Growth Despite Volatile Markets: Pilot Survey Finds SMB Hiring Growth Despite Downturn

Inflation is at a 42-year high with major companies announcing hiring freezes and layoffs. Although the National Bureau of Economic Research (NBER) has not declared a recession at this time, many investors are concerned given the macroeconomic indicators. Likewise, while the number of venture capital deals has stayed relatively high in 2022, the values associated with said deals have been depressed for both early and late-stage VC, with deal value in Q2 2022 down nearly 25% year over year according to NVCA’s Pitchbook. 

This period of general economic uncertainty is unique due to a variety of contradicting indicators, one of which is occurring in the labor market with companies announcing layoffs while the national unemployment rate remains at a historic low 3.5%. This recent wave of layoffs has ignited fear of more trouble to come. 

As the largest bookkeeping firm in the U.S., Pilot has a unique vantage point into the realities of how businesses are reacting to this uncertain economic climate. To understand what is happening in the SMB and start-up space, we conducted a study among almost 1,000 of our customers.

Despite all the talk of layoffs and hiring freezes, the study found over 86% of sampled SMBs maintained or grew headcount in June. In addition, nearly 60% of companies grew headcount in the first six months of the year. Companies with 20-50 employees as well as those with larger bank balances (at least $10M) were found to be more likely to have grown headcount.

Likewise despite worsened revenue performance across the board in Q1, pockets of SMBs are still growing revenue. Our study found companies operating in the tech, healthcare, and financial services spaces showed the most resilience, with the majority (80%+) of surveyed customers in those sectors growing revenue in Q2. The majority of SMBs saw revenue performance pick back up in Q2 with median revenue growth trending up at 50% YoY in Q2 (vs. 13% in Q1 2022) and returning close to pre-Q1 2022 growth rates.

Even with upward revenue trends in Q2, as companies face unpredictable economic markets we recommend the following steps to maximize business outcomes in the current market: 

• Monitor leading topline indicators weekly (leads, user engagement, sales pipeline, etc.). If a new customer acquisition trends below expectations  or if customer churn is higher than you expect, you’ll need to react rapidly—because you may need to update your cash burn forecast. 
• Know your cash burn rate, your forecasted burn, and how much cash runway you have. If you have less than 18 months of runway, you want to make changes to the plan. 
• Reduce discretionary spending such as travel and entertainment costs and unused software licenses. Make sure that you and your executive team understand all options for increasing runway, and what tradeoffs those imply. 

If your business is looking to increase profitability, we suggest considering the following options:

• Increasing revenue: Can you sell more, either to new customers or existing customers? Can you raise your prices without materially hurting demand for your product or service?
• Improving gross margins: Can you reduce the costs of providing your product or service through increased efficiency without impacting customer experience?
• Improving payment terms: Can more of your customers prepay for longer periods of time? (e.g. can you get more of your customers to prepay annually?) 

Startups and SMBs may still be showing signs of growth in hiring and generally positive trends signifying they can weather the current market. However, it is still important to build out a revised forecast or operating plan based on the economic climate.

For more information on how Pilot can help your business prepare for a financial downturn visit: https://pilot.com/