Sober is as sober does

Everyone is looking for a "recovery". Is it perhaps time to see this as another beginning.

by Rohit Shukla, Larta CEO

January 6, 2003

The year 2000 was the first "annus horribilus". It was followed by 2 more years that for many people--investors, entrepreneurs, and others not thus engaged, were even more scary. This last year, we were treated to a roller-coaster of promises and expectations, a rush to judgement accompanying every soar and dip.

Indeed, while we all know that the great gold rush is over, we still have not recalibrated our expectations. We still expect--and look anxiously for signs of--a "recovery". The idiom and imagery we employ extends out from the dubious achievements of a terrible past. Thus, for example, the fact that some dot-coms are actually re-emerging is seen by some as a vindication of the appalling era in which so many entrepreneurs and proto-venture capitalists cut their teeth. We still expect that the telecom industry, despite its long binge, will come back. We still anticipate that the high-flying overachievers of the biotech and biomedical world will deliver the needed boost to the technology marketplace. So we are still expecting things to return to something close to a level of happiness that marked the long technology boom.

Given the uncertainties of growth in many (either anemic, as in the case of Europe, or non-existent, as in the case of Japan), it seems clear that we are not going to be so lucky or so foolish as to find the "next big thing" or the "next big opportunity" that easily. Despite the great hope that China provides, we cannot transfer all our dreams to the growth of that economy. If greater transparency marks Chinese economic development, we are less likely to see it through rose-tinted lenses. Korea, meanwhile, another hopeful spot, is also caught in some scary geo-political chills of its own. India, another rising star, is still too caught in a push-me/pull-you internal battle between reformists and reactionaries to be more than an important source of IT-related offshore work, and less likely to be a huge innovator in the market-changing sense.

Meanwhile, closer to home, there are many reasons why we will be neither lucky nor foolish to land the next big thing that propels us on another 90's-style land grab:

First, the same reasons that made the tech bust so devastating still operate: too many assumptions of customer demand, too many clever solutions in search of markets, too much money (sometimes ill-gotten) wealth being poured into fluffy funds riding a hyped-up future. There still is too much money around, and not enough of it has been dissipated or returned. It may very well be another year before the venture industry itself goes back to doing what it does well: venturing in cutting-edge technologies, developed by ambitious, competent and dry-eyed entrepreneurs. In the meantime, expect that many of the funds formed in the last few years will disappear. Hopefully, the outside investors in those funds will not be attracted to new frothy scenarios any time soon. Money will become as difficult to find as it always has been, before the unfortunate interruption of the 1990's created expectations that can no longer be met. (The 1 percent rule, which suggests that only 1 percent of companies get venture funding, will finally work its way into our consciousness).

Second, there are still too many companies in specific market sectors, including the biosciences and telecommunications (sectors that are being hyped as leading the so-called "recovery"). It seems more than likely that we are going to have to see many of them squeezed out before we can reestablish a true understanding of the potential available. Remember the funds that are now going to disappear? Along with the money, those in search of it, especially if they are unable to really articulate their value proposition in line with current realities, will also bite the dust. Look, then, for a shakeout among bioscience entrepreneurial companies.

Third, the unsexy part of the economy (manufacturing, for example), unheralded in the previous boom, will continue its hardscrabble growth, but will be under additional stress as countries like China and India, move rapidly up the food chain and put their unused capacity (and their lower wages and increasingly reliable skills) to work. Manufacturers who don't have strong relationships in those countries should be approaching this next year with such arrangements as key cornerstones of their strategy, while they consolidate their R&D, design, marketing, sales and global strategy here.

I am not being the bearer of bad news. But in reworking our expectations, we can assure ourselves of reasonable growth scenarios outside of the aberrations of the intervening years. In other words, we don't need returns of 2000 percent to keep us in the money, and we don't need 50 funds of $1 billion each to stoke our egos. There are some great and little things that augur a lively future for Southern California, and indeed, for the technology industry itself.

In case you've just woken up, Southern California is holding its own, not just because of its excellence, but because little was ever expected of it after the flame-out of the early 90's. But now, its R&D capabilities, demonstrated through long years of engagement with the Department of Defense, find a ready marketplace, more motivated and more aware than ever before. In the promising field of nanotechnology (on which so many post-madness hopes for the next "big thing" were pinned (unsuccessfully, thank Providence), materials companies and biomed companies alike devise promising new approaches to everything from consumer products to medical devices that are smaller, less invasive and more capable.

Even outside the venture capital horizon, there are small and large companies working on new software to expand the digital network in the home, new digital security products to monitor and disable unwelcome intruders, expanded filtration and Nox reduction products that also enhance manufacturing productivity, and energy products that extend and provide for energy efficiency. This is a small sample of the areas in which we have a broad capability. What we need is to depart from the expectations of a "recovery", and adopt the idiom of a new beginning, building on the hidden nuggets whose time has finally come.