Tech is F#cked, So Lets Talk About Services

If you read the popular blogs, you’ll note that there’s more gloom then sunshine right now on the tech industry. Valuations are coming down across the board. Companies aren’t going public, or if they do, the markets are not very forgiving. Raising an A round is pretty difficult. There’s no room for startups as the big companies are taking over… and more.

I read The Information daily and have been particularly interested in their recent coverage of this trend. Two stories that we will discuss: End of Tech Startups & Why Startups are Doomed.

Jessica Lessin and sam lessin posit that the big technology incumbents are more agile and nimble these days than ever before and can spot things faster and react. In addition, many of these incumbents have built marketplace models which are super dominant. Others are using their giant size at an advantage, not a disadvantage, which historically was the case due to inefficiencies. They both posit that with this dominance, it’s harder to compete, especially as a startup.

If this is the case (Dave Morin agrees — see comments), then what do you do over the next decade or so? Do you sit on the sidelines and not build a startup?

Hell no.

Approach your startup differently. Sam and Jessica’s articles talk about tech companies.

What if we were to switch the playing field and talk about service businesses.

Don’t stop reading.

Many tech investors stay away from service businesses as the exit multiples rarely compete, if ever with technology. Example: Facebook $FB is trading at 19x revenue (approx) and Omnicom $OMC is trading at 1.6x revenue (approx) [1].

Investors now have a ton of capital to deploy and they aren’t going to sit on the sidelines with it.

What I’d like to propose to the world is that I believe there are exciting opportunities to compete in the service business: leveraging tools and technologies to work more effectively and efficiently. This may not be the sexiest, but service businesses are easier to manage for growth, they provide yearly returns if run properly, and generally are easier to start. Instead of waiting 7–10 years for a liquidity event, why not exhaust cash each year?

I have had some time on my hands so I’ve been thinking about advertising and marketing services. The agency world is an incumbent world made up of dozens (or hundreds) of agencies per “holding company” which were mostly acquired to shuffle paper around the world, make TV spots and win Lions [2]. There are tens of thousands of people per holding company that do just this.

What if you were to born modern an advertising and services business from day 1 without any legacy paper, politics, or processes? What if you were to embed Github, Slack, Docusign, Dropbox, and Google Docs at the heart of the services business to allow communication and collaboration at the onset.

You may laugh at me, especially if you work at a technology company. Many agencies don’t have the operating budget to pay for thousands of accounts to each of these tools so they default to email, Lotus Notes, and fax machines.

What if we were to inspire a workforce not by grey cubicles in rows upon rows in Herald Square, but in a decentralized fashion where staff was empowered to work and run their accounts while still being accountable and responsible? What if the “big idea” wasn’t forced out by sushi dinners during late night shifts in the agency new business meeting but rather organically while you were walking thru Breckenridge or wherever in the world you are?

What if we actually cared about what people want and need and moved away from a culture of pushing everything onto them and came up with creative ways for people to pull our [brands] content down in the form of utility? We need to inspire as much creativity in this area as possible or we’re going to end up with a model which will force us to reimagine media and content.

I think there are ways of building advertising and marketing services businesses using many of the insights from technology investing today. I do not think they will yield the same grand slam return of a WhatsApp or Minecraft (Hunter Walk would agree) but I do think they will be solid investments over time. You can wake up in 2026 and have the next scaled marketing and advertising services organization. If this is of interest to you, please get in touch with me. — @dherman76

[1] Revenue compared to market cap. My own math from a week or two ago. Numbers may have slightly changed.

[2] A reference to the Cannes Lions, the international festival of creativity.