Layoffs in the tech industry have been making headlines, leading many businesses to wonder about economic stability in the near future. However, there’s more to what’s happening in 2023 and 2024 than what meets the eye. In this blog post, we’re going to look at how you can face the impending economic downturn head-on and prioritize growth even when making cuts. Let’s get started!
Current State of the Tech Industry
Layoffs are becoming increasingly common among well-regarded SaaS and tech companies worldwide. While initial reactions might lean toward concern, careful analysis and insider insights suggest otherwise. Such layoffs often don’t signify a company’s instability but may actually be a byproduct of its success. Take Zoom, for instance.
The COVID-19 pandemic made remote work essential, catapulting platforms like Zoom into unprecedented growth. In response, these companies expanded their workforces to meet surging demand and anticipated that remote work would become the new standard. However, as global conditions began to improve and offline activities resumed, the demand began trending downward.
This hiring surge, initially considered low-risk, led to the difficult position of needing to scale back the workforce. It’s crucial to acknowledge that these layoffs are often a recalibration due to overhiring rather than a sign of business failure.
In the current economic climate, marked by high-profile layoffs in the tech sector, the prevailing sentiment suggests a recession. An interesting perspective comes from a discussion led by Patrick Campbell, arguing that the technicalities of whether or not a recession is underway are less important than the market’s perception. At present, that perception leans toward believing that an economic downturn is occurring.
However, layoffs may not be the optimal strategy for fostering a growth-friendly environment, especially in a genuine economic slump. While staff reductions might sometimes be unavoidable, they primarily affect the profit base rather than facilitating growth opportunities. Understanding this nuanced difference is crucial in navigating uncertain economic times.
Rather than simply making layoffs to follow a trend or simply saving money, the focus should be on understanding market sentiment, identifying the real reasons behind layoffs, and figuring out how to position your business for sustainable growth amidst economic uncertainty.
Growth Comes from Customers
Genuine growth comes from acquiring customers. Numerous growth levers can be utilized, such as increasing leads, sales activation, retaining customers, upselling, referrals, and revenue operations or growth operations. But, the key takeaway is that genuine growth is customer-centric.
With that in mind, let’s look at three steps you can take to put growth first during an economic downturn.
1. Get “Default Alive”
These steps are inspired by similar steps listed by Patrick Campbell himself. The first of which is to get “default alive.” According to Growth Mentor, this means a company is “predicted to make a profit with the assets that they currently have access to without any further investment or future changes.”
If layoffs and cuts are necessary for your business to achieve a default alive status, that’s alright. But what we want to avoid is making cuts to follow the lead of larger businesses or because of the misconception that cuts are the best or only solution during hard times. There are alternatives like renegotiating contracts or adjusting your tech stack that can help trim the budget.
Once your business is default alive, it’s time to check for gaps.
2. Identify Market Gaps
When there are shifts in the market, this usually implies broader changes across the board—something that should prompt you to adapt as well. The core question remains: how have your customers changed? They’re either excited about new opportunities or they’re taking a closer look at their own overhead, which inevitably includes their relationship with your business.
But you should also be on the lookout for gaps, specifically in terms of how your competitors have adapted. Sometimes competitors pull back from certain audiences or market segments because they need to, and perhaps you should follow suit. But at other times, they step away from certain channels or areas, leaving a gap that you can step into.
So, the second step involves checking for these gaps. You really need to grasp how the market has changed, how your customers have adjusted, and how your competitors have shifted their strategies. Because in these shifts, gaps are naturally created—gaps that you can fill and opportunities to realign your business with the current market conditions.
3. Refocus on Growth
Shifting focus back to growth is a multi-layered process bolstered by extensive research. Companies that successfully weather economic downturns adopt strategies that extend beyond mere cost-cutting. They become more frugal, emphasize leadership, prioritize long-term gains over short-term profitability, and make calculated investments in growth.
Bain and Company covers this exceptionally well.
“Think of a recession as a sharp curve on an auto racetrack—the best place to pass competitors, but requiring more skill than straightaways. The best drivers apply the brakes just ahead of the curve (they take out excess costs), turn hard toward the apex of the curve (identify the short list of projects that will form the next business model), and accelerate hard out of the curve (spend and hire before markets have rebounded).
What specifically distinguishes eventual winners? Bain research reveals several key moves by companies that outperformed peers in four areas: early cost restructuring, plus some combination of balance sheet discipline, aggressive commercial growth plays, and proactive M&A.”
It’s clear that mere cost-cutting alone won’t suffice; strategy and action are also key components of growth and endurance.
Additionally, if a SaaS business experiences a slump, it’s rarely solely due to economic downturns or pandemics. Refocusing on customers with high Lifetime Value (LTV) and identifying new opportunities to enhance this metric is crucial. This could mean making improvements in areas like customer experience and user experience (UX).
It’s imperative to strike a balance between short-term and long-term strategies. While short-term plans may help weather an economic downturn, they are unlikely to offer a robust framework for enduring success.
And finally, consider revisiting market segments. If current segments are underperforming, it may be wise to shift focus to those with greater purchasing power and the likelihood of upgrading or buying add-ons. Therefore, the objective should be a holistic strategy that combines fiscal responsibility with growth planning.
Navigating a volatile market requires more than knee-jerk reactions or follow-the-leader, it demands a carefully thought-out strategy, intention, and action. Here are the key takeaways:
- Get default alive – Make the cuts you can’t avoid, but don’t make cuts without a strategy.
- Check for gaps – When the market changes, understand who’s changed, why, and how you should too.
- Refocus on growth – Being frugal isn’t just about cutting costs, it’s about optimizing your spending. That means strategizing and following your plan through the curve of the downturn.
Understanding these three steps will help you move through economic uncertainty with confidence and agility while prioritizing growth.
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