The Winds of Change in Silicon Valley

February 23, 2016 Mark Emmons


Here’s the thing about pendulums. They swing back and forth. It’s just what they do. Grandfather clocks. Amusement park rides. Economic trends.

And throughout most of 2015, Silicon Valley observers were engaged in a spirited debate about whether or not the booming tech economy had peaked and if the tech pendulum was about to begin an inevitable, downward trajectory.

Well, that argument is pretty much over. The consensus: a market cooling has arrived and it’s time to layer up. Maybe we’re heading into just a mild chill. Or perhaps it will be a full-blown winter. Only time will tell.


Only time will tell

But the media has been filled with cautionary tales about how once high-flying companies are now having to downsize expectations. The luster of the so-called unicorns — privately held companies valued at $1 billion or more — has faded.

A recent Wall Street Journal story, headlined “For Silicon Valley, the Hangover Begins,” offered an especially blunt assessment. It detailed a new reality where venture capital is drying up, company valuations have slipped and businesses look to cut back. And not just on perks like free lunches, either. The article included a poignant observation from one venture capital firm partner who compared the current atmosphere to the moment after the Titanic struck the fateful iceberg.

“No one wanted to jump into the lifeboats right away,” said Rory O’Driscoll, of Scale Venture Partners. But, he added, “You’ve got to make a quick decision now.”

Some of this involves macroeconomic causes. China. The price of oil. The Federal Reserve raising the interest rate. But there were other factors at work inherent to Silicon Valley. Simply put, the strategy of growth-at-all-costs wasn’t sustainable. Startups, no matter how innovative and disruptive to the status quo, couldn’t continue to spend more in sales-and-marketing costs than they received in revenue.

Many long-term tech watchers have noted that the Valley was overdue for a philosophical correction, if nothing else. The new term has become “smart growth.” In other words, fundamentals matter. Tech companies have to begin showing a clear path to profitability — just like every other business. With access to easy money coming to an end, there needs to be a recalibration of expectations and business plans.

“Burn rates” are important again.

Here at LeanData, it seemed obvious last year that the winds of change were gaining strength. It’s why we launched an ambitious project to examine the issues surrounding rampant growth as well as the challenges of proving marketing’s impact on business. We talked to analysts who told us that Silicon Valley was in the “twilight” of companies not worrying about how much they spend. We interviewed venture capital partners who stressed that as liquidity becomes scarce, businesses will focus “everything on driving its livelihood — revenue.”


The party is over

Yes, candidly, self-interest was part of the motivation for exploring these questions. LeanData products make sales and marketing teams more efficient. And that will be increasingly crucial as businesses weather tougher economic conditions. LeanData Sales Accelerator helps sales departments become more productive. LeanData Clarity, our newest demand-management solution, gives marketers an unprecedented ability to drive revenue.

More importantly, though, our goal was to help spark a larger conversation about how sales and marketing teams need to be thinking hard about the changing times. When there’s less money to spend, you need to allocate the budget you do have as wisely as possible. No longer can you experiment with a “let’s see what sticks” mentality. A more strategic, measured approach is required.

It’s just common sense, right? Nobody can predict what exactly is going to happen in the coming months, of course. But you also don’t need a crystal ball to recognize the wisdom of being more fiscally prudent during times of turbulence.

Hopefully the current headwinds will be short-lived. Silicon Valley doesn’t need to experience yet another boom-and-bust cycle. But either way, there has been a strategy shift in the tech sector — and not just with those unicorns. Budgets will be under greater scrutiny going forward. There will be a demand from the executive suites for sales and marketing to justify every penny. And you better be helping your company on that smart-growth pathway to profitability. Or else.

So as 2016 shapes up as a possible year of reckoning, the smart companies are preparing for the pendulum’s swing in the other direction. This much is certain: There will be no slowdown in the talk about how the party is over in Silicon Valley.

At least for now.


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