The technology sector faces challenges after sustained growth

The technology sector, one of the sectors that has best withstood the pandemic, is currently facing new challenges after recent setbacks.

Posted at 2:55 p.m

Adena Ali
The Canadian Press

Shopify last month announced layoffs of 10% of its global workforce and spending cuts at its non-core businesses. Wealtsimple said it plans to lay off up to 13% of its staff and focus on its core businesses: investments, banking and cryptocurrency. Just last week, Vancouver-based Hootsuite announced it would lay off 30% of its workforce as part of a global restructuring.

Other prominent companies that have announced layoffs in recent months include Clearco, Coinsquare, Article and Thinkific Labs.

Young companies trying to attract the attention of investors are finding that the climate is very different than it was a few years ago. The Canadian Venture Capital and Private Equity Association says the number of deals declined in the second quarter compared to the previous three months.

Experts say companies need to be aware of the current climate. They also need to find ways to grow in order to be in a better competitive position after the downturn ends.

The sector’s doldrums come after a long period of growth and expansion accompanied by strong demand.

“It was hard to see the signs that things were about to turn around so quickly,” said MaRS Discovery District’s Mike Abramsky.

In his opinion, the sector will struggle for some time due to rising interest rates, high inflation, risks of recession, market instability and a slowdown in activities that have benefited from the pandemic such as online shopping.

“There were too many signs of a severe storm,” adds Abramsky. Everything related to interest rates, economics and stock markets, such as e-commerce, the real estate sector, cryptocurrencies and even FinTech companies imploded. And with a recession on the horizon, no one can predict the future. The facts, which are not yet known, will force companies to exercise caution. »

Laura Lenz, a partner at OMERS Ventures, says companies need to find ways to save money, whether they need it or not. This will help them improve their profitability without having to raise new funds.

In addition, they must have a clear idea of ​​what will lead them to profitability, adds Lenz. To achieve this, discretionary spending, marketing, certain activities and even labor must be reduced.

“They also need to monitor sales efficiencies and renegotiate everything from rent to professional service contracts. Another solution is to consider automating unprofitable repetitive tasks so employees can focus on the valuable work they were hired to do. »

Mme Lenz argues that investors, particularly venture capitalists, are looking for “phenomena.”

“They want to invest in companies whose growth rate will be 50% despite the current macroeconomic environment,” she says.

For her part, Nuna Fain, director of a masters program at a business school affiliated with Queen’s University, says it is important for these companies to have more than one source of income in order to be able to adapt to different situations, although taking care of their core activities will always be essential be.

“Putting all your eggs in one basket is not a safe bet,” she argues.

Mme Lenz predicts that two areas will see growth: workforce automation and techniques to combat climate change.

“I expect some decentralization and a reduction in our reliance on FAANG [Facebook, Amazon, Apple, Netflix et Google]. »

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