Current Business Conditions

[Steven H. Blackwell]

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FileMaker Pro developers all over the world are facing business uncertainty in coming weeks and months as a result of the economic turmoil gripping the global marketplaces. Near-hysterical media reporting fuels further uncertainty and fear. However, the situation is very serious, and it deserves very close attention.

In my professional lifetime, I have been through a number of recessions, some of them short-lived, others prolonged, deep, and accompanied by deflationary spirals and by stagnation of economic forces. The present-day sharp downturn, while very significant, is not as severe as those of the middle 1970’s and the late 1970’s through 1982. The latter one, in particular, was wrenching and saw US unemployment at nearly 10%, inflation at 12% a year, and interest rates over 20%.

I thought therefore that it might be useful, especially for those of our membership under the age of 40, to place some of these conditions into perspective and perhaps to offer a few suggestions for operating in challenging economic times.

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The Gross Domestic Products (GDP) of most, although not of all, western style economies are shrinking right now, and have been shrinking since mid-summer of 2008. In the United States what appears to have precipitated this was the collapse of a number of major banks and investment houses whose portfolios were tied to excessively risky exotic financial instruments in turn tied to very risky loans in the residential housing markets. This triggered a major and far-reaching freezing of credit markets for both businesses and individual consumers. This world-wide credit illiquidity has significantly weakened the economies of the western style democracies.

Consumer spending accounts for about two-thirds of the US GDP, and that spending is now tentative and shaky as a result of the psychological damage done by these collapses, by lost jobs in industries suffering immediate impact, as well as by credit illiquidity. That in turn causes a sharp drop in business activity as consumers and other businesses stop spending. Consumers and businesses then refrain from spending, leading in turn to further retrenchments.

The current last quarter of calendar year 2008 (the first quarter of FileMaker fiscal year 2009) will see a continuation of declining GDP and business sector reallocation in all western style economies. Based on past history–and that perhaps may not be the best or most reliable guide and, indeed, history is not destiny–economies will remain very soft at least through the end of FileMaker fiscal year 2009 (3rd quarter calendar 2009).

Of specific interest to FileMaker Pro developers and FileMaker Pro development and consulting companies are at least three items. First, how will these changes affect their client or customer base? Second, how will recessionary times affect their own ability as small businesses to operate? And third, how does this affect FileMaker, Inc. and its activities?

First, our clients and customers, whether public, private, or not-for-profit sector based, will be affected. And depending on their own business models, these organizations may well be lagging indicators of economic hard times. Entities that depend on tax revenues or on membership dues may see loss of income towards the end of the cycle rather than towards the beginning of the cycle as private sector companies do. Traditionally, hardware based IT spending has been cut long before software based expenditures. But software services can suffer as well. With organizations seeking to do more with fewer resources and simultaneously seeking to generate demand and resultant revenue in the face of adverse conditions, FileMaker Pro developers may be well-equipped to offer the benefits of reliable technologies with lower cost of ownership. So watch your client base. Talk to them. Don’t be caught out by surprises. And think innovatively about how to explain to decision-makers the core and key advantages of your services and products.

Second, as independent small businesses, we too will be affected. Whether we are sole proprietors or larger shops with perhaps a dozen or more employees, we have to adapt and adjust in anticipation to changes, not in reaction to them. First and foremost, we need to focus on fundamentals of providing reliable service to clients and customers. Two, we need to control our own costs of doing business. Three, for those of us with employees, we need to recognize the added stresses they are experiencing and the potential impact that will have on their productivity. Four, we need to manage debt, both short-term and intermediate and long-term, in an aggressive fashion, but not in a draconian fashion. Additionally, in countries with Value Added Taxes especially, we need to monitor carefully what our own suppliers are doing. And finally we need to stay in touch with our own bankers and credit providers about our plans.

Third, FileMaker, Inc., has a track record of over ten years of profitability. I believe we can take confidence in senior executive management of FMI and in its ability successfully to weather current economic disruptions. The company’s announced road map appears solid. Its relationship to its parent company offers financial stability. And it has maintained an aggressive development cycle over the past four and one-half years in the modern versions of the FileMaker Family of Products. It sales force is extensive and vigorous. Obviously the remainder of the current fiscal year is a critical time period.

So, that is my take on the current state of affairs. I am busy trying to do all these things myself. As is the case with you all I would presume, I will be tracking these elements closely. I would be pleased to participate in any examination of these factors from time to time with any of you, wherever you are located, if you have interest.

Steven

[Fitch]

Excellent post, Steven.

Anyone interested in a deeper understanding of how we got into this mess, I highly recommend the resources below. They are non-partisan, truly informative, and even entertaining!

Giant Pool of Money

Another Frightening Show About the Economy

Planet Money blog and podcast.

[Ocean West]

Another good one...

Debt As Money

ThXpjmfyiMQ

this is part 1 of 5 you can view the rest on YouTube

[Simon K]

Excellent post - I would add:

As redundancies/business failures rise it is worth noting that the software development/consultancy market is particularly attractive(vulnerable) to new entrants (who have just been made redundant from their employers and believe that their best way of making a living is to have a go themselves - now they have been given the push!).

Most of these people are not serious business people (why would they be) and will not be long term players (some will - we all started somewhere, myself included from the 92 recession, in exactly this way).

My point is that, in the meantime, they will muddy the waters and offer prices that are not commercially viable in the long term - some of our clients will be tempted and that will affect our business - be prepared.

I echo Steven's comment that we must ramp up innovative client communication, we must understand where "our clients are", otherwise we run the risk of looking the wrong way when crossing this difficult road.

I had never been a great believer in the "golf course" way of doing business - but recent personal experience has converted me. A friend of mine was about to invest £600k in accounting and business process software (we used to sell accounting software to SME's) - he only turns over £25m - I would never have known except for a chat on a Sunday afternoon whereupon I was able to encourage him to look at other systems (not sold by us).

How many other Sunday afternoon chats are affecting projects unbeknownst to us? Again - increase your marketing, your PR and your networking.

Rant over - I got more excited than I thought about that

Good luck all - (I used to think there was only bad luck...)

All the best

Simon