By CNET News.com Staff
October 31, 2001, 12:00 p.m. PT
Even before the Sept. 11 attacks on the World Trade Center and the Pentagon, it was clear the U.S. economy was in weak shape. Even more clear: The tech economy was worse.
Since then, myriad questions have emerged. Chief among them: How long will the slowdown last and is it going to be worsened by the current political uncertainty?
In a bid to get some answers, CNET News.com and Knowledge@Wharton assembled a panel of business leaders in the fields of finance and technology for a roundtable discussion. They talked about how to manage companies, customers and expectations in these volatile times.
The participants included Beth Kaplan, a managing partner for venture capital firm Axcel Partners; Andrew Heller, CEO of Heller Capital Corporation, a private equity organization; Sir Paul Judge, chairman of Isoworth, a manufacturer of beverage-dispensing systems in the United Kingdom; and John McCartney, deputy chairman of Datatec, a global provider of Internet-related products and services with more than $2 billion in annual sales.
Following is an excerpt of the roundtable, which was moderated by Charles Cooper, CNET News.com's executive editor of commentary. Knowledge@Wharton will publish a fuller transcript of the roundtable on its Web site.
Q: How had your businesses been faring prior to Sept. 11, and how have things changed, if at all, as a result of the attacks?
McCartney: I think the biggest change since Sept. 11 is the slowdown in decision making. When you're talking about $100,000 (or) multimillion-dollar networks, the level of authority required to approve the expenditure, and the time a customer is willing to take to decide and their scrutiny of how quickly the productivity paybacks are going to come just gets heightened. And that slows everything down, with the consequent impact on the economies involved.
Are decisions, then, being elevated to the CEO level?
Kaplan: Oftentimes they are being elevated. Project managers can't make decisions any longer. Division heads can't even make decisions. We have one customer--we went through 10 different layers of decision-making authority, with the ultimate authority resting in the chairman's office.
Does anybody here still believe in the "New Economy," even after the dot-com meltdown?
Judge: I think the total size of the e-commerce market was about $60 billion. It seems helpful to remember that that's less than half the sales of either Ford or General Motors. That helps put it in perspective.
McCartney: From my point of view, the New Economy never existed. What did happen, especially over the last two years and especially (in the Bay Area), is a massive transfer of wealth from investors to small companies and/or individuals. And a great deal of that wealth then in turn transferred to manufacturers of equipment--in many cases without any real economic activity behind it. That's gone, and that's probably a good thing in the long run for the economy, while the impact (in the Bay Area) is pretty dramatic.
But in terms of Silicon Valley, I think there's a real distinction people need to get their hands around between the engines of new technology, economic growth and stimulus--which are still here and still very, very strong and will continue--and the dot-com boom, which we probably would have been better off without, unless you're one of the people who benefited tremendously from it.
Heller: I think the concept of a New Economy is here to stay. It's simply an evolution of the need for technology to improve productivity. During the bubble, there was an over-allocation or misallocation of financial resources to unfounded business plans, and there was far too much investment in capital equipment by large manufacturers. We simply need to go through this recession now to digest that investment. But the development of technology will absolutely continue and will increase productivity forever more.
Kaplan: One of the interesting things that's going to happen with business is that corporations--whether midsized or large or even small--are going to focus on fewer priorities. They're going to go back to what really matters. There was a lot of investment in technology over the last number of years that may not have been related to the core mission of the companies. There was a lemming effect, (and) a lot of companies invested in technologies without clarity about what the real paybacks were going to be. But during a time where companies were doing very well and there were funding organizations to identify those kinds of technologies, it was an OK thing.
Andrew, from the perspective of a financier, what sorts of things are you doing differently in this climate? When an entrepreneur knocks on your door and asks about investment, are you asking different questions? Are you thinking different things?
Heller: I'm certainly more cautious than I had been. I receive many proposals--in fact, more desperate proposals than had been received previously. Especially for second- and third-stage funding; people are very desperate to keep their businesses running. And I basically take a harder look at things than I used to.
Kaplan: I think there's been a real sea change. It used to be--until fairly recently--that we used to fund PowerPoint presentations without any evidence of real traction in the marketplace. And that's dramatically shifted.
McCartney: It's the same challenge, basically, for policy-makers and...for businesspeople--and that's the uncertainty in the situation and how to deal with it. (In the '70s,) the cause of the recession globally was the oil-price shocks and OPEC curtailing production. There was a defined cause, and there were several responses that were developed and implemented over a period of time, which led to recovery. While we may well be a ways into the general economic slowdown, the impact of Sept. 11--its immediate and medium-term repercussions--is still unknown.
McCartney: It's probably more uncertain for people in technology and related industries that were slowing beforehand...The capital markets aren't there to rescue (us) any longer, so the pace of investment is going to be a little lower. The demand for gradual returns is going to be greater, and therefore, the willingness to invest huge amounts of money in a portfolio of investments that may generate one great new product technology--it's just not going to happen as quickly anymore.