Today’s macroeconomic environment is marked by high inflation, low consumer confidence, abysmal stock market performance and rising interest rates. Few sectors of the economy are exempt from the current malaise, and discretionary spending by consumers and businesses alike is at an all-time low.
In times like these, it’s natural for entrepreneurs to focus on surviving rather than thriving. But recessions can actually be fertile ground for companies that are prepared to seize opportunity. Here are four ways entrepreneurs can take advantage of a recession to achieve massive growth:
1. Look for white space in the market
In a recession, many companies trim their product lines and focus on their core offerings. This creates opportunities for companies that are able to identify and fill gaps in the market.
For instance, in September, Facebook shuttered Novi, its digital wallet. The move comes as no surprise. Facebook is facing big challenges in maintaining both user and investor confidence amidst a slowdown in growth, all while its metaverse dreams flounder. But the death of Novi opens up an opportunity for a new entrant to provide a digital wallet. In fact, a phoenix has already risen from the ashes: A Web3 wallet, Martian, raised a $3 million pre-seed following Facebook’s announcement.
Just as Novi aimed to provide a simple way to store digital currencies and make payments, Martian is said to “allow users to hold, store, and use multiple digital assets.” The key difference is that Martian is being built on top of open-source technology, rather than Facebook’s centralized infrastructure.
In another example from the Web3 world, the FTX exchange famously collapsed, leaving thousands of users looking for other trading solutions. Yuriy Sorokin, the CEO of 3Commas, explains in an article that, amidst this volatility, their “goal remains the same as always: to meet the needs of every crypto investor by providing industry-leading services and professional-grade tools.”
Rather than suffer from an industry downturn, Sorokin found an opportunity to double down. These kinds of opportunities are everywhere in a recession. As incumbent companies focus on their core offerings, new entrants can swoop in and provide the missing piece of the puzzle. In another example, while Ford is reducing the production of its trucks and SUVs, Tesla is gearing up to mass produce its Cybertruck.
2. Attract top talent
From Google to Facebook to Uber, many of the most successful tech companies have announced layoffs this year. While this is devastating news for the employees who are impacted, it’s an opportunity for entrepreneurs who are looking to attract top talent.
In a recession, it’s not just big companies that are making layoffs. Small businesses are cutting back as well. But as employees at all levels find themselves out of work, they’ll be looking for opportunities that offer both security and upside potential. For entrepreneurs, this presents a golden opportunity to attract the best and the brightest to their team.
Some recruiters have already started to take advantage of the current climate. As Reuters reports, following layoffs at Google and Apple, Stack Overflow more than doubled its headcount. Stack Overflow isn’t alone, as a survey of startup tech executives found that more than 40% of them boosted their hiring plans in the first half of 2022.
If you’re an entrepreneur, now is the time to start thinking about how you can attract top talent to your company.
3. Take advantage of lower costs
A recession can be a great time to get discounts on everything from office space to advertising. As businesses contract, they’re often willing to negotiate better terms with their vendors in order to free up cash. This presents a unique opportunity for entrepreneurs who are looking to get more bang for their buck.
One way to take advantage of lower costs is to negotiate longer-term contracts. For example, if you’re looking for office space, you may be able to get a longer lease at a lower rate. Or if you’re looking to expand your team, you may be able to get a better deal on salaries if you’re willing to lock in employees for a longer period of time.
4. Deploy cost-optimization technologies
When faced with a budget crunch, businesses of all sizes are looking for ways to reduce costs. This has created a demand for cost-optimization technologies that can help businesses slash their spending.
For entrepreneurs, this presents a unique opportunity to develop and market technologies that can help businesses save money. For instance, there’s currently a big push for energy-efficiency technologies that can help businesses lower their utility bills. Likewise, there’s a growing market for software that can help businesses streamline their operations and reduce waste.
Cloud spend, in particular, is an area where businesses are looking to save money. In recent years, businesses have been moving more and more of their workloads to the cloud. However, as businesses have become more reliant on cloud services, their spending on these services has ballooned.
This has led to a search for cost-effective cloud strategies, and this is where entrepreneurs can play a big role. Recently, a number of cloud optimization startups have raised big rounds of funding. Zesty, which automatically adjusts use of cloud resources in real time, raised $75 million while Keebo, a data warehouse optimization tool, raised $10.5 million.
As businesses look to save money in a recession, entrepreneurs who can provide cost-effective solutions will be in high demand. Financial technology solutions, too, can help firms cut costs, and therefore see greater adoption in a downturn. Solid, a banking-as-a-platform solution, recently raised a $63 million Series B and claims to have experienced 10X growth in the past year.
Recessions are often seen as a time of contraction and doom and gloom. But for entrepreneurs who are willing to seize opportunity, recessions can actually be a time of massive growth. By looking for white space in the market, attracting top talent, taking advantage of lower costs and deploying cost-optimization technologies, entrepreneurs can position their companies for success in the years to come.