AS I SEE IT: TERRY MURDEN says the tech sector’s battles are about to get tougher
A round table gathering at the offices of accountancy firm Johnston Carmichael in Edinburgh offered a glimpse into the current challenges facing the tech industry. Needless to say, for the first time in a generation the sector is battling forces that are seeing the global titans beating the retreat, while the rest look on wondering how the downturn might affect them.
Yes, there is still money being dished out to promising startups and early stage companies, and no doubt those heading to the latest collaboration-fest in Helskinki will be offered a lot of promises.
But getting a one-way ticket to the big-time will increasingly depend on whether they offer solutions built on recovery and real life problems rather than simply adding to the list of nice-to-have apps and other packages that we wouldn’t really miss.
The tech sector, of course, is a broad church. Large scale layoffs at Facebook-owner Meta and at Twitter are a symptom of a decline in advertising and subscriptions. Those in software development and life sciences are largely protected from such forces and offer meaningful routes to improving the way we transact business as well as cures for all sorts of ailments.
However, they are still vulnerable to a wider curb on spending by their customers. By way of a warning, the manufacturing sector, which buys and finances a lot of tech, showed the biggest downturn in the latest GDP figures.
A marked difference in the forthcoming recession compared to previous downturns is that it is not likely to be characterised by high levels of unemployment. On the contrary, there is a global shortage of skilled labour which means it is also getting more expensive to hire people just as income is shrinking.
The job losses at the social network and search engine companies prompted one of the dozen or so attending the meeting of Johnston Carmichael’s Tech Advisory Group (TAG) to ask if this was a source of badly-needed talent for Scottish firms which are still growing.
It was noted that a significant number of Scotland’s tech companies already have their development teams overseas because they cannot source enough of the right people at home. Added to that, large firms in the financial services sector such as JP Morgan soak up a lot of tech-trained talent, with graduates from one Scottish university in particular being a rich resource for big institutions in London. Small Scottish firms just cannot compete with the salaries being offered.
Nor is it just technical skills that are in short supply. There is a view that one block on growth is a lack of sales and business development staff. A message there for Mark Logan, Scotland’s chief entrepreneur, who has been credited with putting the digital sector on the government’s agenda. However, he has been focused on setting up advisory units like tech scalers, learning from best practice elsewhere, and embedding computer sciences in the education system. It’s one thing to come up with and develop great tech, but somebody has to sell it, and that bit seems to be missing.
As for those looking for financial support, the ability to create a cluster of big(ger) tech players will be held back by the absence of a cluster of investors willing to invest on the required scale. Even those we have are frequently drawn to propositions outwith Scotland as the country doesn’t create a sufficient number of companies, or ones with a big enough market to guarantee the required returns.
Some are encouraged that the Scottish National Investment Bank’s well-remunerated team is finally getting its act together and is looking more closely at putting some real money behind the sector. A tie-up with Sir Tom Hunter, announced in the summer, to fund a targeted group and turn them into £100m companies is a tough ask, but at least it is a signal of intent.
However, the desire to find more global winners may have to be tempered. As TAG member and former ScotlandIS CEO Polly Purvis said, it would be better to aim for many more mid-sized companies than throw resources at trying to create a few big ones.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business