If you’re in the technology industry, the executives of your company have likely been inundated recently with advice on how to manage the current market turbulence. While the advice varies by giver, it usually includes some combination of: preserve cash, cut expenses, slow hiring, focus product strategy, scrutinize pipeline, and cut anything not core to the business. This is all great advice, which I have heard repeated now for the third time in my career - first during the Dotcom Bust, then during the Great Financial Crisis of 2008 (GFC), and again in the last few weeks. But since the vast majority of us are running careers and not companies, my advice on weathering an economic downturn today is focused on you. Let’s get started:
Assess Financial Health
I’m a technologist and not an economist. Like you, I’ve read credible analyses that show everything from an optimistic outlook over 2022-23 to a GFC-level crisis. My gut tells me the answer is likely somewhere in between, and that it’s possible - if not likely - we’re already in a global recession. If I’m right, now is a good time to review your personal finances. Are your expenses aligned with your income? Do you have an emergency fund? Can you afford your cost of living if you see no or minimal salary adjustment over the coming years? How much of your net worth is tied up in stock options that may be overvalued?
Just like a company, preserving personal capital can be critical to weathering an economic downturn.
Assess Company Health
If the economy had been allowed to continue on its own, it may have started cooling in 2018, giving time for central banks to raise interest rates and reduce their bloated balance sheets before the arrival of a global pandemic. But unfortunately the Fed and US government were caught flat footed when Covid-19 arrived, leaving few choices other than to allow this bull run to go on long past its expiration date. The result has been the creation of a market bubble. To put the excess of our industry into perspective, for most of my career, a growing private software company making $10M in revenue would be valued by the market between $80-120M (8-12X). That same company in the last two years has seen valuations of $1B (100X) and more.
In even the most optimistic market outlook, these days are over. Yes, there will still be exceptional valuations for exceptional companies. But the vast majority of companies will have to learn to live again within the laws of physics, where success is measured by revenue, growth, burn, efficiency, and cash on hand - not the size of your recent valuation or venture funding.
So are you at a company that can weather a downturn? Do you have strong executive leadership you trust? Do they communicate with transparency and integrity in both good times and in bad? Is your product a “must have” for customers? What type of revenue growth have you seen over the last 4+ quarters?
If our economy were a game of musical chairs, your goal should be to ensure you are sitting in the right chair when the music stops. And unfortunately, the music always stops.
Assess Job Health
Just because you are at a good company doesn’t mean you will be immune from market turbulence. Is the product you build / market / sell / support critical to your company? Is the work you do important to its success? Are you good at your job? Are you working with good people that you enjoy and respect?
For 10+ years, we’ve lived in a boom market in which customers always want to buy more, valuations always go higher, salaries always go up, and there are always more jobs available than people to fill them. Many people in our industry have spent their entire professional career in this boom market - so long you may actually think this is normal.
My first recession followed the Dotcom Boom of the late 1990s. Prior to the bust, startup valuations soared, access to venture capital was easy, and it seemed like there were infinite jobs available. Many of us were convinced we were building a “new economy”: one that was immune to the booms and busts of previous generations. But that thinking changed quickly in 2001. Within weeks, trillions of dollars of wealth were wiped out, and within months thousands of startups started laying off employees. Overnight everyone stopped talking about their new remodeling project or vacation home. Instead one of the most popular topics of conversation was a new site called F*ckedCompany.com, which aggregated the inside employee view of the dead and dying companies in our industry. I still remember the whiplash of going from unlimited career opportunities to being happy to just have a job.
I’ve talked mostly about the downside of a recession, but the reality is there is an upside too. Both great companies and great people often thrive in downturns. Economic downturns bring scarcity, and scarcity rewards innovation, hard work and performance. Many of the great companies we know today - e.g. Google, Facebook, Microsoft, AirBnB, Netflix - owe some of their success to having been forged in recessions. The converse of this is of course also true: many people who are not good at what they do may go unnoticed in a booming economy, but find it hard to maintain their jobs in a downturn. So if you are great at your job, stay positive, don’t let the news cycle get you down, and just keep doing what you do. While the rewards of performance may sometimes be a lagging indicator, they almost always align over time.
Remember What Matters
In boom times, everyone wants the next salary increase, promotion, more stock options, and better titles. Recessions are a good opportunity to remember what matters most in a job is working with good people, for a good company, on a good product, with a good salary, and with the ability to make an impact for your business / customers. Sometimes job satisfaction can really be that simple.
Yesterday I was on a private call with a major financial firm that was projecting a positive outlook for the future: slowed but steady growth, easing inflation, a loosening of the supply chain, no recession until 2H 2023 at the earliest, and a stock market recovery by end of year. I very much hope this is true. But I’m not planning for it, and hope you are not too.
Cover image made freely available via Pixabay