Lessons from the Last Crash

In the past two weeks, I've had lots of people ask me how I think the financial meltdown will affect things. I don't have a crystal ball, but I thought it might be interesting to look back to the tech crash in 2000/2001.

I remember one of our executive staff meetings in particular, where it became clear how bad things were getting. One of the topics of the meeting was how sales were going, and Rob Salmon, who ran world-wide sales at the time, described an ugly picture. We were still winning deals, at least according to the lower level decision makers, but when it came time to collect the purchase order, we would find out that the CFO, or even the CEO, had frozen the funds at the last minute. It wasn't that anyone else was taking the business: the business was simply disappearing, or at least being delayed.

The executive staff meeting continued, and an hour or so later we had a status update on a big business software project that we were working on. I can't remember exactly what it was—ERP or CRM or something like that. Anyway, about twenty minutes into the conversation, Dan, our CEO, interrupted and said, "I don't think it makes sense to do this right now. It's just too expensive, and given the economic situation, too risky." The IT people giving the presentation said, "But it’s been approved. We already committed to our vendor!" Dan's response was, "It's not too late to cancel." That was that.

From the other side of the room, Rob Salmon groaned. He said, "I bet this is exactly the same conversation that is going on at our customers, right before they tell us that the deal we thought we had won just disappeared.

That was in 2001, but I have a hunch that the same conversation is going on in boardrooms all around the country. All around the world, for that matter. Remember, it's only two weeks ago Monday that Lehman collapsed. It seems pretty likely that CEOs and CFOs will reconsider, or at least delay, any big decisions that they can, even if they haven’t told their staff yet.

I’m curious about peoples’ experiences at different companies. What has the boss said so far?

Comments

[Tony Asaro]

Hey Dave,

If you have the money - then value investing in the best thing to do in an economy like this. This includes IT investments.

I sent you an email too - would be great to catch up :)

[Andy Schaefer]

In my business (secure document management and destruction) we are seeing this effect already. You're dead on in your comparison to the tech crash. Being in sales, I hope companies don't cut back on revenue generating positions as they feel the crunch. Dial back expectations a bit? Sure. But there is still money to be spent, but in smaller increments.

[Ian]

We see the slow down as the perfect time to upgrades. We rode the wave of the booming housing market and now that it has slowed, we have started working on bringing in a new ERP system to handle the next been boom in the economy. With this we have upgraded out storage to bigger and faster NetApp, consolidated servers with HP Blades and VMWare. Could we have done this during the busy times... no way.

[Pete MacKay]

My question would be: what was the opportunity cost of the decision to pull that project's budget? Were creative financing alternatives offered to negotiate with customers who were pulling their budgets? I've seen delayed payment plans, equity exchanges, projects broken up to be budgeted across several PO's in subsequent quarters, etc. What could be done to make sure nobody took the business when the upturn came?

I don't think this can be compared too closely to the tech crash of 2001 because of a difference in root cause. In 2001 oversupply set in, combined with the Asian currency crisis, and a natural adjustment took place. This one's much worse. Maybe this one's the one where we evolve from a consumption-based economy to self-preservation?

That being said, I agree with the previous commenter wholeheartedly, and our IT consulting business in Portland is benefiting from like-minded businesses up here. Fear tends to drive people to a wait-and-see attitude, but true leaders take initiative and capitalize on the positive aspects of a downturn. There will always be problems to solve; business isn't going away.

I got here through your job board as I intended to apply through a friend there. Your story may be an illustration of what's going on now, as a few weeks ago there were nearly 11 pages of openings listed, now there are nearly 11 jobs. Bummer! I'm moving back to the area and will probably end up working for VmWare, Sun, etc - who knows - but I've heard great things about NetApp and really hope the timing works out. Hopefully there's not too much wait before we see! :)