Broadstuff (a blog that I follow) has a good summary of a recent McKinsey article on the differences between how technology winners and losers navigate a recession. The key take away, besides the fact that technology spending falls really fast during a recession, is that successful technology companies are smart about how they cut SG&A and thoughtful on core vs. non-core investments. I’ve listed the McKinsey findings below (as quoted in Broadstuff); see Broadstuff’s site, linked above, for a more detailed explanation of each.
Successful technology company tactics during a recession
- Manage working capital aggressively
- Rationalize SG&A expenses and overall headcount
- Make frequent, significant acquisitions (later)
- Divest non-core assets early in the cycle
- Maintain a stable level of leverage relative to equity
An important point to note is that for #2, the rationalization of headcount, successful companies actually slightly increased their headcount expenses (relative to their loser technology company competitors) during the recession.
This speaks to the need to focus on what works, get the right team on board and focused on the goal and get rid of non-core/distractions. This is very similar to what I am hearing board members say to portfolio company executives right now - figure out what the market needs now/what will be needed and cut out any other projects that are not aligned with this core task. Focus is a good thing.
It’s tough for me to give solid advice during these times. I’ve only lived (during my working career) through the dot.com downturn, and the current recession feels more dangerous/more wide spread. I welcome any suggestions/advice from the Startable readership on how smart technology executives navigate this market.
