The tech industry is a lucrative space, but subdued markets, recessionary environments, and bubble bursts are inevitable business realities. It’s no secret that the industry has been entertaining a bubble despite an unpromising economic outlook, with VCs betting big on cloud and riding up market values with seemingly limitless funding. The pandemic-induced spikes in demand for cloud tech only made the bubble bigger.
The threat of the bubble bursting has always been there, but the belief that it might not happen was stronger. Now, as market demand shrinks to normal and the global economy is on shaky grounds, the industry’s facing difficult times. We’re already seeing growth rates drop, losses piling up for Big Tech, IT budgeting, funding winters, and perhaps the most severe repercussion of them all, mass layoffs.
Traversing the highs and lows
Riding the full economic cycle—both the ups and downs—is the ultimate business longevity and commitment test. Any tech company that’s focused on product innovation and customer needs, and is truly in it for the long haul, will have to encounter and survive the downturns as much as they welcome the market booms. If surviving the dot-com bubble burst of 2000 and then the great financial crisis of 2008 has taught us anything, it is that crashed markets slowly correct themselves over the next two to three years. Until then, a safe game plan involving well thought-out strategies can help.
Creating a game plan
Business strategies for riding out market lows have a better chance of succeeding if they are underpinned by adequate cash reserves, a conservative stance, a loyal customer base, and importantly, a state of constant readiness (even during good times) to withstand market slumps. That said, the following are a few steps that can help companies persevere.
Keep hiring and marketing expenses in check
Revenue per employee (RPE) is a great indicator of any company’s ability for efficient resource utilisation. Maintaining a healthy RPE might be a business best practice during growth periods, but it becomes imperative during challenging phases. Pausing all hiring activities instantly in case of revenue drops and establishing a strong hiring discipline to avoid headcount increase can prove to be an effective coping strategy. It can not only help sustain a decent RPE but also
keep companies from resorting to job cuts as part of cost-cutting measures.
In terms of marketing, unconventional, well-timed campaigns with impactful messaging can actually work wonders, even in markets that have quietened down. But they are simply unnecessary if they will eat up your cash reserves at a time when financial security is needed the most.
Thinking beyond mass hiring
Companies can consider an internal rebalancing of teams, i.e., moving employees from overstaffed teams to those understaffed. Additionally, new ad-hoc teams can be formed to quickly explore ways to pivot, foresee future opportunities, and set up alternate revenue streams to tide the business through. Moreover, it’s crucial to stay prudent with hiring as markets slowly recover in the next few years. One way to solve the talent issue in the long run while simultaneously reducing the cost per hire is to take jobs closer to where the tech talent in India comes from: the suburban and rural areas. This is why investing in office spaces in Tier 2/3 cities and towns is the best way forward for the tech sector.
Prioritising empathy-driven CX
Rather than hoping to acquire new customers for business continuity, companies should prioritise their existing customer base when markets are down. Adopting an empathy-driven CX approach, taking the time to listen to the hardships that your customers might be undergoing due to the economic crisis, and doing the best you can to support them (by partially waiving off invoice amounts for severely impacted customers, for instance) will show your clients that you are a reliable vendor, in turn creating undeniable brand loyalty.
Minimising overhead costs
In line with delivering purposeful CX through adversities, another way to better serve the customers who choose to stick with you is to reduce overheads via technology value optimisation and pass the cost benefit on to them. Some possible avenues for tech companies to explore for overhead minimisation could be outsourced core operations like R&D and data centre services, and real estate.
Mission-critical needs like data centres and their maintenance is a huge cost of operation even when performed in-house. Businesses focused on playing the long game should consider the high overhead costs that outsourcing these core operations can cause and plan to eventually move them in-house. Meanwhile, companies that already have their own data centres can further cost-optimise by implementing energy efficiency measures. DC servers consume tremendous amounts of energy to run first and then cool down, so seeking maximum
performance out of every watt can positively impact production costs.
Today’s outrageous real estate prices in metropolitan cities is another aspect that further validates the necessity for tech companies to open offices in smaller Tier 2/3 cities. Land costs are comparatively lower, and opening multiple small offices across several suburban and rural areas will still cost less than operating a big tech hub in a Tier 1 city. This can reduce cash burn and assure a considerably longer runway for businesses.
Building a business that will last
The global economy is currently a massive earthquake zone. Regardless of how strong our foundations are as a business, and the added defences that these short-term measures and long-term strategies provide, even the sturdiest house may sustain some damage from a powerful earthquake. The best that companies can do is accept the market downswing and strive to minimise its impact on them.
Views expressed above are the author’s own.
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