The tech sector + the recession
Back in February 2008 I estimated that start-ups would have a 6-month window within which to attract financing because thereafter conditions were going to tighten if not become impossible. I made this estimation because a CEO of a Semantic Web start-up asked me if it was a good time to aim for another round.
Since my background is in Strategic Investments (TMT), PE/VC/corporate finance and corporate strategy it’s my business to have a view on market conditions which is more perspicacious than Jane Main Street. I’m just as into style, shoes and ‘Sex and the City’ as the next Jane except that I also track technology, high finance and world affairs with a passion that exceeds my love of female accoutrements.
At the time I provided my analysis to that CEO, none of these events had yet taken place: Bear Stearns bankruptcy, decimation of share price and market confidence in previously blue-chip Triple A-rated financial institutions, US$3.2 trillion (and rising) of government bailouts for the global financial system, the Chrysler-Ford-GM troubles and now the announcement by Microsoft that it is making up to 5,000 employees redundant in addition to implementing other cost saving measures to save as much as US$1.6 billion for the full fiscal year to 30 June 2009 — with 1,400 jobs going immediately. According to the Evening Standard, this is the first time in the technology leader’s 34-year history that it has done this. We expect start-ups to weather the current storm poorly so when TechCrunch launches its lay-offs tracker, we’re not surprised.
* Layoffs — TechCrunch tally table
However, when a giant like Microsoft takes a scythe through its workforce on this scale people beyond the tech sector sit up and take notice.
* Microsoft’s layoffs — ComputerWorld
Tallying the TechCrunch table, from August 2008 to January 2009 (5 months) a total of 200,282 job cuts have been announced in the tech sector worldwide. This encompasses everyone from small San Fran start-ups like seesmic, last.fm, Mahalo and BrightCove to giants like Intel, Nokia and 3M as well as tech teams within the likes of CBS, Viacom and Associated Press.
Companies like these have good brand positioning, name recognition and loyal users in their particular fields but they too aren’t immune to the economic downturn everywhere and their corporate strategies are involving prudent measures to right-size their balance sheet and streamline their core businesses.
For now it would appear the days of growing a tech team exponentially are as over as facebook’s high-point valuation of US$15 billion.
* Facebook value drops to US$2 billion
Where investors and users alike should be really concerned are any techco which showed lack of judgment and nous in gauging and responding to the economic situation back in Q3, Q4 2008. In other words any companies which did the following:
· marketed / launched themselves in a nonsensical or inappropriate way
· adopted an arrogant and alienating approach towards their core users
· failed to carve out a positive and distinctive position as a tech differentiator
· based their business plan on unreliable and ill-informed market analysis
· increased their headcount instead of improve internal efficiency
What techcos should do is follow the advice of the likes of Sequoia Capital (investors in Paypal, eBay, YouTube, LinkedIn and more):
* What startups can learn from Sequoia’s doomsday warning
They’ve managed to seed and guide the techcos that became US$ billion IPOs and acquisitions for a good reason: they know what they’re talking about.
Now, “natural attrition” is the corporate spiele normally applied for job cuts but this is different. What we’re witnessing is not simply the free market mechanisms of people leaving their positions because they were offered better opportunities for development, training and remuneration. They are leaving because the companies are struggling.
The recession is definitely in residence. What cannot be pinpointed yet is how long it will last.
For the techcos still out there fighting the good fight they better hope they have three people in their team:
1. a visionary leader whose actions are congruent and consistent with their actions;
2. a dynamic strategist who is capable of sanity-checking and guiding the business plan and its execution; and
3. the customuser.
Hopefully then they won’t be adding to TechCrunch’s layoffs tally…………….
