Rudderless

If there is a single word to describe today’s worldwide business environment it is “directionless.”  Business and consumer spending are slowing to a crawl until some economic direction (even downward) is identified.  People and corporations alike are simply holding cash until they see clear and safe places to spend and invest.

Global indecision.

This state of economic ambiguity will hit many parts of the technology business hard.  In the B2B space, customers are spending only on things that are essential, such as replacing broken servers and PCs.  Even then they are restraining spending and eking the last I/O out of those aging boxes (not me – I’m buying a new laptop this month to do my part in reviving the Chinese economy).  B2C sales are slowing even in the hotter-than-Hades mobile market.  With unemployment rising and a looming federal deficit – currently standing at 8% of GDP and with new spending proposed – ready to push inflation to 1970’s highs, the state of the technology business may be depressed for years.

However, whiskey sales are growing steadily.

Tech companies are faced with the ultimate agility question.  When the economic essence of the world is fundamentally changed, when mid-future economic trends bode ill, and when the combination may drive a new “child of the depression” frugality, how does a technology company respond?  The market for tech will be as fundamentally different as the economic landscape.

Personally I like recessions -business at Silicon Strategies Marketing typically rises when old marketing strategies are no longer viable and tech companies start dialing us up.

Tech’s problems are multiplicative.  First is the problem of trying to determine how the market for technology has changed.  The second is the realization that making such predictions is premature given the directionlessness of the global economy.  In short it is too early to predict what the new market realities are and it is too late to avoid making changes.

John Yossarian had it easy.

Throughout the end of 2008 I have been repeating a speech titled “Marketing Technology in Tough Times.” Originally written in the dot-bomb era, the talk recaps a single salient aspect of corporate psychology that is amplified during economic downturns.  Matching your outreach efforts to the core market disciplines of your customers is critical given that the top management of buyer companies reinforced those disciplines during a recession.

Yet, this recession is different.  Normally a recession lasts about 18 months, unemployment raises a couple of percentage points, and despite localized suffering, most people skate through unscathed.  This recession has already broken the averages for unemployment and duration given current projections.  And unlike typical recessions, there has been massive, global, debt-financed economic interventions that threaten to spike inflation. These longer and more onerous economic realities will fundamentally change the buying behavior of industry and individuals, likely making them more cautious, fiscally conservative and frugal.

How does a tech company deal with this?  Naturally it depends on your specific market, product and competitive position.  However, there are some rather universal realities you will face.

Pricing: Expect downward pressure on prices and thus margins.

Longer sales cycles: Purchase decisions move up the management food chain (even in families) when times are tough, delaying decisions and killing some deals.

Alternative hunting: Last year it was a no brainer for the average buyer to acquire the hot new cell phone.  This year they will select cheaper models.  In corporate software, alternatives like Open Source will receive more attention.

Just saying no: Some sales will simply vanish as executives (including heads of households) will decline to purchase anything that isn’t essential to survival.

Let us assume that these fundamental changes in buyer attitudes are long-term or even permanent.  Technology vendors will need to make fundamental changes as well.  Realizing your specific market has its peculiarities, there are some basic realignments you will likely face for the next few years.

Recast as essential: As buyers restrict purchases to only those things that are essential, recast your products as being essential.  They may not actually be essential, but neither are color televisions and they continue to sell.  Items that appear to be luxuries or that offer marginal added value will go unsold.

Create new essential value: Look long and hard at your product roadmap and move to the top features that create value that can be sold as being essential.  This is tricky as the definition of essential may be narrow.  Yet the theme remains – new revisions of your product in the short- to mid-term should focus on elements customer cannot do without (this may take some education on your part).

Articulate value and survival improvement: When buyers are focused on survival, helping them survive is a key way to win business.  Review your marketing messages and recast your value propositions (where possible) to provide buyers ways to get them through the recession.

Trim the channel: You channel is hungry, but so are you.  When times are good and your goal is to take as much market share as possible, a large and motivated channel helps.  When times are bad and many of your channel partners will wither anyway, cut back and bring as much new business in-house, keeping those margins to yourself.

Wring costs internally: Silicon Valley largess is legendary, so knock it off.  Friday beer blasts and free coffee may be a thing of the past.  When your top-line revenues are restrained, keeping the bottom-line up requires reducing expenses.  Your employees already get it – times are tough.  They won’t resent (very much) corporate frugality when it means keeping their jobs and their stock options above water.

Sell value: Much Silicon Strategies Marketing’s corporate coaching focuses on articulating value.  Value and ROI are different things, and wise marketing pros know how to sell value and not products.  Understand that what your market values today is different than what they valued last year, then sell to their new values.

Most of all, stay optimistic.  This may sound funny given that I just spilled 900 words of gloom.  But the essence of mankind has been invention and change.  As a species, and especially the Silicon Valley tribe, change the world by inventing.  We solve slightly more problems than we create.  If you plan for survival and continue to explore and innovate, you’ll see the sun rise again.


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