Richard Whomes, senior director at international business software provider Rocket Software, says tech firms must prepare themselves for recession without delay and he passes on his survival tips
This article is the view of the author and not necessarily of Ready for Brexit
And so, it has begun – the headlines lately are screaming at us: Global recession a serious danger in 2020 A majority of the ultra-wealthy expect a recession by 2020 and are hunkering down Hard words to swallow with your morning coffee, but there is no denying it, the threat of a global recession is very real, not least because of the uncertainty that Brexit has caused among businesses. The good news – this is not the UK’s first recession rodeo. Ranging back as far as the Great Slump in the fifteenth century that lasted for sixty years, to the Great Depression in the 1930s, and of course, the Great Recession of 2008/2009, the UK has had its fair share of economic trouble. With this amount of recession experience, it is fair to say that, whatever the weather, we will get over this one too. But we need to be prepared.
Although the tech industry is fairly robust, some tech companies are more vulnerable to a recession than others. Take Software as a Service (SaaS) tech businesses, for example. As there are no tangible assets apart from the technology, and customers can easily cancel their subscription on a whim, a close eye needs to be kept on income to not be caught off guard if clients start cutting back. Companies must be aware that clients will, for example, need to prioritise supplier rationalisation and cost management, rather than tracking employee’s hours or reporting.
According to prolific investor Sir John Templeton, the four most expensive words in the English language are: “This time, it’s different.” Companies that reduced their costs early on in the recession cycle of 2008 typically emerged from the downturn with a higher EBITDA than those who reduced costs at a later point. For example, in the early stages of the 2008 financial crisis, Costco slimmed its product variety and bought in bulk from fewer suppliers, thereby slashing operating costs and streamlining its supply chain. It was ultimately one of the companies to come out of the recession more successful than it had been before the crash.
It’s about being clever in the way you assess your business in times of economic hardship and the different parts of your IT infrastructure. Prioritise what’s valuable and consider what you can function without in unfortunate circumstances.
During the Great Recession of 2008, employers stopped hiring. By 2011, almost 2.7 million people were looking for work in the UK. However, retaining key staff is essential in keeping morale high and ensuring you’re in the best position when the economy starts to recover. Too often, businesses, faced with a lack of customers, lay off workers and cut back on investment, perpetuating a cycle which drives the economy down further. Employees are the foundation of your business and characteristics including loyalty, commitment and enthusiasm go a long way in a crisis. And don’t forget – the recession will end at some point and severing ties with your best performers might be for good. Tightening purse strings won’t necessarily bring long term sustained stability.
Be in control of the balance sheets
For most, the word ‘recession’ connotes feelings of losing control and unfortunate circumstances determined by global factors. Nevertheless, recession can also present windows of opportunity. During times of economic hardship, owners of other tech enterprises will be looking to restructure and engage in creative business re-combinations. Monitor for mergers and spinoffs.
According to the 2019 Mergers & Acquisitions Report, downturns can be excellent times for deal making. But success requires careful preparation, thorough execution, and, especially, bold decision making. Opportunities arise even in hard times. Resources and labour may be less costly, and during a recession, there will be less competition for startups to cope with. Two of the biggest known startups in recent years came from the backend of the 2008 recession. These are. of course, Airbnb and Uber.
Keep calm and weather it out
So here we are, staring into the eye of the storm, wearing our figurative water-proofs, balance-sheet at hand, standing side-by-side with our employees and customers. Because that is what it’s all about – preparation, awareness, and the people who will see you through. In times of economic turmoil, your employees remain your most important asset, and any lay-offs should be thought about long and hard. With the right team, you can ensure that customers are kept happy, especially during hard times – the support you provide to them during a difficult economic climate will make you even more integral to their business strategy. And don’t forget to keep a keen eye on business opportunities – success can happen in the unlikeliest of scenarios. Recession be damned.