Two views of the downturn

Regardless of the topic du jour--whether or not to adopt Agile, whether or not to revamp product requirements, where the market development opportunities lie, how to use Web 2.0 as a vehicle for marketing--the downturn inspires two distinct reactions in technology companies:

  • We live in the best of all possible worlds. We may need to economize a bit, but we don't need to explore any significant changes to how we do business. All we need to do is wait, and not do anything stupid.
  • We could improve what we're doing. In fact, even if the downturn hadn't happened, we'd be in the middle of a discussion about how we might [fill in the blank] better.

Of course, there's always a strong argument behind the first position. Aside from Old Man Inertia, the other culprit here is the perceived cost and risk of change. The perception is important--moreso, in some organizations, than the measurable costs, benefits, and risks of change.

Pity The Poor Indolent
That's not intended to be a condescending statement, equating "perceived risk" with "delusion." We might be talking about the concept of "rapid cognition" that Malcolm Gladwell touted in Blink. "Perceived risk" might also be a busy person's way of avoiding the opportunity cost of making an ROI calculation.

However, it may only be anxiety, or fear of losing one's privileged position, or plain stubbornness. And, needless to say, not every proposed change is a good idea.

Unfortunately, change is always necessary, which is why it's probably a good thing that some people are risk-takers, and some people are not. (Whether the difference comes from genes, brain chemistry, or boredom is besides the issue.) If our species consisted only of risk-takers, we long ago would have died out, having jumped off one too many cliffs, or tried to pet one too many wild animals. If we only had risk-avoiders in our gene pool, we would never have built a civilization, for fear of losing the familiar comforts of subsistence agriculture and occasional mastodon-hunting.

It's All Right, Ma (I'm Only Bleeding Revenue)
Now that civilization is firmly established, economic downturns prove the value of both risk-takers and risk-avoiders. The dot-com bust of 2001 happened because many companies had no real business plans, or really daffy ideas for how to make money. Painful as it was, as downturns go, it was necessary for the long-term health of the technology industry.

Many of the companies that survived, including some successful start-ups, decided not to buy into the notion that millions of hits on Amazon.com did not shatter underlying economic rules. That was risk-taking of a different sort, in the face of rocket-propelled stock prices and insanely expensive acquisitions.

Unlike the earlier cataclysm, the downturn of 2008 isn't a direct verdict on the technology industry. Unfortunately, in the old Schumpeterean, "creative destruction" view of capitalism, firms can't pick and choose which economic shocks demand a response. Many of shocks come from outside the technology industry. Unfair, perhaps, but that's life.

The Memes They Are A-Changin'
Fortunately, in the same "creative destruction" philosophy, crises provide an excuse for making necessary changes. For example, whether or not Americans wanted to admit it, the United States was already an important global player. Sadly, it took two world wars for American elites to adopt a more internationalist foreign policy, and for American voters to approve it.

Perhaps, when we ponder notions like taking Web 2.0 more seriously, or revamping the way we collect requirements, or exposing the product roadmap to salespeople and customers, we need to look not at our feet, but the road ahead. When the downturn ends--and it will, just as all calamities end--will technology companies be operating the same way? Or will the survivors have found, in the press of necessity, different ways to operate?

I'll leave it to your genes, or brain chemistry, or boredom with the status quo, to answer that question.

Comments

re: Two views of the downturn

Tom, the economic mess we’re in is the result of a massive distortion in the information that businesses received regarding the level of prosperity that the economy had reached when measured in terms of the adjusted monetary base under control by the Federal Reserve. That was the boom phase of the economy’s business cycle.To transact safely as a business in this climate requires a removal of this distortion. The corrective process that we call the bust phase can produce that security, if allowed. However, with all the bailouts and further market interventions by the Federal Reserve, we can kiss clearing the air of distortions good-bye.So when you refer to those companies that survived the dot-com debacle because they adhered to reliable economic rules underlying their decisions, I couldn’t agree more. But more companies failed because they bought into the distortion under the assumption that it was accurate information, as has happened again outside the hi-tech sector this time around.What is important to keep in mind is that decision-making in this noxious environment filled with garbled information and uncertainty will tend toward the mitigation of risk above the exploitation of opportunity, because the odds are greater that what seems today like a business opportunity may in fact be a snare.In times like these expertise and experience gained in living through similar crises are worth their weight in gold, particularly if the company seeks for process improvements during the recession. Otherwise, for those teams going through this for the first time, it may be wiser to wait to discern what doing something stupid might actually look like.After all, just because a stream of sun light made it visible to you, you don’t leap without a quick scan out of a fog bank into a clearing after hearing lions roaring in the mist for hours all around you!In a bad recession you only get one chance to err, if even that. Don’t blow it.

re: Two views of the downturn

Arturo--Excellent points, all. The dot com bust might have been less painful if there were an easy, reputable, verifiable way to check whether the overheated claims had any merit. For many investors, that wasn't the case. Nor was it always clear if a particular start-up even had a business plan beyond a gut feeling and a few nifty PowerPoint slides.Certainly, the press bears a great deal of responsibility here, as do other supposedly trustworthy sources of information. The media is supposed to be doing real investigative work on behalf of the readership, "So you don't have to!" Unfortunately, whether the topic was the pre-2001 tech bubble, the viability of financial services companies, or the verifiability of claims about Iraqi WMDs, many in the press did a lousy job.They're not the only parties responsible, but certainly, they stand out.