Coinbase’s AI Layoffs Are Bigger Than Coinbase
The real story is not just cost-cutting. It is what AI now makes possible inside the operating model.
Hi there,
There is a mood I see on social media at the moment. You can see it in the defensive reactions to Coinbase’s 14% headcount reduction yesterday.
It’s an attitude which I’m calling, the desperation for AI to not be real.
The CEO of Coinbase, Brian Armstrong, announced layoffs of 14% of Coinbase employees. It’s not pleasant for those impacted. Hopefully they are able to find something suitable and soon.
In the X post below, he outlined some of his thinking. I have not seen this level of attempted pushback to an AI announcement. Even the Block AI layoff announcements that were made a while back did not get this level of shade.
Why simple stories about AI change don’t work
As humans, we love to tell simple stories. CEOs of publicly listed companies have incentives to tell simple stories that are easy for investors to understand. That doesn’t mean they’re wrong. It doesn’t mean that when they talk about how they want to change their operating model, that they’re not serious.
One of the more simplistic stories going around today is this is all just another case of company underperformance and over-hiring in the low interest rate era. They’re jumping onto using AI just to cut costs and look better.
I think the story is getting played out by events in the real world as they unfold. When you take a step back and actually think about how things work, you know that many different things can be true at the same time.
The simple story is often glossing over lots of other components which need to be at least considered and evaluated on an equal footing with your preferred simple story before you really start drawing conclusions about what’s really going on.
When I read what Brian Armstrong is saying, what I am hearing is a lot of focus on centring the people strategy around people who are already or can use AI to do things better, faster and cheaper.
It also reads as if they’re doing quite serious experimentation with exactly what their future operating model and organisation chart is going to look like. That’s exactly what you want to be doing right now.
One aspect of his post that has had a lot of pushback is the no “pure manager” comment. I think he is being reasonable. Why? As I’ve written about many times over the last year, the operating model of the future is moving away from human coordination to AI agent coordination.
You need your management layer to be technical. They should take advantage of, guide, and apply their taste and experience to the work being done. They also need to curate and coach the remaining human workforce.
This means people who just want to do their one-on-ones, send emails and sit in on endless meetings don’t really have much of a role to play. When CEOs are merging PRs, we should be expecting everyone to be much more hands-on.
The other part of the post which is getting a lot of pushback is the comment around non-technical people now vibe coding things to production. Coinbase is a publicly listed company. It is also regulated.
I would expect what is happening under the hood to be much more controlled: a non-technical person can create a PR, but it only ships after CI/CD, testing, security and code review gates.
Brian Armstrong has already responded to some of the comments with this:
Why do people want to put AI back in the box?
People don’t like change. One of the central lessons of change management is that if people don’t feel like they have a clear sense of where they fit in and how they benefit from a change, they’re going to fight it.
I can’t help but notice that a lot of people still have a reflexive desire to minimise what AI is changing. Any news item or announcement or improvement in the state of the capability of these tools is met with so much negativity.
The reality is that our world moves forward through the actions of live players. The CEOs of public companies have chosen primarily to lean into AI and use it for work and for achieving their other capital markets goals.
In the game they’re playing, it doesn’t really matter what people on the timeline think. They are choosing to take action. This is based on up to dozens of underlying reasons or results from their AI experiments.
Many public company CEOs, especially founder CEOs, have realised something. They need an AI story. This story must align with how they use AI. It should show how AI makes things better, faster, and cheaper.
If they don’t have a story that aligns to how they are using AI to do things better, faster and cheaper, their access to and support from the capital markets is at risk.
Public company restructures rarely happen for no reason at all. A restructure like this would almost certainly have been tested, planned, workshopped, brought up at board level, and thought through carefully.
This is just the latest instalment in something that we’re going to see more and more. What I find interesting is that there’s even an argument to be made that the 14% headcount cut versus Block’s 40% headcount cut is perceived as not aggressive enough by the street.
What do people strongly rejecting this framing and claiming that it’s the end of Coinbase think is going to play out over the next few years?
There is still a need for skilled, capable people. The leverage of AI tools means they can do more things. They can do them better, faster, and cheaper. It also means that anyone not pulling their weight is more exposed.
There are definitely some potential downside risks here. Things need to be managed and mitigated. Every business can’t just cut without making sure critical tasks are transferred, or automated, or removed from the operating model.
What I would caution is thinking you can go slow and implement some form of gradual and staggered incremental change. You need to start off with the experimentation. Learn from mistakes. Bring people along on the journey.
At some point, you are going to hit a wall. I think this is where some of the stories that experts tell around new jobs created and old jobs destroyed start to come off the rails.
Many big companies likely still have excess headcount, but AI changes the calculation around what can be automated, simplified, transferred, or removed. You might be telling a story that AI isn’t the reason for the layoffs, it’s just excess hiring from the pandemic times. If you take into account AI’s capability to improve efficiency further, even more excess headcount could realistically be cut.
This is why the simple story is a real challenge. We can’t undo what is already happening in a hyper-competitive marketplace. If we aren’t thinking about how to radically reorganise and redesign our operating model to take the maximum leverage from AI, we’re at risk.
We also need to leverage our skilled and experienced people. They bring taste, curation, relationships, knowledge, and expertise. There is still a transition period. A lot of these people are not who you want to be including in your “AI layoffs”.
Below, I break down Armstrong’s memo line by line and translate it into operating-model questions and actions for your business.
How should I think about this in my business?
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