Why Tech Startups Have Changed Their Hiring Plans

After years of unlimited liquidity and sky high valuations, tech startups are struggling to understand their outlook in a new era of rising interest rates and declining market liquidity, with VCs no longer willing to fund their profitless futures indefinitely. 

Record levels of fundraises and valuations during the last decade were fueled by massive market liquidity. Now many firms are experiencing a mean reversion in growth rates as their cash burn rates have worsened quickly. Tech startups are doing the best they can to survive the economic downturn they will be facing soon.

Most VC investors have asked for astronomic growth rates only and neglected companies’ burn rates. Tech companies that raised capital were asked to grow as fast as they can and ensure any competitors in their space are left behind at any price. Growth was basically the only relevant KPI to differentiate themselves to attract the attention of VCs and hedge funds, i.e. “take your market share and worry about the profit later”.

The largest cost factor tech startups are looking to cut down is their staff. How does the hiring landscape for startups look like during the current tech downturn?

Most startups have cut back or completely frozen their hiring plans, with some only hiring for essential roles as the focus shifts from growth to efficiency. Candidates that previously negotiated their salaries aggressively will find it increasingly difficult to land their dream job as the job market is shifting from candidate to employer. The reduced ability to fundraise means that startups need to reduce hiring.

Many tech startups are now asking themselves, are we as cost-efficient as possible?

If you’re a founder, extending your runway should be at the top of your to-do list right now. That means you should be looking for ways to lower your operational costs. At the same time it is also an opportunity for your team to develop resilience and learn to accomplish more with less. Once you’ve managed to decrease costs, you can invest strategically, and give yourself the best shot at avoiding layoffs.

One way to maintain the quality of your engineering staff – but reduce labour cost – is to collaborate with software outsourcing companies that provide access to engineering experts at significantly lower salaries. Here at Prisma, we enable clients to reduce labour costs and ensure their growth story continues.