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“Technology executives usually like to insist that their companies are insulated from Wall Street’s woes–but not this time. The outfits that have typically taken on the most innovative projects–start-ups, small companies and the research divisions of major companies–seemed likely to be facing a long drought of funding and of willing customers.”

Read Elisabeth Corcoran’s article, “Sucker Puch for Innovation“, on Forbes.

Just for the record, at the time of writing this post we are experiencing a dramatic financial crisis with far reaching consequences. Lenders happen to be dangerously exposed to a large inventory of toxic assets, namely defaulted loans mostly involving real estate foreclosures, so far.

The size of this problem drives a pendulum effect, the banking system is now prioritizing short term risk management over any other kind of considerations. As a result, we are now in the middle of a severe credit crunch impacting not only home mortgages but any other kind of loans emerging and traditional businesses depend on. Policy makers in the U.S. and in the E.U. are taking actions to bail out troubled financial institutions to re-energize lending.

In this context, Dow Jones VentureSource states that this is “the worst IPO market we’ve ever seen”. If you compare this year’s figures from venture-backed companies with those of last year’s, returns happen to be 66% lower for the third quarter of 2008. As far as IPOs, companies opening the doors to public investors, there were 86 of them raising $551 billion in 2007. Compare that to just 7 companies and only $34 billion in 2008 so far.

So, start-ups are finding it hard to leverage debt and to attract investors. In this situation, you’d better grow your revenues to stay afloat and even grow. In business-to-business markets, many are hesitant to undertake more capital expenditures and are even planning to cut back. So, the question is can you be bullish in a bear market?

Traditionally, you would offer your customers financing options. But, today’s crunch means it is difficult to qualify for credit. So, you look at other vehicles such as “pay as you go” and “risk and revenue sharing”. More often than not, this means you are shifting financing options from your customer to your business.

You might like to help your customer shift capital expenditures to  operational ones (e.g. offer services instead of selling boxes) as well as making fixed costs become variable. All of which is meant to keep things going and, somehow, a bit more manageable accounting and risk management wise for your customer.

This could be an opportunity for 2.0 applications and cloud computing services behaving as “utilities”. SaaS, software as a service being an example. There is interest in applications delivering immediate trade-offs, such as online collaboration and knowledge sharing platforms helping lower a corporate T&L costs while boosting productivity.

Advertisers are also looking at ways to better leverage whatever budgets they happen to be left with for the rest of the year. So, new media and social networking sites are expecting more ad dollars moving from traditional media to online advertising, which is more affordable and can provide specific user engagement metrics and behavioral targeting.

The bottom line is that being bullish in a bear market requires the coupling of business and product innovation.

Reference links:

José de Francisco López
Chicago, IL     2 Oct 08