Regional Technology

 

June 30, 2003

 


The first priority -- survival

We are still breathing. We have somehow managed to make another payroll, close another sale, secure additional debt or raise another equity round. We are the survivors. And some days the future looks almost bright.

We have watched our competitors stumble and fall. The urgency of building brand and differentiating has shifted into a need to present a compelling solution to extreme market pain -- and to ensure our customers a quick ROI.

The living dead and walking wounded are gone -- sold, merged, parceled out in licensing deals, or sold for pennies on the dollar. But somehow San Diego tech and biotech are still in business -- and doing better than many other technology centers. Are there tricks of the trade that are uniquely local? Have we been seasoned by previous downturns? Or are we just doing a good job of focusing on the fundamentals and waiting out the economy?

I asked these questions of several colleagues who are managing to keep their businesses growing, in hopes that their comments might be representative -- and useful to share. Perhaps we can benefit by their experience -- or at least recognize that we're not alone in our suffering.

Peter Shaw, CEO of Akonix, was quite clear: "The No. 1 priority is survival." For companies in the enterprise corporate market, he warned that "no matter how realistic you think you are, sales will probably be less than expected, hoped for, forecast or budgeted. Customers' budgets have been cut, and companies are buying only 'must haves.' And the bar for 'must haves' has been raised."

"But business is progressing," he continued, "there are signs of loosening, and there is a light at the end of the tunnel. The problem is, we're not sure how long the tunnel really is!"

According to Melissa Ford, CEO of Vektrex Electronic Systems, "the recent downturn has been positive for Vektrex, in that we have been forced to look more closely at our business model. In looking at our business model and the opportunities both long and short term, we have made focusing decisions, refined our processes to improve quality, and diverted engineering resources to marketing and R&D activities."

"Small companies are similar to large companies in that we suffer the same fluctuations," she said, but with ironic good humor added, "the difference is that at small companies the highs are higher, the lows are lower, and both occur in the same day!" And since San Diego is a community of small businesses, it is no wonder that these cycles do seem intense. Ford continued, "In all seriousness, the downturn in the '90s taught us that diversification is a wonderful hedge against industry downturns. This was a very important lesson and one that we have not forgotten. This may be one factor in Vektrex's resilience."

Indeed, the fact that many of our current companies did manage to weather the early '90s -- or were born during those tough times -- may be a contributing factor to San Diego's being somewhat less devastated than our tech sector counterparts to the north. Moreover, the fact that biotech and life sciences and the telecom, software and electronics industries seem to be behaving in something of a counterpoint, and the fact that we have market strength in all of those industry groups, may also have softened our pain to some extent.

But for some of our colleagues, the economic challenges have been addressed systemically -- and with decisions born of ongoing strategies rather than as adjustments focused on the current economy. When I asked the ProfitLine team for their secret weapon, they were looking inward. In its second consecutive year on the Inc. 500 list of fast-growing private companies, clearly this firm is beating the economic odds. Kathleen Glass, director of marketing, offered their context for thriving in this environment. "Evidence holds that even in an economic downturn, companies with strong and adaptive cultures perform better than those with weak or poorly defined ones." She went on to characterize culture as "the personality of a company that is defined by its values, beliefs, and most importantly, its practices, which drive the organization and its actions." ProfitLine CEO Rick Valencia operates with an understanding that "creating an optimal cultural balance can mean the difference between success and failure in today's fast-changing business environment." With communication, teamwork, customer service and a fun work environment, ProfitLine considers its culture to be a competitive asset: employee loyalty drives customer loyalty, which drives success.

And success does seem to breed success. Speaking in terms of the venture growth sector, Peter Shaw represented a pretty realistic attitude about ongoing opportunities for capital seekers. "If you have revenue and traction, you can get money. It will be more expensive, but you can get it. If you are knocking the cover off the ball, there is plenty of money, at a reasonable price." Encouraging words, at least for the more seasoned players in town.

But Shaw was also quick to add a cautionary note. "Unless your prospects for raising more money are a sure thing -- and there aren't any sure things -- adjust your spending so you don't run out of money. The less you need the money, the easier it is to raise it." So a disciplined approach is certainly in vogue!

But whether their resilience was as a result of careful refocusing, treating survival as the top priority or leveraging corporate culture, one common theme expressed by every survivor was the need to rigorously focus on customer satisfaction. Now, more than ever, customers and clients mean cash, and cash means staying power. As Valencia asserted, ProfitLine "treats the client's money as its own, and makes each and every client feel that they are No. 1."

I do suspect that this is the ultimate secret to survival.


Orion is president and CEO of the San Diego Regional Technology Alliance. He can be reached at tyler.orion@sddt.com.


 

June 30, 2003