As I reflect on 2022, it was a turbulent year that profoundly impacted the global economy. Businesses across the globe braced themselves for uncertain times as they navigated the downturn. As we start 2023, software startups, in particular, are facing unique challenges as they seek to preserve cash, balance talent needs, and stay ahead of the competition. Moreover, as interest rates increase at unprecedented rates, economists across the nation are debating the severity and length of this looming recession and whether economies will experience a hard landing or a soft landing.
Such an economic disruption of inflation, increasing interest rates, economic tightening, and supply chain challenges are not new. However, many durable companies have successfully navigated economic turbulence in the past. While success is not guaranteed, we can learn from those who have seized new opportunities amidst uncertainty. As we saw during COVID-19, companies that are agile and responsive to market demands have an opportunity to excel.
As we prepare for 2023, here are five focus areas CEOs and founders should focus on to successfully lead their companies through an economic slowdown and recession.
5 focus areas for 2023
Anytime a company faces the kind of headwinds we’re seeing, they need operational flexibility and the financial runway to quickly pivot strategies and invest in innovation that capitalizes on changing consumer demands.
- Customer-First Focus: Product market fit is critical for any business to grow. Businesses must partner closely with their customers to develop a deep understanding of their customers’ needs, continuously solicit feedback, and deliver on commitments to increase product stickiness and brand affinity. This closed-loop feedback requires the flexibility and willingness to quickly update your offerings to take advantage of the changing customer and market requirements. Again, COVID-19 is a great example. There were opportunities to meet new market demands (primarily driven by a newly remote world) and pivot operations, so employees were just as collaborative, innovative, and agile without four walls and a whiteboard. Companies that could do both saw massive growth (ex: Zoom).
- Operational Flexibility: With any quick pivots, you must have the infrastructure to reprioritize roadmaps, redeploy talent, track performance, and measure progress. Your ability to quickly realign your people, change processes, set new goals, and update roadmaps will yield the desired return from these investments. Also, this will require your business with solid operational capabilities to track the impact of change on the topline growth while maintaining control of the bottom line and ensuring employees are engaged and delivering on the new priorities.
- Financial Health: Cash is king. In the third quarter of 2022, venture funding was down by $90 billion from 2021, a 53% decrease from 2021. As a result, companies need to control their burn rate and invest for both topline and bottom-line growth. Strong financials position a company to meet these challenges head-on and provide flexibility to take advantage of opportunities, such as reinvesting in new product offerings, hiring top talent, or exploring acquisition opportunities as cash dries up for competitors or partners. If your runway is short heading into 2023, you must quickly explore options to increase capital to maintain growth through the recession.
- Leadership Strength: The true test of a company’s strength lies in its leadership. If a business has a strong, cohesive leadership team that believes in the company, has a shared purpose and goal, and can quickly align on priorities to steer it through challenging economic times, it will survive. These leadership teams know that it’s not just the balance sheets and the roadmap that help them succeed. They will also help their employees navigate through recessionary times. Every company will make trade-offs to maintain and extend its runway. Leaders must partner with employees to help them buy into the changing priorities and successfully navigate ambiguity.
- Alternative Funding: If you need funds to extend your runway, support a merger, or invest in a strategic initiative, options are still available. Venture Capitalists are still investing, but keep in mind that valuations are down by as much as 54%. Debt financing is still available, but interest rates will make it costlier. Non-dilutive funding options such as Boast’s Quickfund, grants, and the R&D tax credit are great options that provide quick cash without costly interest rates or decreased ownership.
Recessionary environments are rarely ideal, but they provide unique opportunities to meet changing market needs if you have the financial flexibility and business agility to pivot and deliver value quickly. Slack, AirBnB, Uber, Pinterest, Instagram, Square, Whatsapp, and Microsoft were all born during a recession cycle. This next year can be highly successful if you have the strategic vision to capitalize on new opportunities and stay closely aligned with your customer’s needs.
So I hope you look at 2023 as an opportunity for growth and strong leadership. Together, we will learn what 2023 will bring. But we believe there will be opportunities to excel, and we are here to support you as you double down on innovation.