Every day there seems to be a new story about the economy that spells doom and gloom. Words like “meltdown”, “depression” and “collapse” are spoken with a frequency I don’t recall from previous downturns.
Like many others, I was living in the heart of Silicon Valley during the last downturn. I was laid off from my job just days after 9/11. Talk about a tough environment to find work.
While the last downturn was focused very much on the technology industry (hardware, software, semiconductors etc.) – I still remember how much emptier Hwy 101 was in the spring of 2002 vs. a year earlier – I’m wondering if this one won’t be equally difficult for us “techies”.
Consumers and Business are hard hit
Both consumers and corporations are in financial trouble. Consumers in the US in particular because of the housing meltdown (there’s that word again), but in general because consumers have a much higher debt load (even outside of housing) than say a decade ago.
And I don’t have to tell you about the issues in business. Finance is a mess and will take time to unravel. The interconnectedness of the worldwide financial system was laid bare these last few months. Aside from the collapse of firms like Bear Stearns, nations such as Iceland, Peru, Turkey and others, who had nothing to do with the root cause of the financial problems are being held hostage because of international investment portfolios and an international credit squeeze. Iceland’s currency has dropped almost 40% against the US dollars over the last 6 months.
When entire nations are impacted so quickly and severely by, what was originally, a financial problem in the United States, it’s clear that other industries will follow.
In Canada and the US, the automotive sector is in deep trouble. In Canada, the resource and forestry industries are lining up behind the auto companies, looking for help. The housing industry is hurting, and so is manufacturing. I don’t have data on other industries, but likely they’re not immune.
Impact on Technology Companies
One interesting thing I noticed is that not yet in this downturn, and I don’t believe in the last one, did the High Tech industry go in front of government bodies and ask for bailouts or financial assistance of any kind. Someone please correct me if I’m wrong, but I don’t recall any of Cisco, HP, IBM, Yahoo, RIM, Microsoft, Google, Oracle, Siebel etc. doing what the bankers, auto manufacturers or even in recent years, the airlines companies have done and ask for money to “save” them from collapse. Yes, most tech companies had layoffs and many failed in the last downturn, but there were no cries of the industry disappearing or industry segments disappearing.
So why is that? First, let me say that my view is somewhat biased as I work in technology and thus have a deeper insight into how the technology industry functions. I don’t have that same insight into other industries. But as a somewhat educated outsider looking in, I will say that the North American auto industry let foreign car companies (primarily Toyota and Honda) take away their marketshare.
North American (i.e Ford, GM, Chrylser) vehicles are far less reliable than those made by Honda and Toyota. Toyota has out innovated other companies with the introduction of hybrid vehicles as well. The Toyota Prius has market share numbers amongst hybrid cars that are the envy of any market sector leader.
And while it can be said that American banks have lead the world in creating new kinds of financial instruments and have “innovated”, it’s also clear that they did so in many cases for short term gain. When I moved back to Canada from the US, I once again was faced with the much more restrictive financial market here as compared to the US. On one level, the lack of variety of financial instruments makes getting a mortgage much simpler, and removes risk from the system, but I’d say this same restrictiveness makes the capital markets in Canada, and particularly the venture capital markets much less open to risk and investment.
With respect to technology companies, I see one big difference. Technology companies are built on innovation and don’t have a history of government reliance (at least in North America) to get through hard times. No one ever said anything like “What’s good for <insert large technology company name> is good for America (or Canada).”
Research in Motion (RIM) is an example of an amazing company. They’ve built great products/services that have wide adoption and have fought off competitive threats from many other companies. Over the last 5 years, their stock price has been as low as about $1.50 and as high as $140. Yes, that’s almost a 100X spread. [Wish I’d bought some stock in 2003!]. And through that I don’t recall them once going to the Feds and asking for financial help. They ran their business, made decisions to cut staff or expenses, to invest in key areas for the future and have continued to expand their business globally.
We all can take a lesson from companies like RIM. They succeed because they deliver lasting value, not because the price of the commodity they sell goes up 100% because of market speculators or temporary demand from other nations.
So what does the future hold? I have no magic crystal ball. But similar to the period after the dot-com bubble burst, there was little talk about “the New Economy” and more talk about business focus and fundamentals. I’m certain that looking forward, the same will happen yet again.
Hey, Twitter now wants to hire a PM to figure out how to monetize their service! Perhaps this is a sign of things to come. As more companies realize that eyeballs and users and downloads and hits and PPC advertising aren’t sufficient, they’ll realize they need to understand their true value to customers and users, and hire bright people, in particular Product Managers to turn their technology company into a business.
The New Rules? Same as the Old Old Rules.
- Solve a problem that really causes problems for people. Simply being cool isn’t enough.
- Figure out how to make people do what they need to do easier or quicker or cheaper.
- Help them do something new that they couldn’t do before, but always wanted to do.
- Understand the value you deliver and communicate it to them clearly and simply.
- Charge a fair price for the innovation and build a scalable business around it.
- Hire smart people to help you because you don’t have all the answers.
- Teams of smart people have the best chance of finding creative solutions to new problems.
- Don’t forget that the next economic downturn will come way sooner than you expect so prepare for it when times are good.
BTW, as an example of really cool, but not necessarily valuable technology, watch this video. Hopefully these guys figure out how to monetize this.