Bursting Of The Tech Bubble? It's A Good Thing

21 Sep 2015

BubbleWith over 170,000 people at Dreamforce this week, it was not easy for a company to get attention. But as for SalesLoft, it had a novel marketing campaign — that is, to use toy guns to shoot $2 bills on the Streets of San Francisco!

Perhaps this is yet another sign of a bubble? I think so. But there is more than just anecdotal evidence. After all, the number of unicorns – which are private companies with values of at least $1 billion – have more than doubled to 122 during the past year. In fact, the aggregate valuation of these companies is about $500 billion. So if VCs and hedge funds want to get a 2X return over the next five years or so, they will need to have an epic boom in tech M&A and IPOs.

The problem is that there is mostly lukewarm enthusiasm in the public markets. Consider that tech IPO activity has plunged to a 7-year low as companies like Box and Apigee have posted suboptimal returns. For the most part, it looks like Wall Street wants a balance of growth and profitability – not growth at any cost.

There’s even buzz that there may be implosions of unicorns (termed “unicorpses”). But given the huge amounts invested, this may still be far off. Rather, I’d expect to see lots of uni-zombies, which are companies that have stalled and cannot raise any more capital. This seems to have been the case with Good Technology, which sold out to BlackBerry for a mere $425 million in cash. This former unicorn had raised $388 million in 13 funding rounds. Ouch!

But none of this should be surprising. Let’s face it, the tech industry always involves major boom-bust cycles, such as with the waves of categories like mainframes, PCs, client-server and the Internet. The inevitable crashes were necessary to rationalize the new industries, to bring about so-called “creative destruction.”

While it can be brutal, there can also be huge opportunities for some companies.

So then, who might be the ultimate winners? Well, one that I think has a good chance is InsideSales.com.

First of all, the company’s core business, which involves developing sales acceleration tools, should actually do well in a tough market. The software has been shown to boost revenue growth of up to 30% in 90 days of implementation. What customer wouldn’t want that?

At the same time, InsideSales.com has been collecting huge amounts of data, which has become a valuable source for predictive analytics. For example, a salesperson can use the software to understand the optimal time to reach out to a company, when it is ready to make a purchasing decision.

“Our Predictive Cloud offering is built on our Neuralytics self-learning predictive engine,” said Dave Elkington, who is the founder and CEO of InsideSales.com. “It is based on nearly 100 billion sales interactions. The technology is also more than just for sales acceleration but can be used in diverse industries like healthcare, government, retail and others.”

Now, while internal development is critical, InsideSales.com should also benefit from acquisitions. And if there is a wash-out in the tech market, there should be some interesting values. “Just in the past few months,” said Dave, “we have received more interest in doing deals.”

But for him, he realizes he needs to adapt to the new environment. To this end, Dave has been dialing back on expenditures lately. Then again, it certainly helps that from 2004 to 2014, he bootstrapped InsideSales.com. So he understands how to run a real business. “Being frugal is part of our DNA,” said Dave.

It’s something you don’t hear much anymore from tech CEOs, especially when they do things like shoot money out of toy guns….

 

Source: FORBES

Last modified on Tuesday, 22 September 2015 15:03
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