Introduction & Some History
The photograph accompanying this post is a page from the Financial Times and dated Wednesday 10th March 2010. I kept it on my pending shelf for pretty much exactly 13 years waiting to share it with my network and today is the day that I decide to do so and after more than 20 years of SaaS hiring.
You see, we are 23 years and 6 days after the Nasdaq hit it’s peak of 5,048.62 on March 10th 2000.
I’m not sure that I can recall a more “interesting” time since the .com fallout that started in March 2000. That said, the financial crisis was not all that fun either between 2007-09 but my own experiences were that the SaaS hiring sector continued to grow in that time and Tech faired generally well in 2007-09.
This week’s news about Silicon Valley Bank was a bit of a bolt from the blue and whilst unexpected and the last thing our industry needed, was it really that unexpected? Read on…
I think, with a good dose of hope and a following wind, the fallout may not be as seismic as it might have been without the intervention from the US and UK authorities. That said, at this time of writing, the gold price is at a record level in UK sterling terms and the eyes seem to be on Credit Suisse Bank, not that I’m sure that this relates to tech or SaaS hiring as such, but often one large market cause leads to another market effect.
Having worked in the tech sector and specifically the SaaS hiring / Software space for more than 20 years, I’ve had a ring side seat of this most vibrant sector. The tech space is an extremely exciting place to work, being at the forefront of innovation, development of new business models and disruption, and I remain as excited about it and SaaS hiring now as I did back then.
I’m not going to go into the lengthy whys and wherefores of the demise of Silicon Valley Bank. There are plenty of other commentators that can do a better job of that than me but very simply
My view is…
SVB is not a normal bank. It is a very specific financial marketplace for the tech sector that relied on deposits from VCs, Tech firms and Crypto firms. With massive quadrupling of deposit levels in recent years which in itself was a red flag and perhaps with no Chief Risk Officer in place, this was overlooked? SVP used their huge deposit inflows to invest in long term treasury bonds but increasing interest rates lowered Bond prices. Continued fiscal tightening led to SVB sitting on a major loss, in the region of $160B and greater than the deposit base.
The Uncomfortable Truth
The unfortunate truth is that the tech sector and SaaS hiring has over the last 12 years become drunk on cheap money. Interest rates that were basically zero encouraged huge inflows of investment money seeking a home somewhere or anywhere for that matter!
Now that we have interest rates in the region of 4% (which is in “normal” times a good thing), money must have value again other than just being a like for like bartering medium. Now money has value again, the business models that rely upon cheap money start to show weakness and that is why we are in this situation now. It was structurally inbuilt after the financial crisis of 15 years ago with zero interest rates and now it shows its ugly head. It was always going to happen, just when exactly was not known.
SaaS is still the place to be, but…
There is no doubt that the SaaS and subscription business model is a good one for business builders, technology buyers, users and investors but what about that thing called profit?
We have seen huge investments in companies with business models that are frankly questionable. Notwithstanding the fact that all ideas are good ideas until they are decided to be bad ideas as this is the way that the innovation cycle begins; I can’t help but look back at my concern at just how the industry morphed these last few years specifically over the C-19 years.
I coined the phrase a few years back – OPM – Other People’s Money when coming across crazy valuations or huge investments in business models and companies that frankly looked a bit off.
It seemed that the incredible hiring and over hiring drive in the Tech space was there as much as a vanity metric to show investors, markets and analysts that the company was growing.
In fact, it appears that often the huge hiring drive was there as much to compete for the sake of competing. Deny Polly of hiring Paul as a way to compete with some tech majors hiring developers without actually having real work for them to do, but this stopped their competitor from hiring them. Of course, all this required money to implement and then profits to sustain. No wonder we have seen swathes of layoffs.
So where now? Some companies are still hiring but not at the numbers of last year.
No from me to NFTs or pulling rabbits out of hats with some latest get quick crypto token. Or “disruptive” new models around food delivery technology that only seem to increase rubbish waste, spoil urban environments and allow people that are unable or unwilling to cook for themselves to order and consume unhealthy food because they are unable or unwilling to get up and pick it up or cook it themselves. Hardly progressive.
The word productivity is in use a lot at the moment. We will need to do more with less, for the time being anyway. But there are many small and early stage companies in the SaaS world, some that I work with, that have the business models, differentiation and opportunity to make a real difference. They too need investment.
Hopefully when we get back to some equilibrium (which we will do!) companies with sound business models that are built on the back of solid and real growth, productivity and a desire to bring real value that result in profits are the ones that I and I hope others shall invest in.
The future is bright. This is not like 23 years ago. We have a working consumer internet now in generation Web.3.0. Every company is a tech company and if not, it won’t continue to exist for much longer. Tech is pervasive, everything and everywhere, so I’m not worried about Tech.
Let’s build high growth SaaS and Tech companies with great leadership, solid business values that create PROFIT. Cheap money does not last forever and neither do companies that don’t make a profit.
Paul French is a Co-Founder and Director of Intrinsic Executive Search, the Executive Search firm that supports SaaS and Tech firms to build their businesses internationally. He has led 100s of Executive Search assignments in the UK, EMEA and the USA, is an expert in SaaS hiring, is an Angel investor and an active shareholder in a UK VC firm.