The technology sector – cautiously optimistic?

October 30, 2008

Towards the end of September Barclays Commercial gave its view of the outlook for the technology sector during 2009 – see our article Barclays predicts lower growth for 2009. A month is a long time in the current climate, and we wanted to see whether views had changed in the interim. 

Keen readers of technology blogs cannot fail to have noticed the debate regarding the prospects for technology companies during the downturn – particularly in light of the difficult times which followed the bursting of the dotcom bubble a few years ago. The general consensus is that technology companies – although they will not escape unscathed – are better placed to weather the downturn than industries in many other sectors. The reasons are many and varied.

One relevant factor is that the sector is now much more disciplined and customer focused than of old. Technology applications are fundamental to the strategies of most commercial organisations in this day and age (and indeed can be particularly attractive in a downturn if the application of technology allows costs to be cut in other areas). Add in new applications such as green IT, virtualisation and mobile computing and the reasons for cautious optimism seem well founded.

This is not to say that technology companies do not need to focus on prudent financial management. Technology investors are now instructing CEOs of portfolio companies to preserve capital and cast a critical eye over their business and operations. For example: focus on the essential features of the product and strip out those which are “luxuries”; review marketing spend, and if it is not working don’t do it; look at ways to improve cash flow. None of this is necessarily rocket science but early action can pay significant dividends.

And what about those companies which are seeking to start out at the present time? Here are a few tips gleaned from our recent experience of technology companies seeking early stage funding:

• Keep your business plan sensible. Ensure that your forecasts are realistic and achievable.

• Explore all funding options. Consider friends and family and business angel funding before approaching institutions, which increasingly wish to see some evidence that the business model has been proven before investing.

• Be flexible in relation to the sum which you wish to raise. Be prepared to seek a smaller sum to enable you to launch and trade through the post-launch period, by which stage you will hopefully be able to demonstrate sufficient trading history and future potential to obtain the next round of funding.

As a final thought, and despite all the doom and gloom in the press, it is important for technology companies to remember that where there are problems there are also opportunities.

Related pages:

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