How can tech companies thrive amid the sector’s downturn? Weight Experts – National
One of the best performing areas during the pandemic, Technology The sector is currently facing a challenging time as reverse fortunes cause companies to tighten their belts.
Shopify Inc. announced last month it would lay off 10% of the global workforce and would cut spending in lower priority sectors and non-core activities. In June, Wealthsimple said it would cut 13% of its workforce and would “laser focus” on its core businesses, namely investing, Bank and electronic money. And last week, based in Vancouver Hootsuite said it eliminated 30% of its workforce during a global restructuring.
Other notable tech names that have announced layoffs in recent months include Clearco, Coinsquare, online furniture seller Article and Thinkific Labs Inc.
Young businesses trying to recoup financial interest are also starting to see a very different environment from just a few years ago. The Canadian Private Equity and Venture Capital Association said the number of deals and average deal size both decreased in the second quarter compared with the first three months of the year.
Experts say companies need to be aware of the challenging environment but also find ways to grow out of the industry downturn in a stronger, more competitive position.
Shopify reported a net loss of $1.2 billion in Q2 due to job cuts
The development path of the industry comes after a long period of growth, expansion, and increased demand, which many companies have developed.
“It’s hard to read the signs that things are going to go the other way too quickly,” said Mike Abramsky, managing director at the MaRS Discovery District.
He believes that the troubles facing the industry could continue for some time due to rising interest rates, high inflation, recession risks, market volatility and a slowdown in driven activities. as strong during the pandemic as online shopping.
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“There are just too many perfect storming factors going on,” he said.
“Anything tied to interest rates, the economy and the stock market, like e-commerce, real estate, cryptocurrencies and some fintech companies has really exploded. And with the risk of a recession, we don’t know what’s next, and our not knowing will cause companies to be cautious.”
Laura Lenz, a partner at OMERS Ventures who is leading the company’s investments in Canada, said the first thing leadership teams need to do right now is look at ways to preserve cash – whether it is necessary or not – because doing so will help expand the viability of the company without raising additional capital.
Having a clear view of the path to profitability is also important, she adds.
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This means reduced spending on marketing, discretionary items and activities, and even employees, Lenz explains.
“It also means reviewing sales performance and renegotiating everything from rent to professional service contracts,” she says. “Another option is to look at the tools out there to increase automation on repetitive, low-value tasks so your people can focus on high-value work without you hired them to do it.”
Lenz said investors, especially venture capital firms, are looking for “exceptions”.
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“They want to invest in businesses that can grow at 50 percent regardless of the current macroeconomic backdrop,” she said.
MaRS’ Abramsky works with tech founders and CEOs and said the first thing he would ask them right now is how they plan to take advantage of the change in conditions to make their companies good. than when the recession is over.
“When things go really well, technology overreacts on the positive side and people overestimate on the upside, and then when things get really bad, people forget that the Technology is resilient and will come back,” he said.
Companies will want to move towards a healthy end market, he adds, where their products and other services are must-haves, not goodies.
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And although business leaders always plan according to the scenario, he still encourages them to go further.
“Let’s try more scenarios and look closely at the assumptions in those scenarios, because by nature tech companies, CEOs, and tech founders are all over-optimistic,” he said.
While the core business should be the focus of companies, there is more than one source of revenue, says Nusa Fain, director of the Smith Business School’s Master of Innovation and Entrepreneurship Management program. It is important to adapt to different situations.
“Putting all your eggs in one basket is probably an unsafe bet,” she said.
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Looking ahead to future developments in the field, she sees opportunities for healthcare innovation – particularly solutions around managing some of the challenges the pandemic has revealed. revealed.
OMERS’ Lenz sees opportunity in what she says are two growing areas: workforce automation and climate change technology.
“I also hope we will see some decentralization and reduce our dependence on FAANG (companies),” she said.
This report by the Canadian Press was first published on August 14, 2022.
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