Wherever you turn, the news is reporting that startups, even some amazing ones, have a target on their back.
CNN led with this banner, “The startup world is due for a reckoning.”
Bloomberg’s headline read, “Tech Companies Coddled Their Employees. Now They’re Firing Them.”
The NY Times described current conditions this way: “Start-up workers came into 2022 expecting another year of cash-gushing initial public offerings. Then the stock market tanked, Russia invaded Ukraine, inflation ballooned, and interest rates rose. Instead of going public, start-ups began cutting costs and laying off employees. People started dumping their start-up stock, too.”
In a tweet, a well-known VC opined that investors were warming to layoffs. “The good big companies are overstaffed by 2x,” tweeted Marc Andreesen. “The bad big companies are overstaffed by 4x or more.” His frustrations aren’t entirely surprising. Crunchbase notes: “Of Andreessen’s 17 portfolio companies that went public at initial valuations of $1 billion or more in roughly the past 18 months, all but one are trading below their offer price. And even the one outlier—Airbnb—is down from its first-day closing price.”
These depressing headlines and stats lead to the likely conclusion that a recession, while not guaranteed, is likely to impact the freelance economy within the next year and perhaps sooner. This would affect freelance platforms and individual freelancers in different ways.
If you are in a high in-demand professional areas, particularly tech, the impact could be positive rather than negative. For example, Upwork reports that among its most in-demand skills, those with particularly strong year-over-year (YoY) growth include areas like web programming (43%), web design (31%), and social media marketing (25%).
Freelancers often perform well during economic cycles when companies retrench and layoff permanent employees to reduce fixed cost, but need continuing help with critical projects. As a recent Forbes article put it:
“Freelancers are often more appealing to employers during a recession. A sole proprietor or freelance consultant does not require the heavy benefits package of a full-time employee, including health insurance, a 401(k) or paid time off.”
“A freelancer is also willing to work in a more flexible or a la carte manner. Instead of necessitating a 40-hour-per-week paycheck, a consultant will often work a flexible 10-15 hours per week while still delivering what an enterprise needs to keep the lights on, fill gaps and generate forward momentum.”
But many professionals in and outside of tech will be affected by the economic slow-down pundits are anticipating, particularly in discretionary spending areas like hospitality.
You may be one of the 60 million professionals who are full-time freelancers or employee with an active side-gig, or a freelance platform founder or team member wondering how best to prepare. If the latter, perhaps you are spending down a seed investment and unsure how to meet the high expectations of your investors, and see the need to reduce your burn rate to preserve cash.
There is no right answer, but there is value in a disciplined review of your business, assessing likely contingencies, and identifying ways to reduce vulnerability. Here are several approaches that can help define your risk and take necessary steps.
Personal hackathon. Created by Tal Shmueli, an Israeli entrepreneur, the personal hackathon is a way to identify strengths and weaknesses that impact your success during recession: Ask colleagues who know you well and will be honest describing what you’re good at now, and what you must become good at, to succeed during tough economic times. Then absorb, identify, and take specific actions that enable you or your platform to meaningfully improve. Read more about the hackathon here.
Fix the roof while the sun is shining. Most economists expect a difficult stretch, but it’s still fairly buoyant for many freelancers. And, therefore, it’s a felicitous time to address needs for improvement in your personal freelance practice or the state of your platform. As the saying goes, “The best time to fix the roof is when the sun is shining.” What investments can be quickly implemented with a sure knowledge of strong payback? Is your current six month-out projected work portfolio strong enough? Are there ways to risk-proof your forecast? If a platform leader, do you have the right mix of freelancers? Do you have access to other talent networks as needed? Have operational problems been ignored and must be fixed? Is this the right time for a sprint to add automation to the platform or improve administration of your business? Read more from Linkedin here.
Demand planning. More and more platforms have begun to focus on demand planning: helping clients identify work requirements over the next few quarters. Twice a year, Catalant engages clients on upcoming project needs. Gigged.ai in Scotland recently implemented a similar process. More enterprise-centric platforms like Toptal.com recognize the value of continued contact through client partners who build ongoing relationships with important enterprise clients similar to the role found in executive recruiting, consulting and investment banking. Read how Catalant uses demand planning here.
Stress test. The outcome of demand planning positions you nicely for stress testing. If you had much to do with banks during the Great Recession of 2007, you know a stress test tests the financial resilience of your personal freelance business, or the platform you lead, against significant financial impact. What is the impact of a 10% revenue reduction in your business? How about 20%? Could you afford to lose one or more of your top three clients? What if clients push to slow project schedules or renegotiate rates? Read a McKinsey article about stress testing here.
Scenario analysis. Think of scenario analysis as a stress test with ambition and imagination. The stress test identifies sensitivities, and offers a better understanding of the impact of recession on your freelance practice or platform. Now, what to do about it? Scenarios help you test different options e.g., is it better to grow our way out or cut costs. For example, 9am.works, a new “freelancer first” platform, was the result of futuristic scenario thinking at Codecontrol.io, a successful German tech platform. More about scenario analysis from MIT here.
Action research. Do you know you need to make change? Then, get started, using agile experiments. One example: Gabe Greenberg at G2i.co is driven by a vision of healthy work for both the platform staff and freelance members. One recent innovation: shifting to a four day work week. Rather than debate endlessly, he and his team tested it for a month, making sure of good communication to clients, and how to ensure client and freelancer coverage for problems that came up. It passed with flying colors. It didn’t yield a cost savings, but was a big plus in motivation and job satisfaction. In tough times, that makes a difference. Read how Maersk used action research to accelerate strategic change here.
Find a good coach or advisor. It always helps to have a guide when in new territory. A guide that’s “been there, done that” can be of immense help in evaluating different options for dealing with a challenge economic climate. One of the most helpful contributions of such a coach is their understanding of the more non-obvious, non-linear, consequences of different courses of action. Read how Aceup, a freelance platform of professional coaches, helps companies and leaders drive change here.
Each of these approaches is road-tested, and disciplined use will aid both individual freelancers and freelance entrepreneurs to identify and taking the actions needed to keep the business operating and clients well-served. But, don’t delay. And, as Crunchbase recently put it, “To survive this cycle, think like a cheapskate. Down is good.”
Viva la revolution!
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