In the Q2 of 2022, the U.S. posted a second straight decline in its GDP. This immediately sparked a debate over whether a recession had started or at least was coming.
While the powers that be decide on official titles, there’s no doubt that economic headwinds are headed our way. As is always the case in the real world, though, this doesn’t spell disaster for everyone. There are many companies that thrive during a recession. Some of these are obvious, like enterprises in the industrial supply chain, utilities, and discount retailers industries.
However, tech isn’t typically included in that list. Technology brands tend to be more fragile and can easily tumble during hard times — but again, not always. Some areas, like AI, can thrive during a recession.
Even tech startups, which are the epitome of fragility in an economic pullback, can position themselves to do well. Here are a few examples of companies that are doing just that in a few different ways.
1. Gabb Wireless
Gabb Wireless is a startup with a purpose. The company creates smartphones that are targeted toward younger users. These devices offer key functions, like talk, text, and music. At the same time, they don’t offer access to games, social media, or the internet, in general.
Gabb is a company set to succeed in the present for a couple of different reasons. First, the threat of a recession is coming during one of the company’s highest periods of annual revenue: the back-to-school season.
As kids head back to the classroom, parents want to maintain healthy and safe communication. This is often done as a necessity, regardless of cost or economic conditions, which leads to the second key contributor to Gabb’s sustained success: its mission.
Many tech startups focus on relatively shallow ideas that, in theory, offer some kind of benefit. However, when the rubber hits the road, their services and products don’t deliver.
In the case of Gabb Wireless, the benefits are clear, they’re ethical, and they supersede financial concerns. This puts the startup in an ideal position to thrive in the months ahead, even if the economy takes a temporary step backward.
UiPath is a Romania-based robotic process automation company. One of the pioneers in RPA, UiPath’s software helps large-scale end-to-end automation that enables businesses to automate processes throughout their offices.
UiPath is a company that has capitalized on fundraising at the best time possible. After multiple rounds of funding that started in 2017, UiPath was able to land a $225 MM round of funding in June of 2020 as the pandemic was wreaking havoc on the entire market. Less than a year later, the company raised another $750 MM funding round in February of 2021 — still during the pandemic.
UiPath recently went public and is quickly leaving the startup phase. Nevertheless, it remains a killer tech company that is gaining momentum at the perfect time to beat the odds.
This last item isn’t technically a tech startup anymore. But it still operates like one.
Uber has continued to function as a startup ever since it launched well over a decade ago. It has generated razor-thin margins and consistently operated at a loss.
Nevertheless, the core mission and strategy of the company have kept it afloat. And, of course, a large part of that strategy has revolved around the desire to create self-driving cars to power the company’s fleet of vehicles — something that steadily draws closer to becoming a reality.
While Uber’s biggest days are likely ahead of it, in the here and now, the possibility of a recession could once again raise the question of Uber’s fragile nature. However, in the same month that a recession became a clear possibility, Uber turned cash flow positive for the first time.
The rideshare giant may still be operating as a startup. Still, it appears that it’s finally gaining some serious momentum and turning a corner — just in time to help it survive the economic turmoil that may lie ahead.
Overcoming the Challenges of a Recession
Tech companies are often among the first to struggle during a recession. While they offer powerful benefits, customers tend to under-prioritize them when they need to stick to a strict budget.
This may be common, but it doesn’t have to be an assumption.
There are many tech companies that can position themselves to survive during hard times. Some lean on the necessity of their products, as is the case with smartphones for kids or AI innovation. Others can store up a wealth of funding to help them survive temporary economic setbacks. Still others can catch just enough momentum to exit the startup phase and the need for continual cash infusions before hard times hit.
There isn’t a single definitive formula for overcoming economic adversity as a tech startup. The important thing is maintaining a sense of flexibility and willingness to adapt to one’s circumstances.
Recessions are difficult, but they aren’t permanent. If a company can survive the short-term, it can position itself to thrive in the long term, even as a startup in the technology sector.