A former Shopify employee used her severance pay to found a new startup after being made redundant along with 1,000 other people.  Here's why it can be a smart move in a downturn.

A former Shopify employee used her severance pay to found a new startup after being made redundant along with 1,000 other people. Here’s why it can be a smart move in a downturn.

  • Stella Alexandrova was among 1,000 employees laid off by e-commerce giant Shopify in July.
  • She 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 business, says venture capitalist Paul Asel.

Stella Alexandrova had been a growth manager in Canada at Shopify for three years when she received an email one morning in July informing her that she had been made redundant.

“I was shocked,” Alexandrova said in an interview. “I was so confused because I couldn’t have seen this coming.”

Although layoffs had taken place at other big tech companies, she had “felt pretty safe” and didn’t think her job would be affected.

Alexandrova was one of 1,000 employees laid off from the e-commerce giant this summer. Shopify CEO Tobi Lütke explained the cuts in a memo, saying he incorrectly predicted pandemic-fueled e-commerce demand would continue.

“In the end, placing this bet was my call to make and I was wrong,” Lütke wrote. “Now we have to adapt. As a result, we have to say goodbye to some of you today and I am deeply sorry for that.”

Tech companies have cut thousands of jobs this year in a bid to cut costs and prepare 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 chance to start her own business.

“I can’t control the layoff – that’s what happened and the company had to make these cuts,” she said. “I can’t control the outcome but I can control my reaction.”

It is unlikely that she is alone. Entrepreneurship is known to explode during recessions, with some of the most successful tech companies emerging from recessions, such as Airbnb, Uber and Microsoft.

Landing a well-paying job with a stable company makes sense “when hiring is hot and salaries are high,” said Paul Asel, venture capitalist at NGP Capital. But in a downturn, “the opportunity cost of quitting your job and starting a business is much lower.”

This, he said, frees up potential entrepreneurs to pursue their own projects.

Severance pay can be a track

Alexandrova, an avid traveler, was planning a trip earlier this year when she realized that the rise of DIY travel sites means consumers are now spending hours browsing through different sites to plan trips.

Shopify offered her five months of severance after she was laid off, “paying so I could start my own project,” she said.

“It’s been five months since I’ve had to worry about an income to pay my rent. It’s reassured me that I don’t have to think about my bills and that’s something most people don’t. would not get when starting their business.”

A week after being laid off, Alexandrova launched her travel app Mave to help people plan their trips in minutes. After sharing his plans to launch Mave on LinkedIn, the post went viral. Despite the support, Alexandrova fully felt the risk of starting a business.

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

“One of the biggest mistakes any entrepreneur makes is trying to grow their business too fast, too soon,” Asel said. During downturns, entrepreneurs have more time to create products that meet customer needs, which increases the chances of success.

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

“It’s just more painful at first, but that pain turns into success at a higher rate for those who can overcome those first two hurdles,” he said.

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

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