In order to respond to the high temporary demand, many of these companies expanded organically and inorganically; investing both in development and in human capital, without measuring a key factor: real profitability. Few could see that the demand curve for resources was flattening for a long time because this unbridled rage was not possible to sustain without a solid and verified business model.
There were many factors that caused this blow to technology-based companies, although they all lead to the same cause: the cut in financing. From now on, the world economic scenario attacked the model: on the one hand, the war in Ukraine forced all economic forecasts to have to adapt to the new reality, while the deep and rapid rise in interest rates Interest rates in the United States and many other countries to try to control the historic rise in the cost of living made credit more expensive, ending the era of cheap money available to companies and high-risk investors.
Enthused by the promise of unprecedented growth, they were ruthless in recruiting talent, setting up publicity and garnishing projects with huge budgets to seek to reach the first in each category, speculating that they would improve results, not counting with the definitions of the business, the maturity and the structure of the team that goes beyond the technical issue. Thus, the performance of a team without taking into account these considerations is erratic, and the arrival of financial winter ended the chaos: firing staff was one of the consequences, but not the only one. The correction is also reflected in the decrease in investment in advertising, which reaches 50% or more, and from there drops to the entire chain.
Because what the money from endless financing did was make up these conceptual errors from the business and allowed it to move forward without too many questions, but when the available money was limited, something that nobody focused on became evident: the potential profitability of a company and a mature and responsible business model is what really matters.
In parallel is the issue of regulations. When there are innovations that emerge and the market is not ripe to receive them, the issue of regulation remains gray, and this gap makes the business model unfeasible. To adapt regulations, time and money are needed… and the latter is what is missing.
Technology: what to expect in 2023?
For now, we have to know that we will see much less activity in the technology sector in the future, because while for some companies it is just a cost adjustment, for others it represents the end of a cycle of frenetic growth.
Most importantly, the job market in the IT industry is still tightening and the industry’s unemployment rate remains remarkably low. In addition, the high demand for job profiles in the industry remains, only now the IT job market has lost the fierce competition that has characterized the sector, with salaries and benefits inflated to attract talent. The industry needs quality workers who can adapt to a real market, where profitability is essential to maintain jobs and the scalability of projects.
But none of this is going to work if you don’t start by proposing a concrete, real, sustainable business model that observes long-term profitability.
Vortex Director of Innovation.
Source: Ambito
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