Financial markets are in free fall, the credit market is frozen, the economic crisis is nearing biblical proportions, and investors are running scared (The credit crisis and bailout in plain English). The technology industry, more than any other, is driven and buoyed by venture capital money and without continued and sustained operating capital many companies will succumb to the end faster than they normally would have – the world no longer runs on dreams alone.
Recently Sequoia Capital hosted an event with about 100 CIO’s from their portfolio companies. The message was clear: “Game over man, game over” It is about survival, which means slash and burn, stop R&D investment, freeze headcount and focus efforts on preserving capital (here) – my guess is that many of those companies will not survive the decade.
What does this have to do with innovation?
There is no single way that every company responds, but most companies will move into capital preservation mode as they perceive every dollar spent is a step closer to the abyss of bankruptcy. This will result in budget cuts for new projects and existing projects going under the microscope. For some companies there will be reductions in force, many contracts most likely will not be renewed, and investment in new technologies will be limited and require a strong, justifiable and defensible ROI (the ever elusive white whale of the security industry) – hard dollar costs savings must impact the current fiscal year or the CFO will nix it – same for services or outsourcing. For technologies that are currently deployed the organizations will look to extend their value, for technologies not yet deployed there will be a strong emphasis on replacement of existing technology and infrastructure consolidation that can result in cutting FTE’s, costs, etc. There will be a lot of stalling, negotiating and finger pointing in the coming year. The A/R departments of most vendors will be working 16 hour days.
Couple of predictions:
- Innovation will come to a grinding halt until the credit markets recover and capital is made available. Innovation tends to be driven by start-ups, not well established large, broad-scoped vendors. Over the past decade many start-ups have acted as remote R&D wings for larger vendors, once the technologies coalesce into a well know problem, with a set of solutions and actual buyers, then the large vendors step in and scoop up the smaller players and we have market consolidation (examples – DLP, SIEM, etc)
- The impending banking and financial oversight that will result from the economic crisis, the bail-out (current and those still to come) and a new presidency will result in laws that will be once again misinterpreted and impact IT through a set of silly compliance initiatives that will both delight the services/consulting industry, and piss off/distract the IT people.
- Organizations will become more focused on finding efficiencies of process with what they are currently using as opposed to finding the next piece of technology that solves x,y, and/or z – this could be a good thing for some, but putting lipstick on a pig of technology, only results in a silly looking pig.
- Many organizations will turn to a 3rd party services or outsourcing model and they will find that the 3rd party is just as sucky in providing those services as they were themselves. Hilarity ensues when SLA’s are not met and now the organization is not in a position to reclaim ownership.
- Every vendor will become a virtualization, cloud or SaaS vendor, many of them will not even know what that means until they become virtually bankrupt with their dreams as a service (DaaS) stuck in the clouds.
This whole thing will result in accelerated, forced enterprise and vendor Darwinism. Only the strong companies with a proven track record of success built on an operating and business model that is both agile and pragmatic will survive. For those that do survive they will exit the crisis foundationally stronger than they have ever been, they will become the new technology thought leaders, their employees will be highly respected and their leadership will be in high-demand. For me personally I am very bullish on my companies prospects and more importantly I am embracing the experiences of our time as an opportunity for growth and learning, plus it’s nice to know that items on my shopping list are less expensive than they were 12 months ago.