Former Shopify employees are using their severance to found a new startup after being laid off along with 1,000 others. This is why it can be a smart move on the decline.

Founder of Mave, Stella Alexandrova

Stella Alexandrova founded travel app MAVE after being fired by Shopify.Stella Alexandrova

  • Stella Alexandrova was one of 1,000 employees laid off by e-commerce giant Shopify in July.

  • He saw the layoff and five months of severance as an opportunity to start a business.

  • A recession is actually a good time to start a company, says venture capitalist Paul Asel.

Stella Alexandrova had been Canada’s growth leader at Shopify for three years when she received an email one morning in July informing her that she had been fired.

“I was shocked,” Alexandrova said in an interview. “I’m so confused because I can’t see this coming.”

Although layoffs have occurred at other major tech firms, he “feels safe,” and doesn’t expect his job to be affected.

Alexandrova was one of 1,000 workers Layoffs at the e-commerce giant this summer. Shopify CEO Tobi Lütke described the piece in a memosaid he incorrectly predicted that pandemic-driven demand for e-commerce would continue.

“Ultimately, placing this bet was my call and I was wrong,” Lütke wrote. “Now, we have to adjust. Consequently, we have to say goodbye to some of you today and we are very sorry.”

Tech companies have cut thousands of roles this year in an effort to cut costs and brace for the recession. This month alone, Meta announced plans to lay off 11,000 employees, Twitter cut 50% of its 8,000 employees, and Amazon cut 10,000 jobs.

Alexandrova saw her dismissal as a shot at starting her own business.

“I can’t control the layoffs – that’s what happens and businesses have to make the cuts,” he said. “I can’t control the outcome but I can control my reaction.”

He probably won’t be alone. Entrepreneurship is known to boom during recessionswith some of the most successful tech firms emerging from recessions – such as Airbnb, Uber, and Microsoft.

It makes sense to get a high-paying job at a stable company “when the hiring is hot and the pay is big,” said Paul Asel, a venture capitalist at NGP Capital. But in a downturn “the opportunity cost of leaving your project and starting a company is lower”.

That, he said, freed up potential entrepreneurs to pursue their own businesses.

Severance pay can be a cornerstone

Alexandrova, an avid traveller, planned the trip earlier this year when she realized that the rise of DIY travel sites meant consumers were now spending hours going through different sites to arrange trips.

Shopify offered him five months of severance after he was fired, effectively “paying for me to start my own business,” he says.

“It’s five months that I don’t have to worry about the income to pay my rent. It gives me peace of mind that I don’t have to think about my bills and that’s a foundation that most people won’t get. in starting their business.”

A week after the layoff, Alexandrova started her travel app Stomach to help people plan trips in minutes. After sharing his plans to launch Mave LinkedIn, the post went viral. Despite that support, Alexandrova fully felt the risk of starting a business.

Now is a good time to start your own business, Asel says, because “capital requirements have dropped” and businesses can grow at a more moderate pace.

“One of the biggest mistakes entrepreneurs make is that they try to grow their business too fast, too early,” Asel said. In a downturn, entrepreneurs have more time to build products that meet customer needs, raising the chance of success.

Asel said that it “feels like it’s harder” to start a business in a downturn because it’s harder to raise money but “the long-term likelihood of success is actually higher.”

“It’s more painful in the beginning, but that pain turns into success at a higher level for those who can overcome the first few obstacles,” he said.

Alexandrova has now hired 11 employees and says the waiting list for Mave has grown to 16,000 people. He plans to raise funds to get started in time.

Read the original article on Business Insider

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