Don’t panic!
Posted in Web strategy on: Thursday, October 16, 2008 by Paul Boag
According to Jason Calcanis and Michael Arrington the tech sector is in economic free fall. But, is the doom and gloom justified?
I am no financial expert. I have no idea how the economy works or how the actions of the stock market impact the rest of us. What I do have is my experience of the the dot com bust in 2001 and that tells me there is a lot of unnecessary panic flying around.
That said, I can understand why the likes of Jason Calcanis and Michael Arrington are twitchy.
I have said it before and I will say it again, any startup whose business plan is built solely on advertising revenue or venture capital has no business plan at all. When an economy gets into difficulties those are the first two areas of revenue to dry up. Companies do not advertise when they start tightening their belts. They certainly do not invest.
It is therefore unsurprising that there is a growing sense of unease in Silicon Valley. As with the last dot com boom there are a lot of companies with naive business plans. I am concerned for my friends who work in companies like that. I think they have worrying times ahead.
However, for the vast majority of web designers things are nowhere near as concerning. We are not supported by advertising or venture capital, but by delivering a service. Depending on our clients we probably have little to worry about.
There are of course exceptions. If your clients fall into the following categories, then I would look to alter that client base slightly:
- Web 2.0. companies – If they are being squeezed then they will stop investing in their site,
- Advertising agencies – As the wider economy tighten its belt they will stop spending with advertising agencies and this will trickle down.
- Very small businesses – These people still see websites as a marketing spend rather than an intrinsic part of their business. If times get tough they will cut this expenditure.
However, if you clients do not fall into these categories, you probably have no need to panic. Things will slow down and you will see a trickle down affect, but if you can weather the storm there will be good times ahead. Recessions tend to clear the forest of dead wood and leave opportunities for growth later on.
4 Comments
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Totally agree with your comments regarding the “trickle down affect” and clearing the market place of dead wood is most certainly a good thing!
Hold tight and enjoy the ride folks!
What about those of us that us run small 2.0 advertising companies?!?!
I think as far as an economy perspective goes, the web industry is going to be one mostly left untouched. While there’s no doubt there’s going to be a lot of fat trimming, especially with “web 2.0 startups”, I’ve never felt nor got the impression that our industry will be one of those particularly affected.
The reason I say this is because as web designers and developers, we create wealth. We’re not middle-men in any respect, we actually produce tangible items that provide a real service to people. Demand for that isn’t going to die with the economy – in fact, it’s probably more likely that people will be online more of the time, since they can’t afford to go out as often.
As long as we stay smart and flexible, I think we’ll get through this recession just fine. :)
We went/ came through the DotCom bust-up of 2001 as well and yep it was the VC’ed and the Ad-oriented that went first and most spectacularly … *but* … EVERYONE felt the effect(s). Whether it was friends suddenly losing what were deeply exciting if slightly dubious roles in slightly questionable ventures -to- the glut of resultant cheap but effectively s**** hardware suddenly flooding the market -to- the negative impact it had on confidence -to- (and this is poss the most valid) more competition for either the same level of work or poss even less. If the level of activity or WORK decreases across even SOME of the market it means there’s going to be MORE suppliers for LESS work.
EVERYONE felt the effects of the 2001 downturn and they are and will now this time around.
To think otherwise is literally to ignore the elephant in the corner of the room. That’s the crux – I think – of what Calacanis et al are saying. Look at the 10 point action-plan – it’s NOT doom and gloom, it’s a widely accepted, time honoured and experience based plan of action for when a market tightens. Tbh it’s a good (if simple) manifesto to critically measure an outfits performance at any time. If you’re lean, mean and an olympic fighting machine with a solid client base you’ll be fine … otherwise catch-up PDQ.
One of the reasons we made it thru the last (major) downturn (apart from being relatively lean and obv’ly BRILLIANT :-) etc) was that (a) we didn’t have any VC (thank feck) and (b) our client base had a good selection of social sector orgs (charity/ not-for-profit; arts/ cultural; couple of small but good local authority projects) – which are kinda accepted to offer lower margins but be (more) recession-proof than other sectors. As much as that was a purposeful (and ethical) stance, we were effectively fortunate and I think you (Headscape) prob benfitted similarly – with a fairly heavy emphasis on an educational and local authority client base. But even with this, the same issue comes back … other players will look to marginal markets (such as the social sector) to try and keep their juggernauts going. Again, if we’re lean, mean and fit the Olympic fighting machine there is no need to fear – only to plan.
But to think it’s ONLY Web 2.0, Ad-based and Small Businesses that will be adversely affected is to not see or portray the whole picture.
There’s been too much cherry picking on the headline(s) and coat-tailing on the resultant furore and not much in the way of level-headed and calm debate.
Personally I think that’s cos outfits are publicly saying one thing but internally saying/ doing another. Which – for the purposes of confidence if nothing else – has good reasoning behind it. Who’s going to invest if we opine that ‘Shit, things are tightening, not sure what’s gonna work … Now, about that new work and this years budget …’
That said if you – no matter who, what, where you work – have NOT had a discussion (internally or externally) that starts with ‘Right, whacha reckon to this credit-crunch/ recession/ banking crisis thingmajingy’ and then at some point ends in ‘Ok, great, not only do we have a solid take and widely informed position on this but I also feel confident when I look critically at our position/ set-up’ … then in the short or longer term you’ll be leaning more on Lady Luck when trying to hit that mid-long term strategy and plan of action.
Two penultimate points: What doesn’t kill you makes you stronger … this has real relevancy. What didn’t get killed off in the 2001 Dot Com downturn has actually made the Web a better, stronger place. There’s great opportunity to IMPROVE the web again. Secondly – clients will not stop all their spending, they’ll prioritise and look at costs/ rtns etc. It means we might have to work harder at fighting and justifying what money there is to invest in The Web Strategy vs other options (eg. offline marketing). Why? It’s the same core reasons as normal – cos it’ll be more impactful; prob better ROI etc
So I’d say:
1. Be open and honest (even if only internally) and have that conversation – what are the possible impacts on my business from the downturn/ recession. Debate (even if with yourself) and measure yourself – are you fit-for-purpose for change of whatever kind?
2. Work hard(er) at communicating with and to clients the real value they will get out of keeping what investment they have oriented toward the Web (as opposed to offline activity, organisational cuts etc)
3. Look for the opportunities – ‘energy’ is never destroyed, it just mvoes, converts etc … so there WILL be opportunity in the next 12-24 months
… and you’ll be at least recognising the elephant, feel more agile and be more ready for what may come.
ps – f***, this has turned into a lengthy response … s****, the dinner’s prob in the dog :-/