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An Olympian Effort
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
February 15th, 2002


By Brent Holliday
Greenstone Venture Partners

“She said "I'll take you some place where I know it will change"

There's no rockets flaring, there's no loud display
If you walk with me we'll get there someway
On that Victory Day, on that Victory Day” – Tom Cochrane – Victory Day

Oh God, another sports metaphor.  With the Winter Olympic Games on now, I think it is appropriate for me to make the column interesting by making as many references, puns and double entendres as possible.  Let’s hope that it doesn’t go all downhill from here.

A whole bunch of very important events are happening right now that could alter the future success of the BC technology industry.  Some of these will play out in the coming weeks, most will take months to implement and many of these events will take years to have a profound impact.  Even though medals will not be handed out for these events, we should all judge the performance and make our votes loud and clear.  Trading votes with the Russians for future consideration is unlikely to help however.

The winter 2002 events that we need to watch are as follows:

-         The Innovation Policy Ice Dance: Did you see the federal Industry Minister Allan Rock and Minister of Human Resources Jane Stewart trot out a much anticipated and much choreographed report on making Canada more competitive? Their performance may be overshadowed by the favourite to win any policy competition in Ottawa, the veteran dance team of Martin and Chretien.  Guess what folks?  The main reason that the US has gained in productivity on Canada by 20% in the last decade is better adoption and use of technology.  So how do we catch up?

-         The BC Budget Biathlon: Gary Collins and Gordon Campbell compete with big labour bosses in a marathon through all of the province of BC.  Periodically, Gary and Gordon stop to shoot targets like union leaders, special interest groups and government workers.  On Feb 19th the final stage of this event will be played out.  Seems that the taxpayers will be about 4.4 billion behind in this race.  What will be in this budget that gives us hope in the tech sector?

-         The IT and Communications Market Bobsled: This dangerous and unpredictable course leaves the fragile tech worker, nervous venture capitalist and bedwetting tech CEO hanging on for dear life. Most armchair analysts predict that this course is about to improve and that the volatility will go away.  But there is a dark cloud on the horizon that may postpone the running of this race for another year.

The Innovation policy report was quite a mea culpa for the Canadian government.  They actually admit that there was, is and will be a brain drain problem to the US if we do not improve opportunities to work in the best, most progressive jobs and companies.  Then, they backtracked on the issue of productivity.  Chretien has been fond of the low Canadian dollar as an excuse for ignoring productivity gaps with the US.  The National Post must be feeling some measure of pride in the report as they have been harping on this issue of lost productivity since they became a national paper while other media has largely ignored the issue.

But the most important thing to emerge from this report is the fact that most of the productivity lost has been because the US companies and public sector have embraced technology to make them more competitive.  With the strongest currency in the world, even in a downturn in the economy, US companies must find a way to make exports attractive and profitable.  They use innovation in business processes, organizational management and clever off balance sheet accounting (oops, sorry that last one slipped in.  I’ll take the 5th and just say that Enron sure screwed us up a lot).  In any case, the driven, clever US entrepreneur is looking at making a leaner, meaner operation that can turn a profit in the toughest of times.

Where does that leave Canada if our dollar actually gains on the US?  Are we using the best possible practices and the latest technology solutions to be lean and mean?  Or are we getting fat and lazy watching our dropping dollar make us a profit?  So now the hard part for the Innovation report: actually implementing recommendations that make us more competitive.  Hint: Think IT for business and investment in innovation and education.

The throne speech from the Liberal government in BC showed us what to expect from the budget for our province.  The main issues affecting technology are changes to the Employee Standards Act, changes to the tax treatment of stock options and loosening of rules, red tape and back room deals that will make more investment dollars flow into BC for early stage and later stage companies. 

What I fear the most is the sheer magnitude of problems that the government faces, relegating technology to a back seat.  Shutting down TechBC and then allowing all other universities to set their own tuition seems counterintuitive.  But it also slows the flow of technology trained graduates.  We need to “double the pipeline” of engineering graduates, just like Gordon promised.  We need to incent more capital to flow to BC companies before they starve on the mediocre amount around today.  We need to attract top research talent with world class facilities.  We could really use a top technology company expanding its operations here.  All of these things cost money and I don’t expect we will get much action this year or next from a cost-cutting government.  I don’t blame them.  I drive by the rusting fast ferry hulks of the $500M NDP union job creation debacle everyday.  That could have been one hell of a research park, spinning out the technology, jobs and tax payers of the future.  But we reap what we sow…

If you read the papers these days, it seems as though the recession has been averted and the soft landing will now turn into a growth period for the overall economy.  In technology, the sentiment is that the worst is over, the companies have efficiently right-sized and that the IPO market is showing signs of a return.  This, the pundits are saying, is a classic U shaped downturn after the ridiculous heyday of 1999 and 2000.  Well, I really do hope so.  But I think we have ourselves a W. 

I sense that there may be a sucker rally going on in the economy (not the stock market which has already pulled back).  As I have mentioned before, I prefer to monitor IT and Communication spending by the enterprise as a gauge of the health and/or changing fortunes of the industry.  Other than in security, we are not seeing a bullish return to spending.  Caution is the word of the day.  There is still overcapacity in the market from optical fiber to components to devices.  Enterprises have not seen a reason to spend aggressively on the new, new thing because the 2000 version works fine.  And they can buy it in the secondary market for 10 cents on the dollar if they need it.

There is no compelling reason to spend money on something bigger, brighter and faster these days.  Everyone is focused on efficiency and cost control.  Service and outsourcing companies are doing well in this market.  Companies that sell hardware will suck wind for a while longer.  I don’t see the major demand for the new, new thing happening for a while.  If we settle back for another dip in optimism and spending, early stage companies and big tech companies alike must manage their business plans accordingly.  Stretch the cash, love your existing customers and spend what you can on innovation and productivity enhancement so that you hit the ground running when we finally do bounce back.

And try to enjoy the ride.

 
What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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