Over the past weeks, the odds of a recession increased significantly. While financial experts are divided on the likelihood of a recession happening anytime soon, prudent C-suite leaders are already taking tentative steps designed to help their enterprise survive and perhaps even prosper during an economic downturn.
To prepare for a recession, tech companies should focus on cutting unnecessary costs without compromising innovation, advises Trevor Young, chief product officer at cybersecurity firm Security Compass. “This means automating processes, streamlining operations, and using resources like cloud services more efficiently,” he says in an online interview. Young also suggests diversifying revenue streams. “Don’t put all of your eggs in one basket.”
Max Shak, CEO of team services firm Zapiy.com, stresses the importance of driving innovation during economic downturns. “Companies that maintain or even accelerate their innovation efforts during a recession can emerge stronger when the economy recovers,” he says in an online discussion. “The key is to focus on products or services that meet the evolving needs of customers, whether that’s in response to changing market conditions or advancements in technology.”
Most Vulnerable
Some tech businesses are more vulnerable to a recession than others, Shak says. Startups and smaller tech firms that are reliant on venture capital funding, or have limited cash reserves, are often at greater risk, he observes. “These businesses may struggle to secure necessary funding during a recession, and their growth could stall if their investors tighten their belts.”
Tech firms that depend heavily on consumer discretionary spending are also likely to likely to suffer during an economic downturn, says Rose Jimenez, CFO at culture.org, a cultural news platform. “Think e-commerce platforms selling non-essential goods or subscription services that people tend to cancel first when tightening their budgets,” she states in an email interview.
Also endangered are ad-supported tech companies, Jimenez says. She notes that smaller social media or content platforms are particularly vulnerable, since advertising is often one of the first areas cut during economic uncertainty. “Startups that are still pre-revenue or burning through capital fast without a clear path to profitability are also at risk, especially if they’re relying on new funding rounds,” Jimenez adds. “When capital tightens, investors tend to get cautious, and that can put a strain on early-stage companies without strong fundamentals.”
Firms that market non-essential products or services, such as luxury tech or expensive software solutions, are likely to suffer, Young says. Startups that aren’t well-funded or companies that depend heavily on outside investment can also be at risk, as investors might pull back in tough times, he states.
Especially vulnerable during a downturn are businesses that rely heavily on enterprise clients with long sales cycles, especially those in sectors such as B2B, SaaS, or enterprise software solutions. When a recession hits or even when economic uncertainty rises, large corporations tend to slow down their purchasing decisions, says Wes Lewins, CFO at financial advisory firm Networth. “Budget approvals take longer, IT investments get delayed, and non-essential upgrades are put on hold,” he explains. “For tech companies whose revenue depends on landing big-ticket clients or closing long, complex deals, that slowdown can significantly impact cash flow and forecasting.”
Warning Signs
Young sees warning signs that a recession could be on the horizon. “Things like inflation, rising interest rates, and global instability often point to tough economic times,” he notes. “However, the beauty of the tech industry is its ability to innovate and pivot, so companies that stay agile and forward-thinking can actually find opportunities even when the economy is struggling.”
While there’s no recession yet, there are signals suggesting a higher risk of an economic slowdown in the near future, Jimenez says. “The next few quarters will be key, especially as businesses react to global trade tensions and consumer confidence shifts.”
Final Thoughts
Recessions, although challenging, can also be a time to rethink and innovate, Young says. He notes that a recession can provide an opportunity to focus on digital transformation, explore new markets, or refine products. “For example, businesses in cybersecurity may see even more growth, as security threats often spike during downturns,” Young explains. “The key is to be proactive, flexible, and to always stay connected to what your customers need.”
Shak says that preparing for a recession involves maintaining financial flexibility, focusing on customer value, and staying agile in the face of changing market conditions. “Tech companies that are proactive, innovative, and resilient are more likely to weather the storm and come out stronger on the other side.”
Young agrees. “If you embrace change and stay ahead of the curve, you cannot only survive a recession but come out stronger on the other side.”