start up companies during recession

27th October 2022

How Investing In Tech Will Help Start Ups During Recession

Carissa Parnell

It might sound counterintuitive but choosing to be bold and invest in the right type of tech can actively help new start ups weather a recession.

While belt-tightening is important for businesses during the squeeze of economic hardship, for start ups, underinvesting can stagnate growth at a crucial juncture and thereby sign the business’s death warrant.

Start ups in a recession must make careful, smart decisions to ensure stability and survival, or better yet, actual profitable growth.

One of the best ways they can make it through lean times in decent shape is by investing in tech.

Let’s outline the financially safest approaches to tech investment for start ups in the recession. But first, why is investing in tech a good principle in a recession at all, compared to remaining ultra-cautious with spending?

How Can Underinvesting Actually Harm Start Ups In A Recession?

For almost every company, the natural response to recession is to be conservative with spending.pound dropping

In the UK, the pound has fallen dramatically against the dollar and the euro following the announcement of tax cuts by the new government and the reveal of the mini-budget.

This is after an already high level of anxiety around spiralling rising fuel and electricity costs, which are already some of the highest in Europe.

It naturally seems sensible to be frugal, and, therefore, spend as little as possible in an attempt to tide your business over until more lucrative times.

This behaviour is often compounded and exaggerated in companies with smaller budget pools and less flexibility around how much they can spend.

It particularly affects small businesses and start ups, which are prone to collapse if an unexpected recession hits.

However, a major problem with being overly cautious and taking few risks in a recession is that it can make or break a start up. This kind of challenge is what separates the truly great business ideas from the ‘could-have-beens’.

It’s nerve-rackingly true that you must spend money to make money. This idiom comes from the fact that you need to attract sales and avoid disaster in a time when consumers are spending less in reaction to the recession.

Doing nothing to attract new business, improve operations or protect your company in a recession usually shrinks a larger company and folds a start up.

So, we’ve established that start ups should be willing to take some risks in a recession and potentially spend money to survive and thrive. But why is tech the right investment and is it true for all start ups?

How Can Investing In Tech Aid Your Start Up In A Recession?

We aren’t shying away from the fact that a recession is difficult and having the courage to spend during a recession is challenging and does involve risk.

high energy costsCosts are high in the energy crisis, and investors are moving away from untested, innovative ideas and towards firm staples like government bonds and large businesses with proven track records.

A recession also lessens supply chain resilience and reduces optimism at all stages of business from investor to buyer.

While some start ups can do well in a recession if they fill a particular niche, for most it is tough because, more often than not, recession dampens faith in innovation, which affects hiring ability and consequentially hampers start ups’ launches.

It sounds very bleak, doesn’t it?

The solution is to invest in the right avenues, and tech is an area that can actively help a start up in multiple ways.

Having a highly optimised system from product/service to research to marketing to delivery and especially retention is the only way to convince venture capitalists to keep having faith in your start up in these trying times.

The right technology can:

  • Improve security, so less money is wasted on breaches
  • Increase automation of tasks and thereby ultra-streamline your operations
  • Reduce the need for as many staff, thanks to automation and, therefore, cut back on salary spending
  • Help you access more talented staff anywhere
  • Help you secure digital talent to keep innovating and troubleshooting your systems for the ultimate targeting, automation, productivity, and profitability
  • Develop more refined customer targeting

Luckily, the evidence bears out that businesses that do invest in tech survive recession better and come out stronger, ahead of the game.

We’ve seen this repeatedly and especially in recent times. Tech firms came through the pandemic very strong and far richer. Those businesses that had invested in innovative tech before and during the pandemic faired better than those that were wary and slow with adoption.

An example of this would be from over two years ago when a leading Fortune 500 food manufacturer was struggling because of supply chain shortages. This was affecting the entire sector, but this particular company fared better and came out stronger by investing in digital twin technology and a supply chain rapid response operation. It was risky to increase spending and gamble at the time, but it paid off hugely by reducing decision times by 80% and improving product availability.

So, tech can indeed aid start ups to survive during a recession. However, spending in a recession is still a big risk for a new launch needing to secure funding and grow quickly.spending money in a recession illustration

Therefore, which are the safest technologies to spend on, and which are most likely to save your start up?

Which Is The Best Tech For Start Ups To Invest In During A Recession?

In difficult economic circumstances, a general rule of thumb is to aim for recession-proof tech.

What do we mean by recession-proof?

We mean essentials. Even in a squeeze, there are some services that consumers and other businesses require. Let’s browse some examples:

FinTech – FinTech is actually often the solution to many problems borne of crisis and recession and the changing needs of society. We need FinTech for banking, investing and solving many of the financial and payment issues that have arisen due to incidents like the pandemic. FinTech is one of those things that is recession-proof because within it can lie the solutions to the crisis.

Money Saving Services – Potentially an offshoot off FinTech but not necessarily. Money-saving services and systems become in higher demand during a recession. It can be debt management, or even just services giving the population or businesses advice on saving pounds.

Healthcare tech – This is a really interesting one that has become a more modern phenomenon. Healthcare is always a necessity in recession or not. In fact, with the burdens of a recession on mental and physical health, maintenance practices, and healthy eating, it’s actually needed even more during and after a recession. Healthcare tech, however, has been an emerging field that covers everything from better engineering and robotics in healthcare and diagnostic equipment to simpler things like digitising the patient-doctor relationship for more automation and safety following the pandemic.

Care tech – An offshoot of healthcare tech concerned with digitising and improving how the elderly are cared for. Greater automation and robotics have been growing areas in this field.

Childcare tech – This is one sector that is very new and not nearly as far along as healthcare tech or care tech, but we may well see this as a growing field as people work long hours and more jobs in a recession.

Deliveries and logistics – The pandemic shone a light on how essential food delivery services could be and we now know this is one of the biggest essential systems in the country. More money is going into improving productivity and resilience in this field.

These might well be some recession-proof areas of tech that investors won’t ignore even in a recession, but if we’re talking about your individual start up (that might not be relevant to these industries), then where should your money go in tech to help your business survive?

According to leading experts in the field some of the most relevant technologies that can help in times of recession are:

  • Cybersecuritycybersecurity on a laptop
  • AI and machine learning
  • Cloud technology
  • App development
  • Digital twins
  • Robotics
  • Data science and data engineer teams
  • Digital business analysis tools
  • Remote and hybrid work technology
  • Customer and brand experience technology
  • AR and VR
  • Workflow and management digital solutions

However, this is quite a broad list if you’re a newly formed, struggling start up. If you find yourself on the smaller side and looking to survive by investing in tech, we recommend starting even smaller and simpler.

How To Avoid Expensive Mistakes When Investing In Tech For Your Start Up During A Recession

Despite this guidance, it can still be a minefield for start ups to know specifically which technologies are best.

There is so much incredible tech out there from SaaS to having your own unique digital infrastructure developed.

Additionally, there’s a lot of dross that you just don’t need, such as expensive software that doesn’t do as much as its competitor, but they simply had better marketing and now you’re stuck in a contract with 10 software subscriptions bleeding you dry.

Then there’s the stuff which is very good and potentially a big win for your long-term research and growth strategies but currently, in a recession with worrying limits on your budget, it isn’t the right time because the cost is too high and the returns not guaranteed, or at least not fast enough.

So, how can you make a good decision on the right tech in which to invest?

Well, the answer will be partially down to your industry and business goals, however, a good rule of thumb is:

-Hardware

-Cybersecurity

-Automation

  • Hardware – Consider leasing solutions like Device as a Service to guarantee upgrades to the best equipment, or Mobile Device Management to ensure your staff are using your business devices correctly, or even auto zero touch deployment systems to send hardware to remote staff.Intercept advanced with EDR security logo
  • Security – Antivirus software like Sophos or Data Loss Prevention Systems and even MDM systems themselves can guarantee that you aren’t losing customer trust and paying huge fines when employee negligence leads to hacking.
  • Automation – With automation systems like Zapier and Microsoft Power Automate you can eliminate many manual tasks, hire less staff and boost productivity.

So, why isn’t customer data gathering on our list? Surely, this is one of the most profit-driven types of tech?

Yes, customer data gathering is very important, and it can attract more businesses. However, if you’re in a recession and a start up, you’re going to need to make tough decisions about where the money goes. You can’t spend like you could in lucrative times when VCs were lining up to invest in you. Invest smartly in tech not recklessly.

Software that enables you to accrue insightful data on your consumers will be crucial at later stages. It will always be a central part of innovation and framing your strategies around the right audience in the right way. However, a good deal of audience analysis will have been done prior to launch in the best start ups with the sharpest business plans. It will likely have even been a part of your pitch to investors.

This is usually what sets good start ups apart from failures; that you created a service for which there was a genuine need and/or demand, not something that you thought was cool, yet the audience has never considered and would need to be convinced. The latter styles of start up can still be phenomenal business ideas, however, they do not tend to do well in a recession, as consumers are squeezed too tightly and they are far more discerning about where they spend their money.

Another factor is that consumer behaviour can radically shift in a recession or crisis. Consider the pandemic. So, the results of your analysis software and your research might end up constantly telling a different story from one month to the next in turbulent economic hardship.

Look to your tech investment stapes of automation, hardware, and security foremost to survive the crisis and then expand into the more ambitious areas of tech as soon as is viable in your budgets and more stability appears on the horizon.

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