Recession Fear: What to do when finance and R&D goals are at odds

The general consensus is that we’re headed for a worldwide recession in 2023. Will it be modest? Will it hit at the beginning of the year or much later? Or is it too hard to predict?

It’s the uncertainty that has many corporate finance managers pushing the brakes on spending and hiring plans to control operating expenses (OpEx) while they wait out what happens with the markets over the next few months.

One thing is for sure. The financial freeze immediately impacts the research and development (R&D) efforts of small and medium-sized independent software vendors (ISVs). You can almost hear new features and capabilities icing over as plans for additional resources are suspended.

Get ready to hire, but don’t spend any money

The usual advice from finance and human resources is that when the hiring freeze is over, job requisitions will reopen. Just don’t spend any funds now on recruiting. News of big layoffs at large tech companies may likely have finance/HR thinking that the labor market is softening, making it easier to find talent when the time is right.

Tech development managers know the opposite is true. Finding and hiring specialized tech talent remains a challenge. Typically, top performers were not part of recent layoffs from big companies. Many big companies used the recent market turmoil to trim their bottom 10% employees. And even if candidates from these firms have the right skills, their big company expectations for compensation and benefits likely exceed what a growth-stage firm can afford.

Plan B to the rescue

During the budget freeze, tech development managers can use the time to their advantage to flesh out their plan Bs, so they are ready to move forward quickly when funds are released…without spending a penny.

1. Prepare a post freeze recovery plan detailing what release dates are most at risk, the impact on future development goals and the effect on milestone commitments to clients and investors.
2. Develop a plan for the tech skills injection needed to get back on track. Include a staffing plan that defines the needed new sprint teams, DevOps and QA people and their required skills. 
3. Engage and vet an outside development partner now to lock down the right firm with the resources and proven experience to meet specific needs. Get them started on the outside recruiting and team assembly that you can’t currently do internally.
4. Prepare a budget for services and work with the finance team now, so they understand the strategy and are ready to approve moving forward when the time is right.

Having a Plan B ready to go means you’ll be able to move faster than competitors as the economy recovers.

What, me outsource?

Many firms may have yet to consider software development outsourcing and could be reluctant to include it in their plans (or plan Bs) now. Yet, there are advantages to be considered, even if the ultimate goal is to crank up the internal hiring engine as soon as possible.

• Based on requirements, the right outsourcing firm will put together team(s) of 6–10 developers that only work for your organization, essentially a flexible extension of internal staff.
• The team quickly slides into your development processes to help achieve immediate go-to-market goals while you begin the recruiting process.
• As release goals are met, the team can continue as needed.

There’s also a good opportunity to help the finance team recognize that freezing all spending will result in huge opportunity costs and that outsourcing can be an effective option to create flexible R&D capacity that can be modulated up and down to meet business needs as opposed to conventional fixed cost internal R&D teams.

Ultimately, the goal is to keep innovation moving forward, especially during a recession to be better positioned for the quick recovery.