The *business* of software

QOTD: Where are the silver linings in the current financial crisis?

Although many people are hurting, there will be opportunities too. In the bricks and mortar world, inferior goods will do well as people buy frozen dinners rather than eating out; shop at Lidl rather than Waitrose; buy lipstick to feel good rather than expensive shoes.

Weak companies may go bust, but strong companies could get stronger. It might be a good time to hire.

Any other silver linings you can think of?

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Permalink Reply by James Moore on October 6, 2008 at 7:34am: It will be interesting to see how badly this downturn affects software companies. In 2001 the downturn was focused very much on our industry and many firms went belly up when they could no longer get hold of large wads of VC cash. This time round the downturn is focused in the financial sector.

Once again I think those software companies who are burning through cash are going to struggle when it comes time to start their next round of funding but for companies which have a good profit margin and decent cash flow then there is a good chance they will make it through this relatively unscathed.

I do not think that companies should expect that much growth over the next year or so and should ensure that they are in as good a position as possible to deal with the rainy days coming our way. However this does provide an opportunity in itself, if we plan for the worst and hope for the best the likelihood is we will get something in the middle putting us in a great position to invest heavily when the economic climate begins to turn again.

Finally the downturn will force us to look at other ways we can become more profitable. How do we improve productivity? How effective is our marketing? Do we really need to spend money on X?; ▶ Reply to This

Permalink Reply by Doug Gault on October 8, 2008 at 8:46pm: I work for a company that specializes in Oracle Database Performance. We provide both consulting and tools to help businesses get more out of their existing infrastructure and database investment.

For us, down markets always mean more business. Although they go through more to justify the expense, it usually turns out that we are cheaper than buying the extra CPU's or upgrading to that next huge server.; ▶ Reply to This

Permalink Reply by Phil Factor on October 14, 2008 at 9:11am: I can remember running around the streets of the city of London collecting and cashing cheques from my city clients before they went bust. At the time, in the early eighties, it was the London Metal Exchange that was affected, when they were caught with huge futures in Tin when the cartel collapsed. I had the misfortune to be specializing in computerized trading systems for the London Metal Exchange.

Although it seemed like the end of the world then, we soon diversified into other areas. Any fluctuations in economic conditions cause a demand for services to allow institutions to adapt quickly. We became experts in the evaluation of Gold Mines. (economic downturns always increase the interest in precious metals)

My general advice to software companies at a time like this is to make sure there are no unnecessary overheads, and be quick on your feet to exploit the new markets and opportunities.; ▶ Reply to This

Permalink Reply by Dan Nunan on October 14, 2008 at 10:07am: Over the last 15 years or so the career of choice for many of the best and brightest around the world has been Investment Banking, and more recently VC/Private Equity and Hedge Funds.

The effective nationalisation of many of the banks means that these firms are no longer going to be able to pave the streets with gold for ecruits, and will be less attractive to the best college graduates. So long term, the tech sector may find it easier to attract people who would previously only considered careers where you can wear a suit & tie.; ▶ Reply to This

Permalink Reply by Jonathan Hartley on October 14, 2008 at 1:19pm: Software companies that make videogames, which is a huge industry? Gambling tech? Online poker? Am I right in assuming these things are anti-recession? (is there a word for that?); ▶ Reply to This

Permalink Reply by Bob Cramblitt on October 14, 2008 at 2:22pm: -- Many outstanding people in the job market
-- Opportunity to gain market share as your competition sticks their head in the ground
-- Chance to engage customers in a richer way and cement lasting relationships (people remember when someone does something for them in times of stress)
-- As above, the opportunity to earn greater loyalty by helping employees through challenging financial times
-- Creating greater perceived value by emphasizing money- and time-savings aspects of your software
-- Helping out in the community to gain greater respect as a good corporate citizen (and the kind of company for which good people want to work); ▶ Reply to This

Permalink Reply by Ashley Reddy on October 14, 2008 at 4:36pm: I think fundamentally the purpose of software is to save money for businesses (aside from video games of course). Bad economic times only accentuate this need to save money. The problem that I see is that new software ventures are capital intensive, so the smart VC money is going to sit on the sidelines and see how this thing plays out. I’m going to focus my efforts on providing services/products that have a measurable ROI for my customers.; ▶ Reply to This

Permalink Reply by Scott Kane on October 15, 2008 at 4:29am: Since I began in this industry we've had three down turns.

The 70's (I was only a teen but beginning programming) we saw the "home computer" revolution. During that time there was a major oil shortage, we were just coming out of the late 60's early 70's credit squeeze.

The 80's we had the stock market crash. Yet the IT sector boomed ahead.

The 90's = fluctuations throughout and IT powered ahead.

The dot com crash - 1999/2000 we shuddered, saw a lot of firms with no real value crash and burn, but we rejuvenated.

Arguably this downturn is a little more serious than those preceding in recent history. I do think we stand a darn good chance of a recession worse than that of the late 80's, it's probable. But looking at history (1930's to now) it's the innovative, staying small and diligent who come out the other side in good shape. For myself right now I'm minimizing costs. They were already low. This doesn't mean I'm cutting back as much as I'm reducing debt by paying it out fully wherever I can. With the Aussie dollar shedding 20 cents plus in three months this is simply pragmatic, particularly when some of that debt is in foreign currency. I shifted web hosts this last week, not just because I wanted or thought I needed a VPS (which I believe I do), but because my shared hosting company accepts payments through a third party who tripled the exchange rate in their favor this month. These are the kind of practices that will kill companies - not necessarily the victim, but the perpetrator as people shift to more logical and economical alternatives, alternatives which may not always seem the cheapest at the outset, but offer better longer term return.; ▶ Reply to This

Permalink Reply by Constantine Goulimis on October 15, 2008 at 2:32pm: Like some others, our product's value is increasing efficiency. In the past we have found that mild recessions are good for business, but severe ones not (e.g. customers start closing down manufacturing plants). So let's hope for the former (and actually, I suspect, that the real world is not too affected by a short-term financial industry crisis).; ▶ Reply to This

Permalink Reply by Marcus Tettmar on October 15, 2008 at 3:42pm: We also sell software which saves companies time (and therefore money) and makes them more efficient.

We've even just sold large licenses and done some custom work for two mortgage brokers in the USA. They've been able to increase efficiency and cut costs by using our software and this has allowed them to make smaller loans (no one is buying large mortgages right now) more profitable. So for us, I see the current economic climate as an opportunity.; ▶ Reply to This

Permalink Reply by Richard Watson on October 15, 2008 at 6:08pm: This isn't really a financial crisis. The last while has been mostly about the financial crisis but the problems are rooted in the real economy, which is where this will play out. The financial industry is the canary in the mine, due to leverage.

The silver lining for me is that competing on cost will start being a factor. Small companies can take advantage of their lower cost bases and dynamism.

Sadly I make a (sophisticated) todo-list, which doesn't exactly drive factory costs down :) The guys who can help people save money, will do very well.; ▶ Reply to This

Permalink Reply by Mark Dalgarno on November 11, 2008 at 1:21pm: Hopefully it will eliminate some of the cowboy outfits and money-losing ideas that give our business a bad name although I feel for people who lose their jobs for no fault of their own. I only hope some of the better companies aren't laid low. In my experience there are folks in the finance sector who are still buying, but others are deferring or are simply too busy with merging with other organisations to spend time looking at new software purchases.

On the plus side companies will be looking harder at software investments. We've put together a quick-return ROI case for one of the tools we sell and this has now been completed. We also sell a tool to help people maintain 'legacy' systems. I hope that the downturn means managers will focus more on maintaining these rather than rewriting software from scratch which will benefit us. We're also looking at rental models for our tools which should earn us more over the long-term but will appeal to capital-starved companies.

In global terms there will be less travel and more telecomms usage so companies in that latter sector should benefit. We run a major conference each year with 50% of people coming from outside UK and this could also suffer as a result. Our plan here is not really different from previous years though - make the event as low cost and as high value as we possibly can and make sure we promote it effectively. Some of our suppliers have helped here by recognising the tough environment we're in and adjusting their price expectations accordingly.

P.S. I'm sticking to expensive shoes, lipstick was never my thing.; ▶ Reply to This