I wrote recently that I think we’ll see less funding for startups in the near future – it seemed pretty obvious. Now the New York Times is reporting that this is exactly what’s happening.

First to disappear are so called “angels” – small private investors that were giving initial funding to startups in their very early phases of growth. Angels became an almost indispensable part of the startup game helping young companies become interesting enough for venture capitalists to look at. Funding their provided was much easier to get (if you knew right people in the US) than VCs and helped startups put together initial business plans, teams and mockups/demos of products/sites/etc.

But, as the crisis unfolds and economy corrects the mistakes in resource allocation to consuming (2/3rds of US economy is – or rather was – consumer based) angels face same problems as everyone. Some of them even used to invest money that was in fact credit against the value of their real estate or stock holding from past successful ventures. As value of both falls down so does their capacity to invest. Plus, with all the pessimism in the media people are even less willing to take any risks with their money looking rather for safety and savings.

But there is an upside to all of this, which I have pointed out in my New Year’s article: all that means better quality. Yes, less startups will get money, but those who will get funded will be those with better teams, better business plans and better, more innovative ideas.

Quantity will go down, so the quality will go up. This is good news, even if that means we won’t get another dozen of new, “unique” social networking sites.

It is now almost evident that 2009 will be a year of recession and crisis. All indicators are down for the US economy and world’s economy is falling with it. Mainstream media presents governments’ actions as a heroic struggle to keep things running, while in fact things they do – mass bailouts, aid packages, 0% interest rates, printing dollars (and other currencies) – just make the problem worse.

This situation has a broad & long term impact but in this article I want to focus on what it all means for our industry – the IT and especially software development.

Recessions and crises are a time of test. When markets contract only the best will stay, the rest will fail. In other words – those who swim faster and adapt better will survive the storm, those not moving quickly enough or in a wrong direction will go down. It’s not nice, but it is the way things are.

However, IT in general has many things going for it that make it, I think, less vulnerable and having better chances of going through this storm in good shape.

First, it has always been fiercely competitive and thus is more fit than others. IT is widely unregulated by governments, did not receive any protection or intervention and has been largely union-free. It has been therefore much more exposed to the free market than banks or heavy industries. Furthermore, we did go through our own, “local” bust – the “dot.com” bubble burst of about 8 years ago. So IT companies in general should be better prepared to cope with tough times.

But even more importantly as our clients will be squeezed by the same market dynamics of bust and recession they will have to get more effective in order to survive. And to do that they will need more technology, more IT systems to support their processes, more automation and more data analysis to stay on top of things. In short they will need more of what we deliver, not less.

This time, though, with forecasting the future more difficult than ever those systems will have to help companies cope with changing business environment – and that will be reflected also in approach to projects. So companies will look to develop lighter systems and do it as flexibly as possible. That means less willingness to commit to long-term projects and fixed contracts – plus less use of work-heavy technologies.

Startups are distinctly different from established businesses but for us at Code Sprinters they are an important part of our client base. In the coming year and onwards they will have a much harder time finding angels and VCs willing to invest in them. But that means only the best business plans will get funded – and that with this funding an additional pressure for good execution will come. Good will even more than before mean: fast, with good quality and elasticity.

So common theme here for all client groups depending on IT will be more effectiveness, better value and above all flexibility to cope with hard to predict changes.

Luckily for us all the IT did come up with a way to approach things exactly that way: light technologies like web applications, frameworks, open source components etc. keep costs down and make building systems easier. The whole family of agile methods gives much higher productivity plus flexibility to cope with change easier. In fact methods like Scrum and simple T&M contracts will shine in those times.

So the coming storm will be a huge opportunity for companies that – just like us here at Code Sprinters – offer agile approach to build web applications.

I know of course how this kind of argument is perceived: yet another marketer trying to sell his method/product/service by trying to link it to what’s in fashion. Crisis is in fashion now – just turn on a TV – so let’s sell agile as a the magic cure for the crisis. But I honestly believe this is the case and here is some substatantion to my claims:

  • agile means cutting down on BS, so less overhead – and who would like to pay for unnecessary documents, work and meetings at the time when every dollar is turned twice before it is spent?
  • agile teams are open to change – every sprint (2-4 weeks) client can change the project direction, which is a clear advantage at the time of instability when any predictions can be only very general and anyway uncertain,
  • agile T&M contracts can be cancelled at any time – much more security at a time when budget given to the project today might be taken away few months from now,
  • plus with an agile team even if you cancel the project you get code that does something, is complete to some extent – which means that even if cancelled early the project has high chance of brining value,
  • agile teams are focused on highly important, high value items first meaning getting quicker to the point of system being usable,

  • good agile teams do good software – that is well tested, well designed, so that it a) will continue on working and b) could be extended further by other team with manageable learning curve.

If we look at web applications we also see clear benefits, especially lower cost and faster development of specialized business systems, both internal and client-facing. I won’t go into details here, because web technologies have been the primary choice for new custom business systems for a few years now.

To sum it all up: IT in general is here to stay, as in these troubled times companies will need more computer-powered muscle than ever, they will need it for less and delivered in a more flexible way. Luckily, the IT industry – unlike, say, banks or car manufacturers – is up to delivering just that. Well, maybe not the whole IT industry, but sizable enough part of it to keep us going. Which is fundamentally good news to open the New Year 2009 with.

So – Happy New Year!

(All the points above assume you know how agile methods, Scrum in particular, deliver those benefits – if you don’t see our Scrum Resources page to get started. Next this month – Prophets of Doom.)