Professionals often fear losing their jobs through layoffs when the economy is struggling. The economic slowdown is still affecting us, and startups are especially vulnerable due to a scarcity of capital. As a result, many companies have started to lay off employees and cut costs. However, is this a sign of an impending recession, or are these layoffs and budget cuts simply temporary measures?
Let's go back three years. When the Covid-19 pandemic hit the world, people shifted online. Technology companies like Amazon and Gitlab saw a doubling of their workforce to keep up with the increased demand.
However, things have since changed. In 2023, many startups are facing unstable conditions. Data from Layoffs.fyi, as many as 1054 technology companies will make layoffs in 2022. By mid-2023, more than 570 technology companies had laid off employees. Big startups like Meta, Google, and Amazon are not immune to this trend. In March 2023, Meta cut 10,000 jobs, and Amazon laid off 9,000 employees.
Layoffs are one of the company's ways to deal with the condition. They cut costs and laid off employees to minimise operations. However, are there any strategies to help companies avoid layoffs during a recession?
The Potential of a Recession in 2023
A recession is a prolonged period of reduced economic activity. Generally, a recession lasts for six months. It comes with several signs, such as:
- Decreased GDP (Gross Domestic Product)
- High unemployment rate
- Reduced consumer power consumption
Centre for Economics and Business Research (CEBR) predicts a global recession in 2023. The World Economic League Table predicted the global economy would surpass $100 trillion in 2022. But its growth is expected to slow in 2023 as governments struggle to keep up with rising costs. It raises the question: what is the real impact of a recession on startups?
1. Decrease in consumer demand
Consumers tend to tighten their belts and limit spending during a recession. This activity impacts startups that rely on consumer consumptive power, such as the hospitality and retail industries. Startups must think of creative strategies to attract their customers, such as offering discounts or promotions.
2. Funding reduction
Access to funding is often reduced. Investors or venture capitalists will be more careful about providing funds to startups. If the situation persists, startups may have to cut costs and even layoffs. To keep operations running, startups must find alternative funding sources like crowdfunding.
3. Heightened competition
During recessions, many startups struggle and survive. It leads to increased market competition. Additionally, big companies may use the economic downturn to acquire small startups. Several things that startups need to prioritise are differentiation, innovation and forming partnerships.
Recessions are Challenging, but There’s Good News Too
That may sound counterintuitive, but a recession may be a prime time. Many argue that a recession is the best time to learn to grow and achieve long-term success.
First, startups that offer quality and reliable products or services tend to come out on top during a recession. Investors are more willing to take risks on startups they trust. Second, startups must have a strong foundation and execution process to survive during tough economic times. It forces startups to refine their strategies and operations, making them more resilient in the long run.
8 Strategies to Prevent Layoffs
Layoffs are not the only solution when a recession occurs. Forbes has compiled eight strategies that startups can do to avoid mass layoffs.
1. Find a strategy to increase value within the company
During tough economic times, companies should focus on increasing value within the company rather than being defensive and resorting to layoffs. Finding the right strategy to provide more value to customers is vital in keeping the business profitable and retaining customers. However, this process is not easy and requires 100% dedication from all employees.
2. Consider wage and hour options
Layoffs are the last option when there's no other way to run. One alternative to layoffs is for companies to offer employees the possibility of reducing their wages or working hours. The company needs to communicate transparently about the situation. They should be fair on the deductions applied.
Employees also have a difficult time. Companies can assist employees through the transition. The positive side is that the company retains its workforce, and employees don't lose jobs.
3. Focus on cash flow management
News has been saying that the recession will start in 2023, and cash is suddenly the key. Cash is king during periods of volatility. Startups should prepare by securing a line of credit and establishing a reserve account. They should also analyse and eliminate unnecessary expenses and postpone large purchases. Restructuring teams and managing cash flow can prevent layoffs.
4. Invest in cross-functional training programs
Having flexible team members who can work in multiple roles is good. When one department stagnates, others can step in. Cross-functional programs are the best investment when it comes to companies. Diverse expertise leads to better productivity and job security.
5. Audit your spending in some areas
If cutting team members doesn't make sense, the startup can conduct an expense audit to achieve break-even. They can make deductions through the audit. For example, cutting vendors, reducing the cost of SaaS tools, or cutting partners.
6. Implement a remote work system
Adopting a remote work system and implementing async is one of the great solutions to avoid mass layoffs. Employing remote workers can reduce expenses for office needs, utilities, and other operations. Startups should consider investing in asynchronous tools to improve business efficiency. Ultimately, cost savings can help companies avoid layoffs.
7. Optimising freelance or part-time workers
During challenging times, startups can benefit from utilising a mixed workforce. Combining freelance and part-time workers can help avoid mass layoffs. This approach allows businesses to maintain a core team while utilising part-time or freelance workers in various positions.
8. Explore all funding options
The last strategy is to consider all financing sources carefully. Startup leaders should honestly evaluate if layoffs are truly necessary. If cash flow is a problem, explore all funding options available. Remember that economic conditions can fluctuate, so it's essential to carefully consider this before making any decisions.
Conclusion
Recession and economic conditions are uncertain circumstances. Business owners, startups and other companies must prepare for these very challenging circumstances. Before terminating an employee, it's essential to explore all options available. Remember that there may be less competition in the market during tough times. If the business can survive, it may achieve significant profits.
