INSIGHTS

About Last Week – Besides OOW

What struck me most last week in San Francisco and Silicon Valley — beyond Oracle OpenWorld — came out of meetings I had with CEOs of software companies situated south of Oracle on Route 101. The companies are all SaaS (Software as a Service)-based, and I promised not to spill the beans, so there will be no names — yet.

Admittedly, my survey is based on a small sample of people with whom I met, but they’re all trying to do some similar things, such as:

  1. Raising more money, not because they need it but because it’s cheap and the VCs are having a hard time finding good late-stage investments.
  2. Readying for market new offerings aimed at specific segments that may have been under-served before.
  3. Desperately trying to hire people. The people I met with have openings, and the sheer numbers would astound you. The CEOs I met with told me the could easily double their sizes in the coming year if only they could find 50, 100 or 200 qualified people. At Dreamforce, Marc Benioff said his company has about 1,000 openings.

The Money Pipeline

Raising money is very interesting today. The less you need, the more that’s available, and often vice-versa. The VCs are cautious in what they’re buying, and most of that is late-stage companies that they can get a fast return on. I don’t follow the VC industry closely, and I am not sure how aggressive it is being with earlier-stage companies, but it may simply be a matter of time. There were some very successful IPOs this year, which removes good late-stage companies from the pipeline — sooner or later the pipe will need to be replenished.

Most interestingly, many companies are readying new products and opening offices in other markets. They are aiming new products at the low end of the market, where they have not penetrated so far, and at the same time, they are crossing oceans to tap other markets. Many have invented categories in the last few years, and their initial products were aimed at early adopters as high up in the hierarchy as they could reach. It was good strategy, but it’s now time for them to go down-market, where there may well be easy pickings. The combination of expanding into new geographies and new markets spells plenty of opportunity.

For me, the saddest note in an otherwise upbeat situation is hiring. The temper in the Valley cannot be more different from the street protest going on outside of the Federal Reserve Building in San Francisco, just up Market Street from Salesforce.com’s headquarters. There, 20-somethings with the slogan “99 percent” are acting out their frustrations with Wall Street, bankers and brokers who they believe have mangled the economy and left them without futures. From what I read, it’s a global phenomenon with similar protests and job-finding problems all over the developed world.

The Right Stuff

Ironically, the CEOs I met with are having more trouble finding and hiring people than they are finding capital and accepting term sheets. Perhaps it’s that contrast with the Valley that is so interesting. There are plenty of people of the right age to be hired for good jobs, but so few of them have training in the skills most in demand that the Valley can’t hire enough people while so many look for work.

But it’s also true that at least some of those in their twenties without job prospects simply don’t want to work in the technology field. They’re artists, people with liberal arts educations and aspirations in other directions.

So it’s a mixed bag. There’s capital, markets and good ideas, but hiring is a challenge. That said, there is no recession to speak of in the Valley, but that doesn’t go very far. U.S. Bureau of Labor Statistics lists California among the top three states with unemployment at 12.1 percent in August, while the national average is 9.1 percent.

At the Salesforce keynote for OpenWorld last week, I asked Marc Benioff what effect modern technology can have on unemployment, and his long-ish answer boils down to: technology drives innovation, and innovation drives company formation, which creates jobs. It’s certainly true, and the formula has worked remarkably well in the last three decades. Still, we’ve got a disconnect between the early and later stages of the funnel. We can only hope that the jobs surplus in Silicon Valley begins to spread across the continent.

Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at [email protected].

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