Why A Recession Creates Opportunities For The Tech Sector

Opportunity might not be the first word that springs to mind when you think about a recession, but for the tech sector, the current economic downturn has opened the door to opportunities that would have been impossible pre-pandemic.

The driver of these opportunities is the permanent changes to consumer behaviour caused by COVID-19 restrictions and the subsequent global lockdowns. With more people staying at home, businesses and demand have shifted online, resulting in a number of digital-first start-ups launching to match these changes in behaviour.

Virtual events company, Hopin, is a case in point: the brand spotted a gap in the market created by everyone staying inside during the pandemic and raised over $170m from investors and built up a $2bn+ valuation since lockdown began, despite only being founded in 2019.

Start-ups are designed to evolve

Of course, an inevitable outcome of these changes will be the collapse of businesses unable to change, just look at Arcadia, Debenhams, and Bonmarché. However, for nimble tech start-ups, these changes create an opportunity to latch onto the zeitgeist and rapidly grow a consumer base by offering a digital-first low-cost service that works within the current restrictions on everyday life.

The situation created by the current recession is comparable to the 2008 financial crash – albeit without a global pandemic. At that time, as GDP shrank across much of the Western world and budgets tightened, people became increasingly prepared to change their consumer behaviour in the hunt for cheaper services.

As a result, new digital-first start-ups emerged and started to dominate their respective sectors. Low-cost retailers, such as Boohoo, and travel and transport sector firms including Airbnb and Uber, disrupted their respective sectors by using lateral business models to bring quality services to people in a much simpler way and with a lower price than competitors.

Taking risks can pay off

I have personal experience, having lost my job in the last recession. I used my redundancy pay-out to fund my start-up, Boclips. It was risky, but we spotted a gap in the market created by the recession and went on to raise £10m and become the world’s leading video library for learning.

We expect a similar trend to occur during the current recession but involving far more sectors than the last financial crash. Along with vital sectors – like retail and groceries – the COVID-19 lockdowns have shown businesses how much can be moved online, meaning that the next wave of disruptive digital-first start-ups will cover sectors that were unimaginable in 2008, such as HR, finance, and legal tech.

If you’re fast enough to take advantage of one of the new, immediate sectors opened to tech disruption by COVID-19, then there’s a huge opportunity for rapid growth. And, even if you can’t move that quickly, the after-effects of lockdown on consumer behaviour will lead to plenty of digital opportunities in the future.

The economy will bounce back

While the immediate climate can be tough for existing start-ups that have seen Angel-funding dry up, those who make it to mid-2021 can expect to benefit from the vaccine’s economic bounce and a jobs market that is teeming with talent. Due to the widespread economic disruption of the pandemic, we have never had a pool of talent available to businesses that is so strong and diverse, and for start-ups this is the ideal environment to pick up talent that would normally be available.

A great way to find this talent is through referrals, which will not only help you identify experienced candidates, but will also boost workplace equality. By proactively asking specific people or networks for recommendations, referrals can seed roles and invite in people with the experience and skillset you need.

When you ask for a referral, you are asking someone who knows your business to find someone who has the skills that match what you are looking for. As a start-up looking to take advantage of a developing market, using referrals can help you scale up quickly by finding candidates who exactly fit the skills and experience you need.

In this context, the word recession needs reframing to focus on the opportunities it creates. With consumer behaviour changing and an abundance of talent available, now is the perfect time for a tech start-up to spring up and disrupt its sector and for jobseekers to find new opportunities in the digital revolution.
Interview by Paul Naha-Biswas, CEO and Founder at Sixley

Paul Naha-Biswas, CEO and Founder of Sixley