Seattle startup CEOs on the chances of a recession and what they’re doing to prepare

An economic recession could be on the horizon, and tech startups are feeling the impact. Many are already cutting costs and trimming their workforce as venture capitalists pull back on investing.

We caught up with five CEOs who are leading Seattle-area startups through the turbulence to get their take on the economy and what they’re doing to prepare. Read on for their insights.

Jacqueline Schafer, CEO of Clearbrief, a legal tech startup

On chances of a recession, from 1-10 (1 being very unlikely, 10 being very likely):

I’m an optimist, but I’d say 3, because while there may be contractions in certain industries, overall I think there is a lot of consumer (and business) demand pent up from the height of COVID. Everyone got used to buying things online and working remotely, which tends to drive demand for quality software products that serve those needs (many of which are built in Seattle!). The legal profession in particular continues to set aside bigger budgets for tech that assists with remote work collaboration, as a seismic shift has occurred and many legal professionals won’t be coming back into the office. I imagine many other industries are grappling with similar transformation that drives software-as-a-service spending.

On how your company is preparing for these economic conditions:

Clearbrief’s customers are litigators, government agencies, and court systems, which don’t tend to face the same challenges as other industries during a recession. In fact, litigation tends to stay quite busy during a recession, and courts across the country are still reeling from COVID-related backlogs. There is likely to be a large crush of steady appellate work in the coming months because of how COVID delayed many trials that are just moving forward now.

But the most critical action for us as a startup is to continue to focus on running the business extra efficiently with our small and super talented team. From an engineering perspective, it seems to be working well, as we’re able to move more quickly than large companies to improve upon existing features and release new ones given the ease of communication within our product team.

Samir Bodas, CEO of Icertis, a contract management software company, ranked No. 2 on the GeekWire 200

On chances of a recession, from 1-10:

With quantitative tightening, hawkish monetary policy, unavailability of material fiscal levers, high inflation, and a war in Europe all converging at the same time, the prospect of an economic slowdown is 100%, in my mind. The key question is: will the downturn be mild or deep, short or long … only time will tell.

On how your company is preparing for these economic conditions:

Out of every major economic downturn of the past 40 years has reemerged massive B2B software categories and category leaders, who have drawn on the transformative power of software, software-as-a-service, and data to make businesses more efficient: enterprise resource planning (SAP) from early 80s recession, customer relationship management (Salesforce) from the dot-com bust, and human capital management (Workday) + supplier management software (Ariba) from the great recession.

In this downturn, we believe contracts, which govern every dollar in and out of the enterprise, will emerge as the go-to asset; they are the untapped source of invaluable business value to reduce costs, manage risk, ensure compliance, and drive revenue. Therefore, Icertis is continuing to innovate and hire across our business because we are bullish that contract intelligence will emerge from this downturn as a massive category and that Icertis is positioned to lead it for the long-term.

Nancy Xiao, CEO of Mason, a mobile infrastructure startup, ranked No. 116 on the GeekWire 200

On chances of a recession, from 1-10:

Ten. We’re already seeing the ripple effects across both early-stage startups and large blue chip companies and the relative value of the dollar both in the capital markets and in our everyday economy. I think there will be multiple phases to this recession, and we will continue to see an impact next on growth-stage companies and verticals such as retail.

On how your company is preparing for these economic conditions:

The first step to prepare actually goes back quite some time. We’ve built our business with durability in mind, knowing that shifting economic conditions are always a possibility. This includes having strong business fundamentals anchored by a solid financial model, unit economics, margins, etc., combined with an understanding of the investments we plan to make based on where we are as a company (e.g., growth vs. profitability). The second thing we’ve done at Mason is plan for multiple scenarios — downside, baseline, and upside — and determine how that impacts our goals, growth, and the bets we are willing to take. Our finance team has been absolutely exceptional in helping us feel confident about what’s incoming.

Daniela Braga, CEO of Defined.ai, an AI training data startup, ranked No. 44 on the GeekWire 200

On chances of a recession, from 1-10:

3. We do not believe in a large-scale recession in the U.S. because the fundamental macroeconomic factors remain very strong: 6.2% GDP growth, 3.6% unemployment, strong customer spending in the first half of the year are all signs of a healthy economy. Actions by the Fed like the 0.75% interest rate increase should stabilize the markets and tamper the inflation, with the supply chain issues being resolved over the next 12 months as China emerges from COVID.

On how your company is preparing for these economic conditions:

We continue to have a carefully calibrated approach to our costs to balance growth and profitability. Cost control is our top priority. We will continue to hire at a prudent pace, backfilling roles and adding only headcount already planned for 2022 with a focus on sales and engineering.

Maria Colacurcio, CEO of Syndio, a workplace equity platform, ranked No. 63 on the GeekWire 200

On chances of a recession, from 1-10:

I think the chances of a recession are highly likely (probably a 7) and the signal I’m watching carefully is consumer credit and spending. The employment numbers are a lagging indicator, so while unemployment numbers are currently strong, they may start to weaken in areas outside retail. Inflation is having an outsized impact on everyday costs and most folks are running low on the cash reserves they banked during COVID. As credit card debt starts to rise and layoffs continue, a recession may be inevitable to bring things back into balance. 

On how your company is preparing for these economic conditions:

We are at a time when investors and legislators continue to demand companies embed workplace equity into their core business, particularly when it comes to ESG (Environmental, Social, and Governance). First, that workplace equity is smart business, in good times and bad. The companies that measure and track equity throughout their organizations are the ones that maximize the value of their workforces.  

Second, for the companies that don’t recognize the value of workplace equity, they’re going to be forced to by employees, regulators, and lawmakers. The pay transparency laws companies had to comply with over the last several years are just the beginning. California is close to passing legislation that would compel companies to disclose their median pay gaps. And, even if they don’t, investors are demanding it through proxy votes and the SEC is writing new Human Capital Management rules. This is a full body scan while simultaneously, employees are concluding that they don’t need laws because they can just post their salaries on Twitter and TikTok.

Long story short, the tailwinds are blowing in our favor and the demand for our solution is growing. That said, no company is immune to macroeconomic volatility. We are being hyper-vigilant with our resources even though we’re in the fortunate position of possessing ample runway.