Montreal Tech Watch

Hard Facts

From the beginning, I’ve considered the “crisis” as a strictly US financial problem. A handful of financial giants which bet in the real-estate market were to go under, Wall Street would have re-organized itself, ill credit would have been written off, and then the rest of the economy and the world would be content that things get back into place, with me hoping then that money would have flowed instead in technology instead of real-estate. There were signs afterwards (NO, don’t mention layoffs in Silicon Valley, executives would have grabbed any other opportunity to reduce operating costs) such as GM’s downfall, but they were the sort of news you would have heard of anyway.

For January though, there are new hard facts:

• Number of Internet Sites decreased 1.23 million, the first ever drop in 5 years.
• Electronics: Circuit City closing all US stores
• Hardware: Rackable Systems sales decreasing 25% with layoffs, AMD layoffs and cutbacks
• Telecommunications: Nortel bankrupt,
• O’Reilly Money:Tech 2009 conference cancelled
• etc.

Add that to the reports that there were no IPOs in the past year, less acquisitions than ever before, and therefore the VC industry being re-questionned, with all the immediate consequences you can think of for startup entrepreneurs.

There are many causes for the crisis’ extension to all industries (self-fulfilling prophecies by bloggers and editorialists, moral hazard created by the US government, tightening of credit which threaten companies’ operating expenses, etc. ), and those are constraints noone can’t do anything about. 

Future Outlook: it’s bleak

Since everyone panicked, there’s no denying now that any business will be hit by this crisis. Companies with broken business models or inadequate product lines will be the first to close doors (the New York Times, General Motors, Quebecor, Motorola, etc.), followed by their partners, suppliers, and other companies which have been sitting comfortably on legacy products and old processes. Consumers will also reduce spending. 

On more practical words, this means for instance that the business which was planning to upgrade their computers will defer the acquisition and choose to use existing systems. Consumers planning to buy a subscription for your new shiny web2.0 application would look for a free version first, or will prefer instead to save the cash. A media business which was willing to produce and develop a new social media website would kill the project. Companies will go through their operating expenses, and call their suppliers to demand discounts, or stop all together using their services and products. Banks will refuse loans and operating lines to entrepreneurs and “legitimate” businesses. Consultants which have been doing “standard work” will be asked to reduce rates and given stricter deadlines. etc.

Opportunities

You might have already seen the crisis’s consequences, with stressed management holding rush meetings due to falling sales in 2008 Q4. I’ve overheard, read, seen reports, alerts, emails, conversations, documents.  And the next months are going to be even more intense. Companies will need to re-invent themselves, requestion their market position, requestion their processes and operations, and putting in place urgent plans.

All of this SUCKS. What makes it sucks more is that it should have stayed a real-estate crisis, or a Wall Street Crisis, contained to a couple of investment banks. 

I absolutely abhorh the idea, but I’ve come to the conclusion that one can’t do anything about it. And instead come up with a list of opportunities:

• there are many fast-growing markets: the exponetial rise of the Internet population in Asia, netbooks, mobile applications and software (iPhone and especially Android), virtualization, video games, etc. If you haven’t taken a look at those, do it now. 
• there are legacy industries waiting for new tools and waiting for reinvention, especially the finance, the music, and the media industry. What’s going to happen to the media after the NYT loses its current standing?
• if you are a CTO or a COO, read Eric Ries’s blog and find a way to shorten development cycles, and to increase dramatically the company’s capability to adapt to the customer (hint: imvu can launch several releases in one single day). This is also a great read. VentureHacks also started a series on the subject, but I do find Eric Ries’s articles more practical, with great examples on lean practices and ferocious customer-centric rapid iteration
• it goes without saying, but you will need to find a proven way to make money, pinpoint those customers, and absolutely focus on this. If you can’t, well it’s time to be alarmed and develop new products.
• reduce capital spendings, and use technology and software to automate everything and increase productivity. Here’s one example you should look forward to (plentyoffish)
• remind also yourself that during a crisis, innovative and ground-breaking ideas flourish. The typical example is Flickr, which was launched during the dot-com bubble.

If there’s an opportunity to build great product with great value, this is it. If there’s an opportunity to launch your company in the 21st century, this is it.

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