  • Is this an opportunity to restructure the work force and correct some hiring decisions? Is this an economic+ decision? The large companies have been hiring and growing at fast rates. Every week for years now you see a new LinkedIn notice of someone joining these companies. Even after these layoffs they are much larger than two years ago. The speed of ramping up all areas and the changing mix of product / services and sales / channels surely has the balance in need of adjustment. 
  • Not all new employees are a fit for the company or the position they are hired for. Hiring mistakes happen. The more hiring, the more mistakes. It’s hard to do this significant restructuring when you are hiring quickly. The economic caused cutbacks is the time to do it.

As the OT security market grows we will see corresponding larger layoffs during economic downturns. Leaders have tough decisions filled with uncertainty and pressure. Those who lost their job face a variety of economic and psychologic challenges. A bit of grace towards all is welcome.

One last thought, the asset owners are delaying purchases due to budget pressure. I’ve sat in on many discussions where experts in our field opine that security is immune to this budget pressure because security is so critical. Neither IT or OT security is immune to economic impacts. This can extend to OT security staff. The OT security staff is still small so most of what we are seeing with asset owners is delays in hiring rather than lay offs. This too will change as OT security staffs increase.