All companies, including tech startups, are affected by economic recessions. Moreover, nowadays, many startups have been forced to downsize and let go of employees due to limited funding. The post-pandemic economic decline and geopolitical tensions have created substantial challenges for businesses across various sectors. Some key challenges startups face during a recession include rising inflation, limited access to capital, cost reduction pressures, and low demand for their services or tech products. All that theoretical threats are becoming real. Investment into European tech startups is set to fall another 39% this year, according to data from venture capital firm Atomico, as the pain in global tech continues. What’s even more critical, according to different sources, the forecasting scenario is rather gloomy, and the situation may require tech startups to strategize on how to deal with a visible crisis.
Economic downturns may not always imply disaster for startups. Some of today’s most successful businesses were launched during recessions and have grown despite challenging circumstances. It could spark some optimism, but there are at least a few methods to consider to get your business ready and alert.
Why Outsourcing is a Trend during a Recession
Software product development is the primary focus of tech startups. So, regardless of how well the company’s operating expenses are minimized, the software development process must continue since it results in a sellable product. And the ready product is what a startup provides to the market. Because of its demonstrated success, outsourcing software development stays relevant during economic downturns. Let’s take a closer look at the benefits it provides that can help startups in navigating difficult times:
- Cutting costs: Outsourcing non-core activities can turn fixed costs into variable costs, enabling startups to lower expenses and enhance investor confidence. And even if rates of software houses specialized in supporting startups may be higher than keeping an in-house development team, it is still a cost-saving solution. Software development outsourced to proven partners brings much higher expertise that results in quicker development of scalable solutions and brings overall savings at the end.
- New labor markets: Hiring from cheaper markets provides access to qualified talent at a fraction of the cost. This argument is especially relevant to the US and Western Europe markets which may successfully benefit from CEE specialists that excel and are highly valued within different IT rankings. A country that exceeds such rankings is Poland.
- Scalability: Outsourcing allows startups to scale their operations quickly by increasing or decreasing resources based on market demand. For startups that need to be prepared for vulnerability, it is imperative to scale up or down relating to the current needs and make it quickly if needed.
- Focus on core competencies: By delegating non-core tasks to external experts, startups can concentrate on their core competencies, innovation, and growth strategies. Conversely, the external team may be, in most cases, much more specialized in the specific area of expertise. It makes it even better in such a complex and demanding field as outsourcing software development.
- Cost transparency: Outsourcing facilitates clear and upfront monthly costs, allowing for better budgeting and improving scalability for business operations. For startups, it may affect the clarity of what they pay for and the tracking value their partner brings with specific lines of code, application features, documentation, etc.
- Expanded Vision: An external team brings fresh perspectives to problem-solving and can contribute valuable enhancements to your product or service. It gets even more since a specialized software house may be an expert who not only performs the tasks but also advises or shows directions based on its previous experience from collaborations with many other startups.
- Easing Stress: By relying on an outsourced team, startups can alleviate the burden on their current staff, preventing burnout and minimizing errors that may arise from overloading employees with additional responsibilities during economic hardships. Even more, in case of possible reductions, your staff members may be calmed down since they are not first in the line because there are contractors to be released before cuts would get the employees.
While recessions pose challenges for startups, they also present opportunities for those willing to adapt and innovate. It is an opportunity to strategically manage the resources strategically, leveraging outsourcing and strategic partnerships. This way, startups can navigate through economic downturns and position themselves for growth in the long term. Remember, most successful companies were born out of recessions, and with the right strategies, startups can thrive even in challenging economic times.