The intriguing thing about the new economy, Mandel says, is not that it has repealed traditional business cycles, as some contend. Rather, it's that it has amplified them.
Innovation is clearly the lifeblood of any economy. But in the new economy, funding for a large chunk of research has come from venture capital, and how much venture capital is available depends on how well tech stocks are doing on Wall Street. Mandel writes: "Faster growth and a rising stock market increase the incentives to invest in innovation -- which yields more start-ups, faster adoption of technology and more pressure on existing companies to keep up. But when a downturn starts, watch out."
In a downturn, not only will funding for research dry up but established firms will have little to fear from start-ups, the economist contends. That will allow the veteran companies to set higher prices and boost margins, which in turn will lead to higher inflation. And suddenly we are in a never-ending downward spiral.
"Hardest hit, of course, will be the stock market," he writes. "Rather than a single sharp crash, the market will sour over time. The leading-edge Internet companies will tumble even further than they did in spring 2000. Initial public offerings will come to a dead halt and the downdraft will spread to the technology stocks, which accounted for roughly 45% of the gain in market value during the New Economy boom [which Mandel dates as beginning in 1995]."
He goes on: "Attempts by investors to pull their money out of the market will drive down stock prices even further."
And down and down we go.
Since a downturn is inevitable, are we truly doomed? Well, almost buried in this well-written, well-reasoned book is one reason for hope: "The venture capital business only represents about $100 billion of the $9-trillion U.S. economy." So on an absolute basis, if it dries up, the hit should not be fatal.
Mandel's response? Yes, of course, the hit won't be devastating -- if people react rationally. But investors don't always do that, he points out. A major sell-off in technology could have an amazing ripple effect. Maybe it's time to bring out all those survival kits we prepared for Y2K.
Who Needs Publishers?
A smart CEO called me the other day, looking for some general background information on the publishing industry. (He was thinking about writing a book.) When I told him it usually takes from nine months to a year for a finished manuscript to appear in print, he was appalled.
"Wait a second! It's going to take me nine months to write the thing, and at least that long until it's on the shelf?" he asked. "That's a year and a half -- if everything goes well, and you're telling me I should count on two years from start to finish? How in heck can you do a technology book that has anything meaningful to say with that kind of lead time?"
It's a great question. So far, publishers don't have any great answers.
Why should you care? Three reasons:
- You want access to the best information you can get on a timely basis.
- You want to know who is a timely and reliable source of the information you need.
- Someday you may want to write a book.
Traditionally, the book-publishing industry would have been the logical place to take all those desires. But as the CEO with whom I spoke the other day found out, conventional book publishing is becoming progressively irrelevant.
With that in mind, keep an eye on what's going on at sites like MightyWords ( www.mightywords.com) and Soapbox.com ( www.soapbox.com, created by the people at Motley Fool). Some sites allow nearly anyone, with some restricting conditions, to be an author. You post your approved original content and split the revenues.
Not surprisingly, so far the content on such sites is remarkably uneven. However, as more people learn about the opportunity of taking their message directly to the marketplace, the better the material is likely to be. (Things will improve further as more companies, such as Soapbox.com, provide a feedback mechanism that allows users to evaluate the content.)
Traditional book publishers dismissed Stephen King's self-publishing efforts, through which he sold a remarkable number of copies of his novel The Plant (north of 150,000 downloads at $1 a pop) directly to consumers. (Interestingly enough, the book is about a human-devouring flora that's sent to a publishing executive.)
Book publishers would do well not to ignore new business models -- and you would, too. If the plant doesn't get traditional book publishers, the competition will.
Paul B. Brown is the author or coauthor of 10 books and editor-in-chief of DirectAdvice.com, an online financial-planning company.
Executive Reader
George Pace
CEO of Rocco Inc., in Harrisonburg, Va., parent company of the Shady Brook Farms brand of turkey
Recent fave
The Greatest Generation, by Tom Brokaw. "About 15% of our employees are from that generation," Pace says. "Brokaw's book helps you understand where they are coming from. Each story in the book is about the extraordinary actions average people took in tough situations."
Business basic
A Passion for Excellence, by Tom Peters and Inc. contributor Nancy K. Austin. "You can have the greatest strategy in the world, but if it's executed poorly, you can still lose," Pace says. "If you execute well, you can win with an average strategy. Peters writes about finding a way to communicate to your employees no more than five priorities the company has, and how everyone can accomplish them by pulling in the same direction. That's easy to do when you have 5 employees, but not so easy when you have 3,500. But if you can do it, it's magic. Executional excellence is critical."
For fun
The Bear and the Dragon, by Tom Clancy. "I like Clancy. I enjoy thinking about how someone could think up all that stuff and keep it straight. Plus, it's 1,028 pages. If you travel a lot, it's good to have one book to hang with for a while." --Jill Hecht Maxwell
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