How Startups Can Survive The Looming Tech Downturn
We’re living in the golden age of innovation. New tech startups are springing up everywhere like mushrooms after the rain. Tech valuations are at an all time high with hundreds of new tech unicorns being minted every year. Venture capital investments in 2020 alone totaled to about $643 billion. That’s a 92% increase from $335 billion from the previous year.
Despite the industry’s meteoric growth, major global events such as the Covid-19 pandemic, the Russia-Ukraine crisis, and record-high inflation are threatening to deflate tech’s growth. Worst of all, experts are saying that the tech “bubble” has burst.
Sales is the lifeblood of any business - and even more so during tough economic times. Investing more in marketing is crucial if a company is targeting more sales, but in a downturn, a three-page proposal asking for a marketing budget raise is the last thing any board member wants on their desk.
Learn why outsourcing is a worthy investment in helping B2B companies beat the great tech industry downturn. Discover how to get that much needed boost in revenue, while keeping your expenses at a minimum.
How tech companies are reacting to the downturn
In response to fears of an incoming recession, many tech companies are bracing themselves for the financial upheaval ahead. Labor makes up a large chunk of the operating expenses a business incurs, and from a cash flow standpoint, laying off employees is one of the low hanging fruits.
In order to reduce operating expenses amid worsening sales, many big tech companies across the world are turning to cost-cutting strategies like hiring freezes, lay-offs, and budget cuts across the board.
Recent news of big tech layoffs has reached fever pitch and many tech companies have announced they are putting the brakes on hiring this Q3.
In a company-wide memo, Google CEO Sundar Pichai warned that “sunnier days” are over - pertaining to the ‘tech downturn’ that the tech industry is now facing. In recent weeks, Google also announced a hiring freeze in a bid to review headcount needs.
Retail investing platform Robinhood recently announced they laid off 23% of their manpower.
Fears of a recession amid widespread crypto sell-offs have forced Coinbase CEO Brian Armstrong to lay off 18% of their workforce.
In a recent statement made by Netflix, the company announced it had to let go of 300 employees.
Despite being the largest tech company in the world, Apple has not been immune from the effects of this tech downturn. The company also joined the list of tech companies that have started tightening their financial belt. Apple announced that it laid off 100 recruitment employees in an attempt to slow down hiring.
Three Strategies For Surviving The Tech Downturn
Downturns are a natural part of the economic cycle. Great fortunes are built on the valuable lessons you learn when in a recession. In fact, we read about many success stories of companies that went on to achieve greater heights after surviving a recession.
Instead of focusing on the negatives, startups have to batten down their hatches and double down on their survival game plan.
1. Invest in marketing 🗝
Understandably, any pitch directed at the board of directors that ends with a call to increase your budget simply won’t cut it during a downturn. However, marketing studies have proven that this is a wise and worthy investment.
McKinsey & Company published a study that followed nearly 1,000 U.S. companies over an 18-year period (1982 to 1999). The study found that while most companies tightened their belts during a downturn, the winners traded short-term profitability for long-term gain, and instead refocused their spending rather than cost-cutting. The study also showed that companies that did well during recessions spent more money on marketing (as a percentage of sales) than they did during boom times.
Another study, done in 2005 that was published in the International Journal of Research in Marketing shows that companies who actively engaged in marketing activities during a recession have reported positive results from it.
Tech companies that didn’t hold back on marketing during a recession eventually fared better than their competitors. Priceline, the online travel booking website, lost over 1 billion USD during the 1995 dot-com crash, and instead of cost-cutting, they continued to invest in marketing. They now have a market cap of $78 billion.
Email marketing is a popular marketing strategy to reach your market during a downturn, with average ROI pegged at $36 for every $1 spent, emails are one of the most cost-effective ways to build loyalty and trust for your brand. In fact, email marketing is nearly 40x more effective than Facebook and Twitter at customer acquisition.
Content marketing is another low-cost and effective way to engage your potential customers. According to a survey conducted by Semrush, 78% of marketers believe that content marketing was very successful for reaching their goals. Content that is informative and relevant helps establish your brand’s credibility and expertise among your target audience.
SEO marketing efficiently drives brand awareness by meeting your customers at every stage of the buyer’s journey. According to Hubspot’s State of Marketing Report. 75% of marketers feel their SEO tactics are ‘extremely’ or ‘very effective’ at helping them achieve their marketing goals. It helps drive organic traffic and potential leads to your site by engaging them through relevant keywords.
2. Focus on sales 💰
In a recession, the old adage “Cash is king” certainly holds true. In this case, sales is king. To say that sales are the lifeblood of your company is not a hyperbole. Cashflow management strategies are at the core of every downturn game plan, and from a top-down perspective, more sales can drastically improve your company’s profitability ratio.
During a recession, your sales cycles may take longer due to souring customer demand and more stakeholders that don’t want salesmen reaching for their company’s pockets. Every qualified lead in your pipeline is hardwon; a downturn is your opportunity to improve and re-evaluate customer acquisition and retention strategies.
Strengthen your customer relationships through improved account management
Ramp up your sales activity levels and increase leads through outreach (e.g cold email)
Double down on your pipeline by optimizing your sales process
3. Outsource manpower 💡
Resources are hard to come by in a recession and with layoffs everywhere, manpower costs are often the first to be scrutinized. With the widespread adoption of remote working, outsourcing in tech is a cost-effective cash flow strategy to ease your company’s financial burdens.
These are some of the successful tech startups that know how to leverage outsourcing to fulfill their business needs.
Slack - Slack was in its early stages when Slack's founder, Stewart Butterfield outsourced MetaLab to help build the product he had envisioned. The firm skillfully reworked the whole product and placed emphasis on its design and user experience. Slack’s popularity owes to its delightful and inspiring user interface that shuns boring corporate messaging. Groove - Groove’s CEO Alex Turnbull had a great idea for creating a customer service platform dedicated for small businesses and startups but struggled to find a suitable technical co-founder that would help him realize this great idea. Running out of time and months went by, Alex decided to invest in an outsourced dev team that helped him build the site from scratch within 4 months.
GitHub - GitHub started out as a bootstrapped business and in the early development phase, the founders needed help with their website but could not afford to hire their own team members. They decided to engage Git expert Scott Chacon as an outsourced contractor on a part-time basis. Scott’s invaluable expertise helped launch GitHub as one of the best developer communities with a user base of 80 million strong.
Benefits of Outsourcing
Less time is needed to train team members because agencies already have a system and go-to process that they’ve proven to be effective through hundreds or even thousands of campaigns
Less resources needed for team management because agencies have their own team management processes
Lower operating costs and access to a global talent pool
Related: Check out our outsourcing checklist to help you find the perfect agency tailored for your needs.
Recession-proof your sales pipeline with The Scale Lab
A recession can make or break your company. Tight customer budgets mean that cash isn’t flowing the way it used to, and your pipelines may be starting to feel a little anemic. Prospects seem to be hiding from sight, and in the thick of a downturn, your sales pipeline is under more scrutiny than ever.
One way that can help your business survive is to outsource to agencies that are just as skilled, but more cost-efficient. The Scale Lab can help fill your pipeline with warm leads so you can spend less time prospecting and more time closing deals.
Curious about learning how to recession-proof your sales pipeline? Drop us a line at firstname.lastname@example.org