Stock shock and fixing the roof

Profile picture for user gonzodaddy By Den Howlett January 3, 2019
Summary:
Some pundits believe 2019 will bring stormy weather or even a winter like business environment. Whether that's true has yet to play out but to me, it makes sense to think about fixing the roof. Now.

 

The New Year has got off to a bang as in stock prices imploding, led by the thumping that Apple took which in turn took a bunch of other tech stocks with it. While it is easy to overreact to stock market shifts, readers shouldn't panic. Instead, focus on fixing the roof.

FAANG stock shock

The first thing to note is that the tech giants du jour i.e. Facebook, Apple, Amazon, Netflix and Google (FAANG) now account for close to 80% of the NASDAQ index. Any significant move among these players sends the whole index into shock. However, as Fred Wilson pointed out, there are a bunch of macro and local geo-political issues in play that portends a rough year for many in 2019.

I believe and have been telling those around me that I think 2019 will be a “doozy.” I think we will see major dislocations in the leadership of the United States, a bear market in stocks, a weakening economy, a number of issues with the global economy including a messy Brexit and a sluggish China. All of this will lead to a more cautious stance by investors in the startup economy. And crypto will not be a safe haven for any of this although there will be signs of life in crypto land in 2019.

Not everyone agrees and as a self-confessed lousy stock picker, I don't plan to add to the debate other than to say there are enough signs popping up for me to believe that while early-stage tech businesses will continue to do well, the established players could see rough times. Why?

As Wilson says, early-stage businesses are largely immune from economic shifts. Wilson takes a stock investment perspective when he says:

The startup/tech economy is somewhat immune to macro trends. Many startups and big tech companies were able to grow and expand their businesses during the last financial downturn in 2008 and 2009. Some very important tech companies were even started in those years.

The tech/startup economy is driven first and foremost by technical and creative (ie business model) innovation. And that is not impacted by the macro environment.

Very often, early-stage tech firms are providing the kind of technologies that leading edge businesses need and which are often priced to come in at departmental budget levels. So from a buyer's perspective, there's plenty to consider.

I can't recall exactly where I saw it but this holds true in my experience: smaller tech purchases are bought. Buyers go out and search for what they need, experiment and work through a series of solutions until they find the right product and functional fit. That's much easier today than it ever was, in large part due to the way in which cloud infrastructures have allowed for a 'try before you buy' approach to tech acquisition.

The tech businesses that win in this scenario are those that help the buyer on their success journey rather than relentlessly flogging stuff. If you want a primer on that then invest in Jay Baer's Youtility.

Beyond that, we see a different picture. In the world of large enterprise purchasing, technology is sold, often requiring multiple iterations in the sales cycle for anything between six and 18 months. In these situations, there is an emphasis on derisking what will almost always be a significant investment in time and people. If you believe, as I do, that there are sufficient pointers to suggest stormy weather ahead, or as Estaban Kosky said on LinkedIn, 'winter's coming,' then what do you do?

This is how Kolsky posed the question:

My immediate answer was to suggest that the 'without the necessary resources' qualifier represents a dead end. There is no answer to that question. However, there are things that firms can do to overcome the potential for a slow down.

The natural reaction in enterprise purchaser terms is to put all discretionary spending on hold and focus on quick wins. In that scenario, your next ERP ain't going to make the cut but then pet projects will likely come under scrutiny. Even so, I contend that buyers should be thinking hard about what IT is telling them about future state technology.

RPA for the win?

The last year, for instance, we've heard a great deal about Robotic Process Automation or RPA. This is a tech set designed to remove manual and repetitive processes that could be handled by (ro)bots. Talk to Phil Fersht at HfS and you'll find that while there are pockets of excellence, much of the buyer landscape is patchy and scrappy. In a robust Twitter exchange on the topic, this happened:

The question for buyers is, therefore: to what extent will you go for quick wins rather than fixing some of the fundamentals? In my mind, paying attention to the fundamental process issues rather than simply automating them is a far better approach. Sure, your RPA saved five FTEs and so, theoretically at least improved productivity while helping the bottom line. But a more critical analysis says that all you're doing is accelerating the pace of delivering the same crap.

My take

Technology today provides so many opportunities it is easy to be overwhelmed by choice. But as in the past, shoehorning something new - however easy the Zapier integration makes it - is not solving the underlying problems of outdated processes, legacy tech, and plain outdated or bad business models.

Where do you start? The sun is still shining and in my world, that's the best time to fix the roof. It starts with people and my sense is that the general atmosphere for paying attention to your people is ripe for exploitation as a way of not only improving processes but ensuring that when the rain does come, your people don't look for alternative umbrellas.