2022 has been a rollercoaster year for the tech ecosystem. The sky-high valuations and funding, buoyed by the strong demand for tech services and products during the pandemic, have come crashing down.
There is no question that soaring interest rates and inflation have resulted in a dampened global business outlook. What is just as, if not more, worrying is the increasingly bleak and tumultuous geopolitical landscape.
In this uncertain climate, are there still bright spots? How should tech players adapt their business strategy and approach going into 2023?
Finding global sectors
While some industries are bifurcated by geopolitical tension, I believe there are many evergreen sectors that remain on neutral ground and continue to brim with innovative and forward-thinking ideas, making them attractive for global tech funding.
A good example of these sectors would be infrastructure to support the digitalisation of large and small-medium enterprises, such as SaaS solutions. These include Cloud migration services to make their backend operations more efficient and big data solutions to help them target their customers better.
Another key trend in this space is the growing automation and digitalisation of labour processes. The pandemic has made hybrid working mainstream. Working from home requires a suite of project management and communication (personally, I find Zoom indispensable).
Post-COVID, I see more people – even young adults – going back to offices to work. But I believe a hybrid model that gives people the flexibility to work from home is here to stay; it’s an arrangement that is conducive for families, especially if they have dependents to care for. In 2023, I see continued strong demand for services that support this way of life.
Reality-check for entrepreneurs
The economic downturn and recession have caused tech valuations to plunge as investors turn to safer havens. The public appetite for consumer goods has also waned, with people taking an austere approach to their expenses, forcing e-commerce firms to project much lower revenue forecasts. I discussed how founders can survive the startup winter in this article.
With it came the bloodletting. Tech companies, even those considered to be ‘essential’ in today’s digital-first economy, like e-payments giant Stripe, were forced to adopt cost-cutting measures and rein in their spending. Sadly, that included large-scale layoffs.
The silver lining in this humbling experience is that entrepreneurs have no choice but to take a hard relook at their business strategy and find a sustainable way for long-term progress.
Growth-at-all-costs (or blitzscaling) may have been an all too valiant pursuit three years ago, but in today’s climate, it’s better to adopt more prudent practices to avoid fizzling out. This strategy is especially true for smaller startups that do not have the luxury of a long runway of a late-stage company with a significant war chest.
It also means companies with high valuations must work hard to justify the numbers. It’s about ensuring the business model and fundamentals are sound, which entails maintaining a healthy cash flow and achieving a stable EBITDA margin.
Opportunities in climate-friendly tech
Some promising new sectors I see flourishing in the near future are areas that tackle climate change.
Electric vehicles (EVs) have increasingly become a means of transportation across the world. Today’s consumers (especially among younger adults) are more environmentally-conscious, adding to the fact that owning an EV is now more affordable than its gasoline counterpart – thanks to rising gas prices. Sales from electric vehicles look set to hit US$451.6 billion this year and are expected to grow at an annual rate of 17%.
Listen to the Evolving for the Next Billion podcast featuring Brian Gu of XPENG Motors: Why China’s EV Market Excites Me
Needless to say, the global EV market will only get much bigger. There will need to be innovations in the energy infrastructure to support this growth. Power grids and facilities will have to be reconfigured. More charging stations will have to be built. There will be a surge in demand for companies to produce hardware that supports EVs and for manufacturers to support these capabilities, such as automation, robotics and backend manufacturing.
The future is still bright
We live in an increasingly precarious era where valuations and funding have slid to lower – rational – levels. While tech players need to adopt a more realistic and hard-headed view of the landscape, it doesn’t mean that tech innovations have reached a standstill. There is still a lot of exciting R&D in areas like climate tech. It would be wise to keep abreast of these technological trends and be quick to spot new opportunities in the market.