September 28, 2022
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Reprogramming for 2009 – Tech companies learn from dot-com bust

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Here’s a New Year’s resolution: survive the recession.

With a year-old slump touching every part of the economy and showing little sign of letting up, technology companies are rethinking their strategies and learning from tough times they’ve weathered before.

“It will sound trite, but we’re just like everyone. The challenge is keeping revenue up… (and) finding enough business to keep people gainfully employed,” said Dave Wilhite, vice president and general manager of Quintron Systems.

Cash is king

If credit got the economy into this mess, cash may get it out.

“The people who have built up cash and have cash will fare the best,” said Hillary Trout, president of Softec in San Luis Obispo and a CPA with Longcrier and Associates.

Those leaning on credit are hurting, because credit isn’t still available, she added. “Right now cash is king.”

“If a company had anticipated a friendly environment to raise capital, they no longer have that friendly environment,” said Dave Gross, co-founder and managing partner of Great Pacific Capital in Carpinteria.

Great Pacific Capital is urging its portfolio companies to reach a self-sustaining, cash-flow-positive state.

Venture investment in Southern California reached a height of $8.9 billion in 2000, just before the dot-com crash.

Investment in the region has neither returned to those heights nor fallen to pre-1999 figures. After a post-crash record of $3.6 billion in 2007, investment fell to $2.7 billion in the first three quarters of 2008.

That’s according to PricewaterhouseCoopers MoneyTree data, combining San Diego with L.A./Orange County regions, including Ventura and Santa Barbara counties.
Investors are stepping back now, watching for signs of liquidity – mergers, acquisitions and IPOs – indicating it’s safe to invest again, Gross said.

Even then, he doesn’t expect business as usual.

Government money

Gross anticipates “potentially permanent changes in the structure of capitalization of new ideas,” including increased government spending.

“By the mid-teens we may see more money through universities, institutions (and) government,” he said, comparing it to 1970s investments into “what ended up being the Internet."

For instance, green technology, facing tough markets since oil prices fell, might find a niche in President-elect Obama’s “New New Deal,” with its environmentally friendly infrastructure projects.

Justin Bellante, chief executive officer of BioIQ, also looks forward to the new administration.

“The incoming Obama administration is talking about reshaping the health-care system, with a growing emphasis on early detection and prevention … (of) chronic diseases that drive up health care costs,” he stated via e-mail.

That fits BioIQ’s business model. The Santa Barbara-based company’s diagnostic tests for chronic diseases are relatively inexpensive and can be administered at home.

Government contracts have been Quintron Systems’ bread and butter for 38 years.

With a new division making a strong start, contracts for 2009 show revenue up significantly from 2008.

But even government contractors face tough times. In 1993, the Santa Maria-based company lost 80 percent of its business when it was outbid on support contracts with Vandenberg and Edwards Air Force bases.

Some employees were let go, and others were put on partial weeks until revenue picked up again. The company turned from support to engineering and manufacturing communications and security systems.

Strategies

MultiProbe also finds lessons in past challenges.

The Santa Barbara company was founded in 2001. Customers weren’t buying in 2002 when it released its first product, so the company took advantage of the downtime to do more R&D and focus less on sales.

This year it will do the same. However, its multiple-stylus atomic force microscopes have a reputation among semiconductor manufacturers now, and CEO Andy Erickson believes they will buy even in a recession.

Retaining positive cash flow may mean cutting disbursements to company owners – who do not include outside investors. “We never had to sell ourselves to the capital market,” Erickson said, adding that the “pressure of imminent death” made his company stronger than those who had plentiful funds to cover their mistakes.

Many San Luis Obispo tech companies know how to operate on a shoestring.

“There has been the attitude that venture capital doesn’t look our way so we have to rely on our own resources,” Trout said.

Businesses who’ve survived without venture capital, without local customers, even without employees or office space, may be in a good position to weather the downturn.

Softec’s 2009 agenda includes advice on surviving today’s economy. In February, an entrepreneur will speak on increasing services and revenue without increasing costs. September’s meeting discussed using free networking sites for marketing.

Maybe that marketing should feature cost savings.

“We’re seeing something of a dichotomy,” Trout noted. She sees sales increasing for companies with a low-cost option, cutting into the markets of pricier, service-oriented competitors. “Cost is definitely a factor for buyers right now,” she said.

 

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