With tech layoffs making the news, it’s quite likely that 2023 won’t be a year where it’s easy to find a comfortable tech job. While this would undoubtedly be a time of hardship, it would also be a time of opportunity. Here are the main threats and opportunities for new startups during a down market:
Availability of capital is usually a problem during down markets. Most startup funds are becoming more conservative and generally invest less in new projects. Even worse for fledgling startups, investors’ risk tolerance may also drop, meaning that the capital available for new projects will naturally focus on a few “safe” bets.
That said, during economic downturns, the usual government policy is to increase spending to fight the recession. This means that corporate loans along with other forms of tax incentives (subsidies, etc.) could become more accessible.
While capital may be a bit harder to come by, you may need less of it to survive. During a recession, the cost of hiring employees, renting office space, and other operating costs may be lower due to increased availability and reduced demand. This allows a startup to further expand its financing and become profitable faster.
By far the main reason why a recession is a good time to start a new project is that great engineering talent becomes available.
In times of economic boom, it is very difficult to compete with established technology giants for top talent because of the salary level and other benefits that established companies can offer. But because of the layoffs attracting and retaining high-quality people suddenly becomes easier.
However, in a time of cutbacks and redundancies at the giants, experienced people suddenly enter the market. Not only does this mean you’ll be able to find and hire people more easily – you may also be able to find very high caliber co-founders.
In layoff periods, it’s not unheard of for ex-colleagues to become partners and start their own projects related to the industry they previously worked in. boom periods, when large firms tend to become more inefficient.
This brings us to our last point:
Favorable market conditions and the availability of capital during boom periods make inefficiency less deadly for large companies. However, a recession quickly puts an end to that. Consumers are becoming much more cost-conscious and are rapidly cutting spending on what they consider to be non-essential products and services. Combined with the fact that capital is becoming more difficult to access, this is driving inefficient and rigid companies quickly to bankruptcy.
This is both a threat and an opportunity for young startups. The agility of such projects gives them the opportunity to adopt innovative practices and business models – in other words, to apply the lessons we mentioned. In addition, the failure of old companies opens space in the market for new companies that can provide better products and services.
Nevertheless, cost-consciousness and consumer conservatism make it more difficult for non-established brands to attract new customers, meaning that to be successful, being the shiny new thing isn’t enough. You need to provide something of real value that people are actively looking for.
Finally, there are pros and cons of starting a business during an economic downturn. All things considered, the greater likelihood of attracting high-quality technical talent to your project makes it a good idea to try something new.