Software thrives during recessions

About a third of the world economy is about to enter a recession in 2023, according to the IMF.

In fact, we might already be in a recession. Let's rewind back to 2008: The National Bureau of Economic Research (NBER) declared that the United States entered a recession in December 2007. The announcement happened...in December 2008.

That's a whole year later. So maybe this recession has been sneaking up on us for a while now.

Fortunately, for us indie hackers who do software, recessions can be a good thing. Let's explore how.

Companies do a lot of optimization during recessions

In 2018, Brad Hershbein from the Upjohn Institute for Employment Research and Lisa B. Kahn from the University of Rochester conducted a study that analyzed over 100 million online job listings. Those job listings were posted between 2007 and 2015.

One of the key discoveries of this study was that cities in the US that were most severely impacted by the recession saw an increased demand for higher-level skills, particularly computer-related skills.

Those companies were becoming more and more digitalized and increased their investment in IT.

The reason: Companies do a lot of layoffs during recessions to cut costs. Suddently, they realize they need to replace the work of the people they laid off. And software is one of the main ways to do that.

Fedex took off as a company because of software

Fedex is one of many companies that thrived during a recession.

The company grew the most during the oil crisis in 1973, which shrunk the US economy by about 2.5%.

How Fedex grew: Recessions lead to layoffs. And layoffs lead to companies needing to get the same work done with something else.

Back in 1973, Xerox and IBM dominated the technology scene. They provided big corporations with huge mainframe systems that automated a lot of the work done by humans (who were no longer there due to layoffs).

The problem was that those systems needed to be repaired and replaced all over the US. So Xerox and IBM needed to ship huge hardware across the country, fast.

This is where Fedex came into the picture. Fedex started out as an overnight delivery service specifically for computer spare parts, with major corporations such as Xerox and IBM as customers. While Fedex prices were significantly higher than the US Postal Service, they were still a more economical option compared to alternatives like chartering a private plane.

According to an interview with the founder of Fedex:

If you wanted to sell an IBM 360 computer to the Bank of San Angelo in Texas, it didn't make any difference to them that you made the computer in Armonk, N.Y., and it was easy to supply parts and pieces to Chase Manhattan. They'd say: You have to keep my computer operating all the time.

So, you had to have a different logistics system that allowed you to ship things from any point to any point as quickly as possible. The idea of how to do it was FedEx.

Targeting enterprises is easier during a recession

Imagine you're an big company that often does in-person team buildings. You fly your team across the world and do a bunch of fun activities to raise the team spirit.

After a recession hit, you suddenly cut on many costs (and this is one of them). You still want to do some form of team building activities, but flying your team to the Bahamas doesn't work.

Now imagine you have a SaaS that helps companies do better team building activities. Before the recession, it would be hard to get considered by such a big enterprise.

After the recession a company like this may be actively looking for a software like yours.

Think of what you'll optimize or replace

During a recession, companies mainly decrease costs:

Don't confuse 'decrease' with 'eliminate': Many companies still have budgets for various things, it's just not as big as it was.

This results in those companies actively looking for alternatives (often software-based alternatives) to accomplish the same thing (or at least 50-80% of the thing).

This is where your software product can come in.

Hope you found these insights to be useful!