Tech Wreck: What It is + How Companies Can Mitigate Its Impact

Categories: Advice for Start-ups and Entrepreneurs

With an increasing demand for cloud technology adoption and AI, the tech industry witnessed unprecedented growth, and Big Tech became more profitable than ever.

However, the numerous headwinds encountered in 2022, like the Russia-Ukraine War, massive inflation, and supply chain issues, made the market more cautious about investing. As such, Big Tech suffered losses throughout the remainder of the year. The number of tech layoffs was also unprecedented, with tens of thousands of industry professionals losing their jobs.

Experts have called this phenomenon a tech wreck—a massive slump in an already-disappointing time for the tech industry.

What is a Tech Wreck?

Tech wreck refers to the value collapse of the most prominent players in the global tech industry—Amazon, Apple, Facebook, Google, and Microsoft—which significantly impacted markets and economies worldwide, given the size of their market shares.

In retrospect, world events that dominated 2022 hinted at last year’s tech wreck. For starters, Big Tech suffered tremendous losses; Meta’s investment in Reality Labs reported a total loss of $13.72 billion last year despite its $2.16 billion revenue. Apple also underperformed in 2022 partly due to supply chain issues caused by COVID-19 restrictions on its Chinese factories.

The high-interest rates persisting today also played a part. As inflation reached its highest point since the 1980s, investors were more hesitant to bet their money, and for a good reason. It’s risky to invest in stocks that primarily grew during low-interest environments. As a result, economic growth and market developments drastically slowed down, even in non-tech industries.

How Will Tech Wreck Affect Companies?

businessman checking bearish market

As mentioned, Big Tech’s movement significantly influences the economy and, by extension, your company. So, being aware of tech wreck’s potential impact on business operations and revenue is crucial to keeping them at bay. Let’s discuss some of them below.

Cost cutting means current projects may be canceled or not renewed

As companies try to mitigate the impact of these economic headwinds, they will surely start with cost-cutting measures to make their companies leaner. Unfortunately, this may mean that your current clients will cancel or not renew their contracts with your company, leading to a tight cash flow.

Bearish sentiments mean fewer projects

Recessions tend to discourage investors and clients from taking up or maintaining contracts. After all, new projects involve spending money, which is already inadequate during these instances. So, you might encounter fewer projects and, in turn, less revenue and client growth.

Downturns mean less access to credit

The tech wreck further exacerbates the effects of already high inflation and interest rates. Given the current economic instability, borrowing is more challenging, especially when banks hesitate to lend. As a result, you have less access to credit, which could be used to expand or cover expenses.

Restricted cash flows mean slow collections

Following this domino effect, anticipate that even the clients you’ve retained may experience lower earnings than usual. You might have difficulty collecting payments for your services, as their cash flow may not be ideal. This problem significantly affects organizations relying on subscriptions or retainers for profit.

Cash crunches mean some businesses may not survive

Low revenue and high-interest rates could cut many companies’ operations after they struggle to keep up without sound finances. A 2022 survey from Digital found that 65% of businesses admitted they were likely to close for good if inflation doesn’t show signs of slowing down.

How to Mitigate the Impact of Tech Wreck

More companies are struggling to operate due to current economic instabilities partly brought on by the tech wreck. Here are some ways to secure your business during these uncertain times.

Create a cash flow plan

Keeping every cent in check is critical to avoid overspending. Otherwise, you could lose a significant revenue percentage to unforeseen costs. Create a cash flow plan to help track incoming and outgoing money and ensure your organization meets its financial obligations.

Leverage technology to be more efficient

Minimizing expenses wherever possible is essential to growing the company’s savings. Leverage technology, such as automation and cloud technology, to make specific tasks more manageable and eliminate the need to hire new employees. In turn, you’d have more ready cash to tide you over to less turbulent times.

Focus on client retention reports that acquiring new clients costs five to ten times more than current ones, with the latter spending an average of 67% more than new customers. The more valuable client is a no-brainer—invest in customer retention strategies to maintain your current client base and maximize revenue. 

Reduce operating costs

Consider reducing operating costs and cash outflow by cutting non-essential labor and SaaS subscriptions. You may also outsource staff to drive down operating costs further. A recruitment firm can help you build offshore teams to leverage cheaper labor costs in countries like the Philippines.

Control your growth

In an unstable environment, adjusting according to economic movements is game-changing. Ensure adaptability by avoiding fixed investments, like an entirely in-house workforce. Fortunately, outsourcing is flexible because teams are scalable depending on your needs without complications.

Stay on Top of These Unstable Times

There’s no telling exactly what the future has in store. The tech industry is poised to bounce back this year, so you could at least expect the economy to pick up speed to some degree. Still, if we learned one thing, being flexible to change is vital to keeping any organization afloat Need help starting an offshore team to reduce operating costs? Manila Recruitment, the top recruitment agency in the Philippines, can help set up your business for success in the country. Contact us today to learn more!