The first sign of spring will come when companies again forecast increased demand and seek to improve productivity. The only way to be there when that opportunity presents itself is to start now.
During boom times, companies focus on growth. In tough times, they seek to improve efficiency. History shows us that after every major economic downturn since the 1980s, businesses relied on digital technology and, specifically, innovations in software technology to return to full productivity with fewer repetitive jobs and less bloat.
The years I’ve spent as a VC have convinced me that this is the best time to start an -first enterprise, not despite the recession, but because of it. The next economic recovery will both be driven by and accelerate its adoption. Expansions are built on software
While the Great Recession is often thought of as a “jobless recovery,” economists at the National Bureau of Economic Research (NBER) found that the downturn accelerated the shift from repetitive to non-routine jobs at both the high and low ends of the spectrum. So, yes, existing tasks were automated, but companies empowered their employees with data and analytics to augment their judgment to improve productivity and quality, in a virtuous cycle of data and judgment that both increased profitability and created more rewarding work.
Indeed, the highest levels of unemployment during the Great Recession were followed by a surge in enrollment in post-secondary education in analytics and data science as people sought out opportunities to upskill. And the period was followed by a recovery in which – despite increased automation – unemployment fell to historic lows.
Through no fault of our own, we’re again thrust into the cycle of recession and recovery. Industries already expect to benefit from improved and in the next recovery. That expectation will create new opportunities for entrepreneurs.
Every economic recovery is defined by an emerging software technology and set of applications.
The companies that grew in the lackluster economy of the early 1980s staged the first software IPOs when the economy rebounded in the middle of that decade: Lotus, Microsoft, Oracle, Adobe, Autodesk and Borland.
Packaged software signified a unique turning point in the history of commercial enterprise; the category required little in the way of either CAPEX or personnel costs. Software companies had gross margins of 80% or more, which gave them amazing resilience to grow or shrink without endangering their existence. If entrepreneurs were willing to work for lower wages, software companies could be started quickly with minimal to no outside investment, and if they could find early product-market fit, they could often bootstrap and grow organically.
Those new software companies were perfectly adapted to foster innovation when recessions hit, because high-quality people were available and less expensive, and office space was abundant. At the same time, established companies put new product development on hold while they tried to service – and keep – existing customers.
I started working as a VC in 1990 for the first venture firm that focused purely on investing in software, Hummer Winblad. While it took hard work and tenacity for John Hummer and Ann Winblad to raise that first fund, their timing as investors turned out to be perfect. A recession began in the second quarter of that year and lasted through Q1 1991.
The software companies coming out of that recession pioneered cost-effective client-server computing. Sybase, which established this trend with its Open Client-Server Interfaces went public in 1991, after growing 54% in the previous year.
By then, universities had graduated many programmers, creating a talent pool for startups. New software developer platforms made those programmers more productive. The 1990s became the first golden era for enterprise computing. One Hummer Winblad company, Arbor Software, invented the category of Online Analytical Processing (OLAP). Another, Powersoft, became the dominant no-code client server development platform. It was the industry’s first billion-dollar software acquisition.[…]