Reality Tech: What You Need Now (and What You Don't)

The flood of small-biz gadgets has slowed to a trickle. Thank goodness: Now only the winners are left, and you have time to think

A wild ride on an exercise bike. That's what it's been like for business owners scrambling to keep up with technology. They've pedaled as fast and furiously as they could--and ended up in exactly the same place. Afraid they'd be left in the dust, small companies bought powerful computers, installed advanced software, set up flashy Web sites--and when they were done, figured they needed faster computers, more software, and a still-flashier Web site.

Meanwhile, the cost of staying in the race rose each year at a double-digit clip. "Small businesses' heads have been spinning for five years," says Chris Stephenson, vice-president of iCorps Technologies, a 33-person Internet consulting firm in Boston. "The speed and intensity with which new products, services, and buzz words have been foisted upon us are mind-boggling."

And now? The good news out of the tech sector crackup is that finally you can mop the sweat off your brow and drop the pace to a jog. For the first time since the Internet became the Web, there's room to breathe. Product cycles are getting longer and "must-have" technology introductions are slowing. The volume of poorly designed goods being rushed prematurely to market has eased, cutting the clutter to a more manageable level.

Call it a tech reality check: It's the perfect chance for savvy companies to examine their strategies and put the squeeze on consultants, vendors, and manufacturers. "I no longer feel that I must keep up or my business will cease to exist," says Larry Namer, chairman of Steeplechase Media, in Santa Monica, Calif., a 16-employee developer of interactive TV and Web content. Last year, Namer regularly read 20 Internet magazines. "Now I'm down to three," he says.

In this dot-calm environment, entrepreneurs who were bedazzled by technology are now casting a flinty eye on results. "People in a downturned economy tend to focus on things that will provide immediate value," says Rick McGee, vice-president of mobile brand marketing at IBM's Personal Computing Division. McGee is pushing wireless local area networks as one technology with an immediate payoff--boosting workers' productivity. But the benefits of networking didn't move Jeff Rappaport, CEO of 20-employee Outlook Marketing, in Northbrook, Ill. His profits doubled last year, in part because he deferred installing a network. "It could easily cost upwards of $100,000 for servers, desktops, software, integration, and maintenance alone," says Rappaport.

Things were different in the caffeinated economy. In the mad rush to gain an edge with technology, many businesses bought hardware and software before they really needed it, paid sky-high rates for Web sites that never made them a penny, and overspent on consultants. "There is a great deal of buyer remorse out there as firms look at how much they spent on technology without a return," says William T. Schiano, a professor of electronic commerce at Bentley College in Waltham, Mass.

Were entrepreneurs confused? You bet. Take, founded in 1999 to market antiques over the Web. When the six-person Newport Beach (Calif.) startup solicited proposals for its first Web site, bids ranged from $15,000 to $750,000. "How could an entrepreneur know enough to make an educated decision in a situation like that? It was overwhelming," says founder Scott Buelter.

The alternative: Leave it to a high-priced consultant who could be just as capable of making the wrong decision. Kirk Hoaglund, founder of Clientek, a technology consulting firm in Minneapolis, tells of a client who hired an "Internet project manager" for $250 per hour. The manager's qualifications? She's a former orchestra conductor. "I admire orchestra conductors, and it is definitely a job that I am woefully unqualified for," says Hoaglund. "Perhaps the reverse is also true."

Technology even cast a shadow of sorts that led to more confusion. "People started measuring us not by our cash flow but by the speed of our Internet connection--even our bankers," says Steeplechase Media's Namer.

Now, though, the mantra of "upgrade, upgrade, upgrade" is falling on deaf ears. Business owners are scaling back their spending plans for e-marketing, software upgrades, and hardware--both PCs and servers (table). If a company has bought new computers or Windows 98 in the past few years, there's not much reason to upgrade, says Helen Chan, a small-business analyst at Yankee Group in Boston. "What they've got is still dependable," she says.

The dirty little secret is that much of the innovation in PCs, in particular, consists of features that few small businesses need, such as complex graphics and sophisticated sound for advanced computer games. So, many are following Chan's advice, despite PC prices that have plunged 10% to 15% in recent months. Indeed, AMI Partners, a New York small-biz market research firm, says small businesses expect to spend about 11% less on PCs this year and about 6% less on networking than in 2000. While they are projected to spend about 9% more on Web sites and e-commerce, the previous year's increase was almost 38%.

Small businesses are also reluctant to upgrade systems. A majority of companies have not moved to Windows 2000, much to Microsoft's chagrin. "The upgrade would have cost only $25,000, but we felt the change from Windows 98 wasn't sufficient to justify that investment," says one holdout, Patricia Thorp, president of Thorp & Co., a 23-person public relations firm in Coral Gables, Fla.

But Thorp won't be able to hide for long. Microsoft has already discontinued sales and support of Windows 95 and will stop selling Windows 98 to all but major enterprise customers, probably by yearend. At that time, the choice will be basically Windows 2000, or its close cousin, the new Windows XP. (And with new computers, customers are going to get XP, like it or not.)

This brings up a larger point: Slowing down might make sense, but getting out of the race isn't an option. Smart companies aren't letting fear of buying scuttle their strategic plans. They know that the challenge is to identify which purchases are critical to staying competitive. And there are still plenty of pressing technology issues--"always-on" connections, such as DSL, have made security more important than ever and laptop and wireless technology is advancing rapidly--so you'll need to keep an eye on the future. For now, though, keep in mind the adage about spending in a trough and saving in a swell. This is the time to spend. You can get more bang for the buck right now than ever before. Here's where and how to strike:

BUY USED EQUIPMENT There's tons of stuff from the dot-bombs available now at a fraction of the original price--everything from barely used PCs and telephone systems to high-end Sun workstations. On the secondary market, for example, a Cisco Systems network router goes for $2,500 to $3,000. New, the same unit costs around $10,200. Check out Web auctions, liquidators, and refurbishers.

DRIVE A HARD BARGAIN You'd rather have new stuff? Sticker prices haven't changed, but almost everything is negotiable now. It pays to be aggressive and ask for more creative financing options such as longer terms or lower interest rates. Small-business customers are winning discounts as deep as 25% to 60%, says Ken Zolot, chief operating officer of Egenera Inc., an 85-employee Boston-based Internet infrastructure firm. "With inventories high and vendors strapped for cash, there's no reason to settle for refurbished equipment," he argues.

LEASE IT Don't want the maintenance heartache? There are lots of leases out there that can be assumed for a song. In many cases the ability to exit a lease means the difference between bankruptcy and survival. Take a Pitney Bowes Mail Processor leased by a technology company that went bust. The founder is obligated to pay $631 per month for the next 19 months even though he can't use the equipment. "He's willing to give value beyond that of the equipment to get out of the lease," says Michael D. Penfield, president and CEO of LeaseTrading, in South Norwalk, Conn. And don't forget real estate. Lots of empty space is up for grabs in those high-tech, wired buildings at bargain-basement prices.

SQUEEZE A CONSULTANT Remember calling tech consultants a year ago, only to be put on hold or told they weren't interested in "smaller" engagements? Well, the tables have turned; many formerly arrogant consultants are now scrounging for work. "To be quite honest, I am thinking of going in-house--if I can find a job," says one. Those talented techies you couldn't begin to afford last year have lowered salary expectations these days. "We placed an ad last summer for a Web marketing person and received only a handful of résumés. A similar ad placed last month yielded more than 50 inquiries," says Steve Goodman, founder of SPI Group, an online marketing agency with 12 employees in Upper Montclair, N.J.

TRY TO BARTER Larger companies that might have turned their nose up at the practice of bartering may now view it as a way of cutting costs. The longer they hold onto slow-moving capital equipment, the more it depreciates. So bartering for goods or services may give you both what you need. "We just bartered for a new phone system," says James E. Gray, co-founder of WorkWireless, a 16-person developer of retail point-of-sale computer software in Boston. WorkWireless was installing the POS system at a retail chain, when the owner asked Gray if he'd reduce the installation fees in exchange for a new phone system.

Gray declined to disclose the value of the trade, but swears by the barter system. Keep in mind, however, that unless you and your business partners can set up your own private deal, you'll likely need to work through a barter trade group, such as the International Reciprocal Trade Assn., of Chicago, or Barter Systems, of Kensington, Md. That means you'll have to pay a membership fee and could wind up paying a commission, as well.

BUY CANADIAN The chilly economic climate is even cooler north of the U.S. border. The Canadian dollar, worth 72 cents (U.S.) in 1997, is now worth just 65 cents. That means all Canadian goods and services are real deals for those paying with U.S. currency. So if you still want to build that Web site or retool your database, consider outsourcing it to IT outfits in Winnipeg, Toronto, Ottawa, or Montreal. You could save at least one-third of what you'd pay here.

Do these bargains and the slower pace of change mean the tech race is over forever? Not likely: Engineers seem to have an endless ability to turn invention into the mother of necessity, and another group of must-have products is doubtless just over the horizon. Enjoy the breather while it lasts.

By Alan Hall

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