The great rebalancing act: Why tech is focused on profitability rather than growth, and why this is good for the industry 2
"Those who do not remember
history are doomed to repeat it."
We've all heard this cliché before-and
tech companies now more than ever
must heed its wisdom to learn from
their mistakes.
Over the past decade, the tech industry adopted a
dangerous mindset due to favorable conditions like high
total addressable markets (TAMs) and easy access to
capital funding (e.g., low-interest-rate-fueled VC investment
and debt financing). Profitability, they believed, would come
as a byproduct of topline growth and economies of scale.
'Growth at all costs' served as a de facto slogan for major
industry players that raced to snap up top talent at the
expense of competitors.
For those old enough to remember the dotcom boom of the
late 1990s, this feels awfully familiar. While the conditions
and models were different and the damage far worse back
then, the behavior was essentially the same. The pendulum
swung too far in one direction.
Just as before, the tech landscape is again transforming,
and the pendulum is swinging back. Cash has become
more expensive as the Federal Reserve (Fed) raises
interest rates to combat high inflation. Tech companies that
once enjoyed massive growth rates now find themselves
struggling to turn a profit. Faced with these unfavorable
conditions, companies must confront a harsh reality: their
growth patterns might not be sustainable.