One topic that continues to come up in discussions I’m having with colleagues, friends and family is the economy—what’s the macro-level impact of the recession we’re facing and how it may affect our industry. I’m somewhere in the middle on whether we’re looking at a deep 10 year recession or a shallow 12 month one. In this post I’ll explore those topics and the impact it will have on product management and design overall…
Impact on Internet Companies:
- Investments without a foreseeable ROI will end
Sequoia’s recently leaked RIP presentation to their portfolio of companies makes this point very clear for privately funded startups. Companies without a business model will not receive subsequent rounds of funding as there is a fixed amount of money left in the funds which invested in startups today—and it must last longer than previously expected as exits will be more difficult. Public companies are already under substantial pressure to reduce expenses inline with reduced top-line revenue growth (e.g. EBAY) and they’re most like to do that with questionable ROI investments and projects.
- Expense reductions impact on overall wages
These reductions should cause an overall contraction in the job market which will be reflected on all jobs including “product” and “design” jobs as most company’s approach a reduction in force in an across the board manor. This will also cause downward pressure on wages as more and more people will be looking for work perhaps equalizing what’s been an “employee’s market” in the design field for nearly a decade.
- Backlash against outsourcing
Reduced wages and a devalued dollar will create incentives for companies to hire locally in America. Furthermore, politicians will gain favor thru protectionist measures and may make it more difficult for companies to outsource jobs abroad. This will likely lead to a contraction in the outsourcing practice at least for US-based companies. Also some companies may focus on fewer, higher performing employees than lots of low costs employees (as Mike Spieser suggests).
- Internet companies will begin to operate like “normal” companies
This means a renewed focus on operational efficiency, profitability, and paying customers. Many firms may prioritize low-beta profitable investments over high-growth but longer-term investments. For startups focused on a long-term growth strategy it’ll be important to find a way to survive smaller and harder to get rounds of funding.
The role of Product Management and Design
The reality is now more than ever, businesses cannot afford to lose a ton of money on failed launches. When things were booming engineers could build solutions in search for problems—and some would stick and succeed.
In this environment the best way to mitigate risk is to rely on seasoned product folks to identify real customer pain points and then design a product that effectively meets those needs. Thru effective portfolio management you’ll also be able to evaluate your investment at several stages in order to mitigate risk. In that way you’ll be much more likely to succeed with the features and products your company launches.
Recommendations to Read:
- Two helpful posts from Brad Feld: Let’s Get Pratical and
OK Entrepreneurs, Time to Step Up
- Jason Calacanis on The Startup Depression
- Ali Velshi from CNN explains the Economic Crisis on Oprah in simple terms