Startup barometer: Confidence in the surrounding economy continues to decrease, but the adjustments in the number of employees seem to be over

Startup companies have adapted their operations quickly, due to changes in the surrounding economic situation. According to the survey, members of the Finnish Startup Community cut swiftly their recruitment pace last year. Based on a survey of the first quarter of 2023, the indicator describing the number of employees has leveled off and is still positive. In practice, this means that the number of personnel is estimated to continue to grow, but at a slower rate than before.

The slower growth of the number of employees is intuitive due to the changes in financial conditions. Startup companies must adapt to the new economic situation by using investors' money more carefully.

Confidence in startups’ own financial situation has still decreased slightly compared to the fourth quarter of 2022, likely due to the fear that the availability of venture capital investments will decrease during the first half of 2023. It is important to note that even in 2022, Finnish startups raised a record amount of capital from investors, at least 1.8 billion euros. The funding remained strong even in the last quarter of 2022. However, risks still exist regarding the financial conditions of startups.

"Startups are still concerned about how the changes in the availability of funding will affect growth opportunities during 2023. It is worth remembering that many startups make a lot of losses when they grow and engage for example in product development. The surrounding economic situation has changed dramatically and overall less money is available, and it has to be used more efficiently. Because of this, startups have had to adapt their operations in Finland quickly," summarizes Youssef Zad, chief economist of the Finnish Startup Community.

"The indicator describing the sentiment regarding the number of personnel has stopped decreasing, and startups seem to have a more positive attitude towards hiring new personnel. In my opinion, this indicates that our members still have good growth prospects and they need new employees, " continues Zad.

In the big picture, the startup community members are currently more pessimistic compared to 2022. 

The barometer survey also maps the most critical growth barriers for startups quarterly. In 2022, the availability of skilled labor was by far the most significant obstacle for growth. However, the situation has changed in light of the latest data. Problems with the availability of skilled labor are no longer seen as  the current most acute obstacle for growth and have been replaced by financing and financial difficulties.

"I interpret the answers to mean that startups have reduced recruitment while collecting funding is more difficult. When companies recruit a little more slowly, problems related to labor supply play a smaller role. In addition, according to the website layoffs.fyi, which tracks layoffs in the technology sector, since the beginning of 2022, companies in the technology sector have globally laid off as many as 335 thousand employees, which will likely increase the amount of available labor in those technology companies that need skilled workers," says Youssef Zad.

CEO of the Finnish startup community Riikka Pakarinen: "The fact that the challenges related to financial situation and funding have risen above the availability of labor as an obstacle to the growth of startups in this market situation does not dim the fact that the biggest bottleneck for growth in the long term is the availability of skilled labor. We need top experts for our companies from Finland, but also from abroad. The competition is fierce and global, Finland cannot be “just good enough” at the competition. We have to be the best in the world.”