Business during a recession

ctodx
21 April 2009

Last week I got the latest issue of The New Yorker and, as usual, whenever there's an article by James Surowiecki, I turned to it and read it first. Surowiecki writes well and intelligently on financial and business matters, and this week's article was no exception.

His thesis this time was how businesses behave during a recession and used Kellogg and Post as examples during the Depression during the 30s. In the 20s, both were equally well known for breakfast cereals, but when 1929 hit, Post reined in its expenses to ride out the storm whereas Kellogg increased ad spending and launched Rice Krispies. The result: hardly anyone knows of Post these days whereas Kellogg's is a household name. Even more importantly, perhaps, Kellogg's profits were increasing even during the Depression.

I got to thinking about our industry, especially in these turbulent economic times. The immediate thought is to reduce expenses, especially when it's probable that revenues will decrease too. Ride out the storm, in other words; don't rock the boat. But that's the risk-averse strategy and low risk generally means low rewards. A higher risk strategy could mean much higher rewards, but the downside could be more too. But if everyone else is being risk-averse, there's more of an opportunity to make big if you don't follow the crowd: don't miss the boat.

For us software companies, there's a similar decision to be made in bad economic times. Do you just cut back on ads and conferences and giveaways, and just invest your money in R&D? When the bad times are over (although it can be really difficult to spot this kind of trend at the time), you can revamp your marketing and you'll have a new product to boot. Certainly with tech companies there's more of an opportunity to do "cheap" marketing through social software, but in reality your reach is not that great: it's hard to find new customers through Twitter for example. And, of course, once you determine that the bad times are over, you want to reach new customers immediately. You don't want to spend the time ramping up because, after all, everybody's trying to ramp up at the same time and how do you differentiate yourself? Better to keep yourselves in front, in the face of your current and possible customers throughout.

The same thing goes for competition in a recession. If you are competing against the free and the open source, what do you do? You can either do nothing, or knuckle down and write a competing product that you hope people will stump up money for once it's done, or you become visible right away in your particular open source space and provide help and work out along with the community what the free product lacks. The risk here is that, no matter how you do, you're always going to be too late with too small a product, and will waste resources and time and money. However, if you succeed, because of your visibility and because you've honed your product through your interactions with the community, you'll make out like gangbusters.

In fact, you don't even have to go that far: release a full-featured, but light version of a product for free, and then provide the more in-depth features to solve the advanced scenarios as a paid upgrade. The risk here is that the features you provide with the free version are enough for the vast majority of your customers.

My point here is not that software companies should or should not take risks, but that they should not radically change their outlook just because the rest of the world is in a recession. Software development is not car manufacturing or ship building or any other kind of production of physical goods. Indeed, I'd venture to say that software companies as a whole will continue to do pretty well in a recession because the market for software doesn't really "go away". Indeed I'd argue that other companies will invest more in their software infrastructure during a recession in order to come out of the gate as fast as they can. Sure, they'll be more parsimonious deciding what they need, or critical of what the various software vendors are supplying, or desirous of value for money, but in the end I'd say they will purchase. Take advantage of the recession by targeting your customers and your market!

Oh, and we'll see you at Tech·Ed in a couple of weeks' time: we're in the Exhibit Hall between Intel and HP ;). I wonder how they'll cope.

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10 comment(s)
Steve Sharkey
Steve Sharkey

It seems that the Kellogs success has been observed by a lot of companies as advertising for some seems to have doubled - here in the UK Vauxhall (General Motors) has had a huge increase in advertising. The difference for a cereal manufacturer and GM (or indeed us) is that cereal is something that people buy eat and its gone. Bigger purchases people will look to the manufacturer/supplier with a view to a relationship and so want to see that there is some longevity to the source.

22 April, 2009
Anonymous
Alex

WPF could have been your Rice Krispies!

22 April, 2009
Trevor Westerdahl
Trevor Westerdahl

In my opinion, software companies are in a particularly advantageous position during recessions.

When companies are timid and implement minimal-risk strategy, where can they look to in order to reduce costs? High-up on the list "should be" software enhancements.

When companies seek a higher-risk strategy in order to gain market share in tough-times, how will they be able to handle increased market-share? Again, high-up on the list "should be" software enhancements.

So, from a software company perspective, it is crucial to spread the message that continued software enhancements are vital to sustained competitive advantage.

If you are in a race (running) and you notice that your competitor(s) get on a bicycle, it doesn't matter how hard you run, you need to, at least, stop and get on a bicycle to remain competitive... or better yet, stop and get on a motorcycle!

22 April, 2009
Damian Hickey
Damian Hickey

I have to agree with Alex.

I am actually a little worried about DevExpress. Have been a customer for 5 years now and I just get the feeling that they are being stretched to the seams.

The .Net landscape has changed a lot in that time:

- new CLR, new language features, multiple runtime targets

- WPF as a Winforms replacement (DX essentially ends up having to do a *lot* of work just to get controls to the same feature parity of their winform counterparts)

- Silverlight pops up all cross platform with a subset of WPF and a new runtime target.

- ASP.Net MVC is now on the radar so those webforms controls will need rewriting.

- Lots of bugs, some self reported, reported years ago languashing in "Accepted - Release TBD" land ( www.devexpress.com/.../AS6976.aspx, www.devexpress.com/.../A2131.aspx )

- and of course all the *other* products...

Everyone has their different needs... XtraGuages... meh. But am feeling that DevExpress is somewhat stretched at the moment and not getting the stuff out. It's got to be tough with all the dev though, for what may seem like no real progress (another grid, yay!)

23 April, 2009
Damian Hickey
Damian Hickey

Just to clarify by no real progress..

You build all this functionality in one tech, winforms, then you got to build the same functionality in another tech, wpf/silverlight, and it can seem that no progress made because the functionality is the same (ish).

23 April, 2009
Julian Bucknall (DevExpress)
Julian Bucknall (DevExpress)

Damian: So to summarize, if you're a customer of one platform/control suite/library, not so much progress; if you're a follower of them all, lots of progress. That's like saying DevExpress is obviously too stretched because they're slow at producing stuff I want. However, as you can see with every major release, we have been "getting the stuff out".

Sure, we're stretched. R&D were stretched when I joined over three years' ago. Every R&D group in the world is stretched (otherwise they're not doing it right). We just had Dustin Campbell from Microsoft (PM for VB IDE) here with us at the beginning of the week: he's stretched too. I wouldn't call all that an endemic failure and to be "a little worried about DevExpress". I'd say that customers are excited about what we're doing and just want it all yesterday Smile.

As you rightly said the .NET universe has exploded in that time. Should we have stuck to WinForms/ASP.NET and ignored the rest? Should we have waited longer to do WPF, or done it sooner? Should we have produced bauble controls just to say we're in the Silverlight market? ASP.NET MVC is out, should we ignore it then in case someone thinks we're over-extended? At some point it all makes me laugh: no one except maybe three/four companies has done well in the .NET UI control market and yet everyone who uses a control knows what these companies should and should not be doing.

And, please, the whole "Accepted - release TBD" thing has been beaten to death. We meant "great idea, it deserves to be done", customers understood it to mean "it's going to get done the release after next". Our fault for raising the expectation and not clarifying it very well and we've apologized for that in the past. We're certainly trying to remedy the situation by reassigning suggestions to rejected or an actual release.

Cheers, Julian

23 April, 2009
Julian Bucknall (DevExpress)
Julian Bucknall (DevExpress)

Damian: you said you've "been a customer for 5 years now", so I looked you up on our system to see what you've purchased. This was to see if I could explain what we've been doing over the past year or two that would help you in your work. You're not in our system, neither as a purchaser nor registered under someone else's purchase. Oh well.

Cheers, Julian

23 April, 2009
Damian Hickey
Damian Hickey

Julian, sorry, I came across wrong... I was trying to sympathize with you guys (and probably goes for all component vendors in .Net space) regarding the explosion of tech in .net, particularly in the UI space. It's gotta be hard to keep up (patiently waiting for the DX WPF editor suite myself), and of course have to support and maintain all the other stuff.

I'll email you my customer details.

24 April, 2009
Aaron Smith
Aaron Smith

Our business has exploded during these times. We have doubled in size over the last 8 months. We set sales goals that double last years goals and we are over target.

We have DevExpress to thank for it too.

24 April, 2009
Anonymous
ctodx

Next week, as you probably already know by now, the mighty Microsoft TechEd 2009 will swing into action

8 May, 2009

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