How can tech companies thrive in a sector downturn? Experts weigh in – National

The tech sector, one of the best-performing sectors during the pandemic, is now facing a challenging period as companies tighten their belts.

Shopify Inc. Last month, it announced it would lay off 10 percent of its global workforce and cut spending on low-priority areas and non-core activities. In June, Welzsimple said it would cut its workforce by 13 percent and “laser focus” on its core businesses of investing, banking and crypto. And last week, Vancouver-based Hootsuite said it was cutting 30 percent of its workforce in a global restructuring.

Other prominent tech names that have announced layoffs in recent months include Clearco, Coinsquare, online furniture retailer Article, and Thinkific Labs Inc.

Young businesses trying to secure financing are also starting to see a different climate than a few years ago. The Canadian Venture Capital and Private Equity Association said the number of transactions and average deal size both declined in the second quarter compared to the first three months.

Experts say that companies should be aware of the challenging environment, but they should also find ways to grow to emerge stronger and more competitive from the downturn in the sector.

The roadblock for the industry comes after a long period of growth, expansion and increased demand, where many companies have grown.

“It was very difficult to read the signs that things were going the other way too fast,” says Mike Abramsky, CEO of the Mars Discovery District.

With rising interest rates, high inflation, recessionary risks, market volatility and activities that have seen significant growth during the pandemic, such as online shopping, he believes the challenges facing the industry will continue for some time.

Read more: Shopify ‘didn’t get the benefit’ of laying off 10% of workforce after pandemic growth bet: CEO

“There are so many perfect-storms in the game,” he said.

“Anything tied to interest rates, the economy and the stock markets, like e-commerce, real estate, crypto and some fintech companies are really stressed. And with the risk of failure, we don’t know what’s going to happen next, and not knowing makes companies cautious.

Laura Lenz, partner at OMERS Ventures, who leads the firm’s Canadian investment activities, says the first thing management teams need to do now is find ways to conserve cash — whether it’s needed or not — because doing so will help extend the long term. Viability of the company without the need for additional funding.

Keeping a clear view of the road to profitability is also critical, she added.

Read more: The CEO posted a crying selfie on LinkedIn after firing employees

This means reducing costs for marketing, consumer goods and services, and personnel, explains Lenz.

“It also means looking at sales efficiency and renegotiating everything from rent to professional service contracts,” she says. “Another option is to look at tools to automate low-cost, repetitive tasks so your people can focus on the high-value work you hire them to do.”

For companies seeking new funding during this uncertain time, Lenz said investors, particularly venture capital firms, are looking “outside the top.”

“Despite this current macroeconomic backdrop, they want to invest in businesses that can grow by 50 percent,” she said.

MARS’ Abramsky works with technology founders and CEOs, and the first thing he asks them now is how they plan to take advantage of the change in circumstances so their companies are better off when the downturn is over.

“When things are really good, technology reacts positively and people overestimate it, and when things are really bad, people forget that technology is strong and will come back,” he says.

Companies want to move toward a healthy end market where their products and other offerings are must-haves rather than goodies, he added.

And although business leaders are always doing scenario planning, it’s encouraging them to go further.

“Try more scenarios and look closely at the assumptions in those scenarios, because naturally tech companies and tech CEOs and founders are overly optimistic,” he said.

While the core business should be the focus of companies, having more than one revenue stream is important to adapt to different situations, says Noosa Fine, director of the Smith’s Business Master of Management Innovation and Entrepreneurship program.

“Putting all your eggs in one basket can be an unsafe bet,” she says.

Read more: Delayed self-employment to recover from Covid-19 shock: ‘I was scared’

She looks at where growth in the field is going and solutions for healthcare innovation — particularly in managing some of the challenges the pandemic has revealed.

Omers lens sees opportunity in two emerging fields: workforce automation and technology that addresses climate change.

“I also expect some decentralization and less dependence on FAANG[companies],” she said.

This Canadian Press report was first published on August 14, 2022.