Scale AI interim CEO Jason Droege sent an email to staff saying that it conducted major layoffs because it overhired for its GenAI unit.
Scale AI reduced its 1,400-person workforce by 14% on Wednesday in cuts that affected 200 employees in its generative AI division, which helps Big Tech clients like Google and Meta improve their AI chatbots.
Scale AI ramped up capacity "too quickly over the past year" on GenAI, leaving other divisions, like its public sector units, "under-resourced," Droege wrote in the email, which was viewed by Business Insider.
"While that felt like the right decision at the time, it's clear this approach created inefficiencies and redundancies," Droege wrote. "We created too many layers, excessive bureaucracy, and unhelpful confusion about the team's mission."
The email also confirmed that Scale AI is not profitable, saying that the startup has an ongoing "drive towards profitability." As part of that drive, Scale AI will decline GenAI projects that are low revenue drivers or have low growth potential, Droege's email says.
After publication, Scale AI spokesperson Joe Osborne disputed that Droege said the startup is unprofitable. When asked to elaborate, Osborne declined.
Droege cited market shifts for the layoffs, writing that "shifts in market demand also required us to re-examine our plans and refine our approach."
Droege's email says that as part of the restructuring, Scale AI will streamline its GenAI division from 16 "pods" down to five key areas and merge various teams into a single Demand Generation team.
Meta's blockbuster $24.3 billion investment in Scale and hiring of its former CEO Alexandr Wang led to major disruptions to the startup's Big Tech client base, which competes with Meta on AI. Google, xAI, and others abruptly halted projects with Scale in the wake of the investment.
Scale AI previously told BI that it remains well-funded and plans to hire hundreds more staff in different areas.
"We're streamlining our data business to help us move faster and deliver even better data solutions to our GenAI customers," Osborne, the Scale AI spokesperson, said. "We also plan to make significant investments and hiring across our enterprise and government AI businesses."
