If you are like me, bearish on the current economic outlook, you might be pretty stressed. In the face of a looming recession, many startup software consulting and contracting firms are feeling the pressure. As business owners, we’re naturally concerned about the potential impact on our revenue streams. Delayed payments, reduced contract opportunities, and increased costs can all pose significant challenges. By implementing strategic measures and adopting a proactive approach, we can not only weather the storm but also emerge stronger on the other side.
The following strategies have proven effective for me during previous economic downturns (COVID-19 pandemic). I’m currently implementing these approaches once again to navigate the current economic uncertainties.
Contracts
Proactive contract renegotiation can be a strategic move in uncertain economic times. Many larger companies often freeze hiring and contracting during recessions, even if it’s detrimental to their operations. By acting early, you can position yourself advantageously. If your current contract is nearing its end, proactively reach out to your client. Express your commitment to continuing the partnership and propose extending the contract for a longer term. Consider including a more stringent termination clause to protect your interests in case the client decides to terminate the contract prematurely.
Consider requesting upfront payments to mitigate the risk of late payments or early contract termination. Negotiate a slightly lower rate in exchange for upfront payment, perhaps in the form of credits. This approach ensures that you receive compensation for your work before it’s completed, providing a financial safety net in case of unforeseen circumstances.
Opportunities
In my experience, the consulting and architectural aspects of the business tend to decline significantly during economic downturns. Contracts for new app architecture and team management often dry up quickly. However, many companies also reduce their software development teams to manage long-term liabilities. Despite these layoffs, they still require developers to maintain their existing codebase and applications. This presents an opportunity to pivot your focus towards these maintenance projects. While they may not be as lucrative as new app contracts, they can provide a more stable income stream.
Operation
Finally, and perhaps most challenging, is adjusting your operations. Conduct a thorough review of your entire business, including costs, revenue streams, and cash reserves. Project potential future scenarios, such as a worst-case scenario where no new contracts are secured and current contracts terminate early. Assess your risk tolerance and develop contingency plans. For instance, last year, I anticipated a potential shortage of contracts to keep all my software developers busy in 2024. To mitigate this risk, I made the difficult decision to let go of two developers in September, providing them with an ending date of December and two months of severance. While this resulted in some lost revenue due to increased client inquiries near the end of the year, it was a necessary step to manage my business’s risk. By giving your developers ample notice and treating them with respect, you can maintain positive relationships, even after termination. Remember, your developers are one of your most valuable resources, and burning bridges should be avoided at all costs.
Conclusion
By implementing these strategies and maintaining a proactive mindset, you can significantly increase your startup software contracting firm’s resilience in the face of economic downturns. Remember, while recessions can be challenging, they also present opportunities for growth and innovation. By adapting your business model and focusing on long-term sustainability, you can not only weather the storm but also emerge stronger than ever.