What Does the Financial Crisis Mean for Innovation? Xconomists Weigh In


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the long-term trends remain, and with them opportunities for innovative applications of game changing technologies.

Over the last two weeks, in Europe, I met many ambitious entrepreneurs who realize that the high Euro will make many European companies uncompetitive outside the Euro zone. There will be layoffs, and it will be easier to recruit experienced talent. It is a great time to be starting a company:

“How did you become an entrepreneur?”
“Simple—I got fired”

(This is reminiscent of Jack Kennedy’s comment…
“How did you become a war hero?”
“They sank my boat.”)

Meanwhile, back in the labs here at MIT, our geniuses are creating many of the next new things which will eventually pull us out of this mess and lead to new levels of prosperity. There is a feeling in the air here (which is NOT schadenfreude) that real technology—which you can touch—is perhaps more real, and sustainable, than financial wizardry with unsustainable fees. This is one guy’s opinion, not an official view.

James Geshwiler (9/30/09)

1. Don’t panic. The tech sector, by and large, has been isolated from the liquidity crisis. Unless you’re selling to Wall Street firms, some of your customers might be nervous, but sell them hard value and ROI.

2. Begin to worry about inflation and other side effects. The cure may cause other problems, chief among them, large infusions of liquidity usually has the equivalent effect of printing more money. It won’t happen overnight; there isn’t enough liquidity now to fuel inflation, but it could pick up in a year or two. That seems like tomorrow’s problem, but you can anticipate it in pricing agreements and contracts.

3. Worry more about the lingering problems of Sarbanes Oxley and pending regulatory changes. Is the backlash to try to prevent the last set of problems going to stifle the ability of small companies to grow and generate value?

Bill Aulet (9/29/08)

Times of upheaval are generally very good times for innovation. If people are safe and sound, they are unlikely to try new things or make significant changes. If they have a “burning platform” on which they are standing, then they are much more likely to embrace new ideas and give them a fair shot. A lack of urgency is one of the top reasons people do not change, so in a very real sense, times of turmoil can be good for innovation.

For the reasons above, I think [entrepreneurs] should be even more aggressive and be very clear about their value proposition—and that a crisis is an opportunity to make changes that the “thought leader executive” who is their advocate needs.

The demand for energy does not go away. These companies are not counter cyclic, but in some sense immune to shifts in demands like other industries. That being said, in times like this, the policy dimension of energy gets more complicated, as governments are more apt to pull back strategic investments (e.g., startup subsidies for renewables) and ironically keep energy prices artificially low (e.g., see Pakistan today, where energy prices are highly subsidized).

So while it is good for entrepreneurs in general, I think it is less good for energy entrepreneurs because of the political dimension.

Martin Simonetti (10/2/08)

We are all well aware of the turmoil on Wall Street and in Washington.

As the capital markets close their window, the opportunities to raise capital become less obvious. We are all going to be faced with difficult decisions about which programs do we focus our efforts towards, how many people we need to move our programs forward, and how are we going to create value from these programs with less resources. While this is always the case, the inability to raise capital will force these decisions sooner. What does that mean? It means we will all be making decisions with less information and/or data.

From there, one can argue both ways as to … Next Page »

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8 responses to “What Does the Financial Crisis Mean for Innovation? Xconomists Weigh In”

  1. A lot of the public technology companies have not only been weathering the crisis but have solid P/E ratios at LOTS of cash. Read: expect to see more acquisitions–that’s good for entrepreneurs and investors–but where the incumbents have more leverage. Capital efficiency in building businesses already is coming back and will be even more important in the coming years.

  2. I see a wave of innovation in risk management and substitutes for rating agencies. I also see opportunity to attract and retain the best people.

    One has to keep in mind that in the absence of a shock like this, things would have proceeded as normal. The normal state of affairs for investors is buy, rely on the rating agencies, and hope for the best. Risk management is a cost center.

    I see the long overdue implementation of rigorous forward looking models for credit risk. That would have been harder had the rating agencies maintained their stranglehold and investors maintained their apathy toward scientific risk management.