Get Off My Lawn!

  4 m, 46 s

Because the lawnmower is coming.

2016 is already shaping up to be an interesting year. Instability in foreign stock markets, slowing growth, and a shift in base economic drivers in one of the largest economies in the world (China). Commodities turmoil. The continued rise of the dollar, and potential risk aversion amongst consumers, companies, and governments. All of this is balanced against a robust recovery in the USA, continued (if slowing) growth in emerging markets, and the hint of a turnaround in places like Brazil and Russia. Those last two could be affected if there are further shocks, so, keep an eye on them.[i]

That’s the global scene.

Let’s zoom into the technology sector (because we’re a technology company) and zoom further into venture funded technology. Technology as a whole is in for a wild ride this year. Tightening monetary policy (3 rate raises predicted for this year), a low rate of IPO’s in 2015 (lowest % of tech companies IPO’ed as compared to other industries since the mid-90’s), low to negative rates of return post-IPO on many companies, and incredibly high valuations speak to the potential of a coming reduction in the floodwaters of easy funding at frankly ridiculous valuations. For examples: Box went public at 20, and is down to 10, Square @13, down to 9, Apigee @17, down to 8.4 – all three of whom did their initial IPO at a valuation below their last private funding round.[ii]

This ride is going to lead to consolidation in markets that include text analytics, machine learning, predictive analytics, business intelligence, and ancillary markets like social listening and customer experience management.

This is good.

Some companies, like ourselves, are well positioned to survive the turmoil. Our management team has been through multiple downturns in tech, and Lexalytics itself did just fine during 2008.   We’re cash-positive (Profitable! For years!), and have grown the revenue of our SaaS business over 150% since we acquired it in 2014, while maintaining the dominant market position providing text analytics to Social Listening and Customer Experience Management companies.

We’re also not venture funded.   What this means is that we’ve been able to re-invest tens of millions of dollars back into our company, without being whipped constantly to be a “Billion Dollar Unicorn” – forcing us to make decisions that would be highly detrimental to our customer base (and wouldn’t be so great for Lexalytics, either) in the name of getting a hockey-stick growth curve.

While I’m being a bit hyperbolic about “being whipped constantly,” it is undeniable that our success gives us a ton of flexibility if we choose to take funding for a strategic initiative, as we’re already a very strong business.  In a market where funding is tighter, the sure bets are always the easiest to play.

New companies have sprouted up in our space (like weeds) over the past few years. The consolidation will reduce market confusion by, well, weeding out the weaker companies that don’t have a strong sense of their mission, good business sense, an ability to find new customers, and a commitment to take care of the ones that they have.

Some of these other companies are very recently funded, so, they will probably be fine (if they’re not Silicon Valley Stupid; dropping all their cash on flashy offices, food, and massages) – and I say that as a 19-year resident of San Jose, veteran of 4 startups (not including Lexalytics) with 3 very successful exits.

Paradoxically, this coming market correction will make our ability to help you (or your customers) “listen” even more important. In stable growth times, it’s all about the cool technology and getting eyeballs. In times of change, the rewards go to those who can keep growing revenue through crafty use of technology, business process, and understanding of the market.   And how can you understand the market without the context of what is happening in the news? What people are talking about? What they’re trying to tell you?

Put differently…  Those who can hear what the market wants to tell them are going to be able to take market share away from companies who aren’t listening.   And listening isn’t simply “well, I will occasionally ask sales what’s up.”  No.  Sales discussions are great for anecdotes, but the plural of “anecdote” is not “data.” You need real data on market discussions to make decisions that take the whole market into consideration.  And for that, you need text analytics.

“Listening” with text analytics is no longer a nice-to-have.  If you are not listening, you will lose compared to those who are.  You will not know what problems your customers are discussing (about you, so you can fix them; or about your competitors so that you can go and snarf up their customers).  You will not be able to stomp out small crises before they become big ones.  You will be (proverbially speaking) deaf and blind.

At the risk of over-extending the metaphor, as anyone who is either deaf or blind can tell you – sure, you can be successful.  Wildly successful.  But, that success comes with a whole lot more work than someone with all of their senses intact.

We are anticipating that this will be a short correction, much less painful than 2000 or 2008. It will be stressful short-term, but healthier for enterprises and consumers coming out of 2016 and into 2017, as the businesses that have solid plans, good revenue/funding, and with products that solve real problems thrive in an environment with less noise (and fewer totally bizarre business models.)

2016 is going to be interesting. 2017 is going to be awesome.

 

[i] http://www.imf.org/external/pubs/ft/weo/2016/update/01/pdf/0116.pdf

[ii] http://www.wsj.com/articles/tech-startups-feel-an-ipo-chill-1445309822

 

Categories: Insights