- The Washington Times - Monday, June 2, 2003

Has Technology Industry Learned Its Lesson?

Who would have thought the technology industry would have plummeted from boom to bust in five years. The dot-com bubble burst in April, 2000. In 2006, we’ll still be scratching our heads wondering what went wrong. Books and white papers have been written analyzing the roller coaster stock market ride. M.B.A.s are still extracting heavy business lessons from that frenetic period. Above everything else, the dot-com explosion was an aberration no one thought would end. “If you weren’t making money, you’ll never make it,” said a software developer who was earning $200K, excluding perks such as a shiny red Corvette. It was a company car for an employee who rarely left his office. When the curtain fell, our software developer was broke. His stock was worthless. He didn’t have the foresight to save a portion of his earnings.

Dot-coms failed for a bunch of reasons. Topping the list is stupidity and arrogance on the part of CEOs. In their quest for omnipotence and to amass fortunes along with a half-dozen Porches in their driveways, they never considered failing.

Just as quickly as millions of dollars of venture capital (VC) poured into technology startups, it disappeared because of sloppy management, the assumption by CEOs that there was an endless supply of money and that profitability was only a couple of years away. Most never saw that day. A few smart or lucky ones walked away multimillionaires because they cashed in on their stock options when they were at record levels, others closed their office doors broke. In 1998, all you needed to get VC funding was an M.B.A. degree and a good PowerPoint presentation, says a cynical Mark Solon, managing partner of Highway 12 Ventures, an early stage venture capital fund in Boise, Id. “Most companies had no right to be funded,” he says.

Pre-dot-com bust, VCs were throwing money at any company that showed promise. All the realities of smart investment — competition, production cost and market appraisal — were discarded. If there wasn’t a market, management thought it would create one. How’s that for dumb?

Yet, history has a way of righting itself, Solon observes. Oddly, compared to pre-bubble VC investments, funding is now where it should be. “There was a correction that happened by itself,” he says. “Now there is a slow growth pattern of backing technology companies. It’s been five years that the world has not been the way it always was.”

Dan Morgenstern agrees with Solon. Morgenstern is an IPO (Initial Public Offering) and VC attorney, in Cleveland, Oh. By 1994, the Internet had become the world for millions of people. Its influence, power and reach were limitless. Everyone felt it would speed up the adoption of all technologies. It was a historic turning point that wasn’t true, according to Morgenstern. Things don’t move that quickly. “Many people felt we had the same kind of industrial divide we had during the Industrial Revolution,” he says.

Outrageous investments in the fledgling biotech industry in the late ‘90s is a good example of the frenetic rush to pour money into promising companies. VC firms backed biotech companies expecting to see a profit in a few years. “Biotech companies don’t get products to market that easily,” says Morgenstern. “The business model is that they must be in a continuous fund-raising mode. It can take 10-12 years before products get to market.”

The IT software and telecommunications industries are also in the doldrums, Solon adds. The enterprise software market was hit the hardest. CIOs have put the lid on buying software until already purchased software is deployed. Half the venture deals in the U.S. are software.

However, the marketplace is not totally bleak. The wireless industry outlook looks good, according to Solon. “I find the Web tablet real interesting,” he says. “Companies that figure out applications for it will be successful.” And, even though the IT outlook is bleak, companies are still hiring in all industries. The trick is finding out which ones.

Now take your seats. It’s time for a one-question exam. Under the right conditions, a thriving economy and a booming tech industry, could we return to similar spending excesses of the dot-com renaissance years? My answer is “Absolutely?” I can’t help being cynical. That means nothing was learned.

***

If you have any questions contact Bob Weinstein at [email protected]


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide