By Alexandru Stan, serial entrepreneur and CEO of Tekpon, a one-stop platform for all software needs.
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Now that it is gone, I can say that 2022 was another challenging year for the world economy, startups, big companies and people everywhere. After almost three years of a pandemic, a war and an energy crisis, geopolitical tensions and many other crises at the human level, the world is still surviving. But with so many events happening worldwide, how are things changing for startups and SaaS businesses? To get a bit of context and understand the investment environment, I want to recap the last year.
What is the economic context?
The S&P 500 fell about 30% in 2022, and some experts believe it may fall deeper—even making comparisons with the 2008 crisis. But we’ve been there already, and we know how it ends. Some businesses will survive and grow, while others won’t.
Moreover, this spring, inflation reached a 40-year high, and the Fed continued to boost interest rates over the course of 2022. Throughout the recessions of the previous 75 years in the U.S., we see inflation as a common occurrence, and the unemployment rate has sometimes far exceeded 5%. These are just numbers, but the world economy runs on numbers and calculations.
Consider the public market versus the private market.
Although the public markets are in disarray, I’ve noticed the private markets are doing better. Investors in North America put $82.8 billion into early-stage startups in the first three months of 2022; even though this was down 11% from the previous quarter, it was still the fourth-highest quarterly total in history. Thus, in this period, some people preferred investing in small businesses rather than big companies. In a recession, the companies with significant losses will often be the enterprises. Why? Mostly because private investments are, at least in part, immune to stock market fluctuations, and they can be an attractive choice for investors looking for shelter from the storm.
I think there are some excellent reasons for startup founders not to give up hope in 2023 and to continue developing their SaaS or software products even during these economic changes. And I will share some tips on how to make your business an excellent choice during a recession.
Emphasize that small is better.
Going big or going home is not always the path to success. Sometimes people see more significant potential in something small—especially when the economic situation is not exactly blooming. My advice for startup founders in 2023 is to stay calm and keep going with your products. In a recession, some investors prefer to put their money into small businesses because they are not as affected by the changes in the public market.
Thus, if you are a founder of a startup, don’t let yourself down by the idea that your company is small. If you have a good product, it can still be a good idea to go further and look for investments. Focus on your solution, and set some goals for your product’s development. Keep your spending to a minimum, yet make sure to set some development steps to prepare your product for the market.
Keep an eye on the 17-month mark.
History shows that since 1857, the average recession in the U.S. has lasted 17 months, although more recent recessions have been shorter. Once the commotion has subsided, founders will have a compelling proof point to present to investors if the company can survive and show both resilience and growth. In other words, once the money starts flowing again, these survivors might find it easier to raise additional funding.
Yet, for founders, I think the first step to keep your startup going, even in a recession, is to make sure that you’ll have money in the company for at least 24 months without your employee or your business being affected. In the meantime, work and continue putting your product on the market. Once things get depressured, you can look out for new investments. But it is essential not to let your product slip from your hands and to keep on developing.
Focus on long-term growth.
Let’s remember something important: Many of the giants from today were the smallest startups created during the Great Recession. Recessions can provide a favorable environment for companies to grow into market leaders. So why should it now be different? Recessions, market pullbacks and economic downturns can be good periods to launch a startup. And these prospects can exhibit remarkable resilience against financial upheaval because of their lengthy timescales, minimal costs, adaptability and development potential.
As a startup founder, I’ve learned that startups can often build a good product with minimum costs by adapting more quickly than larger companies. And I want to highlight that startups can typically create a good product with a small team. Sometimes we do the job of two people, but this is the startup life. Focus on following the path of long-term growth rather than prioritizing fast development without continuity.
I think the only realistic understanding founders should have in these times is that you know everything and nothing. Thus, adaptability is essential; adapt your product and your business depending on the social and economic context.
For all the startup leaders, don’t worry about being small now; if you survive these difficult times, your company could become big someday!
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
