Is the technology industry heading for a recession?
Geopolitical, environmental, pandemic or recessionary – Wherever you look today, the crisis is everywhere, so the short answer would be yes.
At this point, it looks like it affects every industry at its core. That goes for big tech, too. The IT industry is hunkering down, preparing for an economic recession and an uncertain future. This in turn triggers further economic fears. A downward spiral, as from a storybook. Sounds like the boom times are over, at least for now.
But let’s hear about the long answer, because there is light at the end of the tunnel.
You might have heard it before; in every crisis there is also an opportunity. So, whether you are a fresh tech startup founder or the CTO of a company:
Let’s look at the current situation, brainstorm together how we can use it to your advantage and leave the stage as a winner.
First of all, let’s check the recent layoff numbers.
Tech layoffs in 2022
What is happening?
According to the various public reports, combined by layoffs.fyi – The number of layoffs in the technology industry this month was the highest in a long time. With nearly over 37,000 dismissed tech employees so far, you can see how industry giants like Amazon react to the current circumstances.
Some big tech companies are changing their business models during these times to adapt and to reposition themselves. Then there’s the said uncertain economy which contributes to recent layoffs across the tech industry. Elon Musk this month for example cut Twitter’s workforce in half after taking over the company. Then there was Meta. Last week, the parent company of Facebook and Instagram, announced it was laying off 11,000 employees, which is roughly 13 % of its workforce. Lyft, Stripe, Snap and other tech companies have also laid off employees in recent months.
Of course these are not only problems of the big companies but also of smaller tech companies – hiring stops and slimming down instead of growth is increasingly on the agenda.
What are the reasons for these massive layoffs in the tech industry?
Increased energy costs & record inflation
Well, there is probably not one reason here, it is rather a mix of several reasons and circumstances that come together. The large tech companies in Europe and the USA are struggling with the current record inflation. Then, of course, there are the massive increases in energy costs.
Inflation has climbed globally to its highest level in decades! and has forced central banks to raise interest rates since the end of 2021, which has significantly reduced the amount of capital and liquidity on the markets that is vital for investment and further growth.
Russia’s war against Ukraine has driven up energy prices with this conflict, leading to massive energy cost increases, especially noticeable in parts of Europe. This has further slowed the pace of global growth and additionally clouded the economic perspectives.
Overhiring at pandemic times
No matter if Twitter, Meta or Amazon, besides the reasons mentioned, many of them have one thing in common: massive over hiring at pandemic times. The tech companies hired a large number of workers to meet the immense increase in consumer demand. Since the beginning of this year, however, the tide has turned decisively. What follows is a kind of correction, the big reckoning after the golden years.
Slimming down – Now costs have to be cut wherever possible, and since human resources are known to be one of the largest expenses and are so inflated, this is the first area to be addressed.
Self-inflicted – But at least part of the wave of layoffs was self-inflicted. As the companies’ profits soared, they believed that the boom triggered by the pandemic would last longer. Aggressive expansion was the result. As a consequence, the most competitive and expensive resource in the software business was hoarded: talent.
What will happen after the crises?
New wave of hirings
In pre-pandemic and pandemic days, it was really the other way around: everyone was fighting for the best tech talent. There was an IT talent shortage. For a long time, tech companies couldn’t find the right IT talent to deal with the digital transformation.
Skilled staff – Data scientists, software engineers, programmers and cloud computing experts, everyone needed them. Some of the companies were training existing specialists. As this was not enough, a transition to remote work took place.
When the times of crisis are over, when we have survived the possible upcoming recession, then this will happen again. Because one thing is unstoppable: the importance of technology and the associated increasing technologization of all industries.
Not every part of the technology industry is or will be affected in the same way and to the exact same degree. It would be foolish to generalize this.
Because; “Big Tech,” is not “Big Tech” – behind the term lies a broad category that includes everything from social networking companies to EV and SaaS companies. In reality, the concept of the “technology sector” is no longer as relevant as it once was, as nowadays every company must be a technology company to some degree.
Also, not every technology-related industry seems to be on the downswing path. For example: cybersecurity and data protection. These two fields continue to generate a high demand for professional IT specialists with over 10,600 job listings for cybersecurity and over 15,800 for data protection, according to indeed.
So what are the possibilities?
Crisis as an opportunity
A remote work strategy is the answer
The said crises had a significant impact on tech businesses around the world. These effects will be felt for years to come. So now is the time where companies must adapt and focus on changing their operations in the near future to not only survive but thrive in the years to come.
If you provide technology-related products or services, now, in the midst of a crisis , it is the time to consider outsourcing software development solutions. Many companies are venturing into offshoring because it is cost-effective and offers operational benefits, including remote work of a flexible and highly trained IT workforce.
One way to create a crisis-resistant business is to take advantage of remote work opportunities, not just in your country, but around the world. Because you never know where the next disaster or pandemic will strike, it is way smarter to diversify your human tech resources.
A distributed workforce provides a level of security – this way, you’re not putting everything on a geographic card. Offshore and nearshore teams can help you with digital transformation, customer retention and cost savings.
Global dependency on technology
Already, the Covid-19 pandemic was forcing companies to rely more heavily on technology & hybrid work to keep their operations running. As a result, people also discovered the efficiency of using software tools to complete previously manual tasks for example messaging and information transfer.
This trend is likely to continue post-pandemic & post-crises, as businesses will need to be even more flexible and adaptable. Like we said in the beginning, global businesses of all kinds, from every industry will continue to get more and more “technicized”.
What will happen is that they need to invest in new technologies to keep up the pace with their competition. This means that there will be an increased need for technology & digital solutions and therefore for growth.
Growth in certain fields despite uncertainty
If you happen to be in the right area, you won’t experience the potential recession as much. Data center systems spending will experience a growth of all segments at 4.4% in 2023 with a spending of $221,590. This is helping to drive overall IT services segment growth to 8.3% in 2023 with a total spending of $1,389,169.
|2022 Growth (%)||2022 Spending||2023 Growth (%)||2023 Spending|
|Data Center Systems||11.1||$212,218||4.4||$221,590|
6 Ways a tech company can prepare for a recession
- Manage your cash flow
Create an emergency savings fund (two to five months of expenses). Analyze your cash flow projections, based on a series of potential future scenarios in the next two years.
- Scan your business relationships
Examine how many customers bring you what percentage of your income. Where are they, what is your relationship with them? Diversify to other potential customers to reduce the possibility of withdrawals. Can you optimize your communication with your customers?
- Identify new chances
Every crisis is a unique opportunity for businesses to expand and diversify their portfolio of offerings. Try to find innovative new products or services you can offer to expand or diversify your offerings without increasing the cost of doing business. Use technology, software or automation to improve the profitability of business units.
- Examine your staffing
What is the current situation when it comes to your employees? Do you have top tier talent in the right places? Are your teams productive in the way they should be in order to work towards your goals? What are your priorities? Do you want to keep your employees, if so is it still financially possible?
- Reduce unnecessary costs
Review expenses. How efficient is your business doing in every aspect? What can you reduce, what could be optimized? Are you able to decrease your overhead costs?
- Establish lean, agile and smart operations
Look into ways to maximize the efficiency of your team and your day to day business. Cut unnecessary meetings in order to free up valuable time. Like we mentioned before, automation and software solutions could also do the trick. Also consider outsourcing operations, grinding tasks and so on.
Build a solid team today, harvest a bullet-proof company tomorrow
Having a solid foundation in terms of the right tech staff (with the right developing expertise) in order to succeed now and in the future, is key.
So be prepared, because now is the time to act if you want to be among the first when the crisis is over.
If you need help with expanding your software development, let us know. We have a global network of software development hubs with proven processes ready to boost your next software project after the crisis.
Written with know how
by Team codecombinator