Monthly Archives: September 2009

Adobe CEO Narayen Joins Dell Board, Sparking Concerns in Apple Community

Apple and its customers might have reason to be at least mildly concerned about Shantanu Narayen, president and CEO of Adobe, joining the board of directors at Dell.

Said eponymous CEO Michael Dell in a press release announcing the appointment:

“As CEO of one of the world’s largest and most diversified software companies, Shantanu will provide us with valuable insight as we develop and deliver IT solutions to customers. In addition, he brings strong operational expertise and experience, leading a company known for its innovative culture and growth.”

Adobe’s software, including its ubiquitous Flash, is developed to run across multiple operating systems, including Microsoft Windows, Apple’s OS X, and Linux. Although not strictly a conflict of interest, Narayen’s joining the Dell board raises understandable questions in the Apple camp about Adobe’s commitment to the Mac platform.

It seems an odd move for Narayen to make. I can understand why Michael Dell would welcome him to his company’s board of directors, but I’m not sure what Narayen gets from the arrangement beyond his board stipend. I’d like to hear him explain his reasoning.

Narayen is taking a board seat vacated by Sallie L. Krawcheck, formerly a Citigroup Inc. CFO, who apparently has less free time since becoming president of Bank of America’s global wealth and investment management division.

At Dell’s annual stockholders meeting in July, Krawcheck remained seated in the front row of the audience, refusing to face shareholders, while explaining why board members didn’t accept reduced compensation during the downturn. Krawcheck reportedly received $517,679 in compensation from Dell during the 2009 fiscal year, the second-highest amount accorded to a board director.

Maybe Narayen is joining for the board compensation, after all.

Ballmer Reveals Blind Spot in Attacking IBM’s Narrow Focus

In an interview with the New York Times, Microsoft CEO Steve Ballmer pointedly criticized strategic myopia at IBM, a company with which Microsoft enjoys a complex relationship encompassing both conflict and cooperation.

Specifically, Ballmer charged that IBM was misguided in exiting hardware businesses in networking gear, hard disks, and PCs. Technology companies, according to Ballmer, must pursue constant market expansion and diversity to stay alive and relevant.

Said Ballmer:

“IBM is the company that is notable for going the other direction. IBM.’s footprint is more narrow today than it was when I started. I am not sure that has been to the long-term benefit of their shareholders.”

First, we have to question Ballmer’s sincerity. Does he actually think IBM has gone strategically astray, or does he have ulterior motives? Perhaps he’s upset that IBM didn’t jettison businesses in which it competes with Microsoft.

Let’s put that possibility aside, though. Let’s take Ballmer at his word and assume his remarks were candid.

Networking gear? After the death of Token-Ring local-area networks (LANs), IBM was a bit player in networking, not a leader. Rather than flogging a moribund horse, IBM chose to make money by using its professional-services reach to resell other companies’ networking products (such as Cisco’s) into extensive enterprise-wide solutions.

How would IBM have achieved the same result selling undifferentiated adapter cards, hubs, and switches at wafer-thin margins? To paraphrase John McEnroe, Ballmer cannot be serious.

It was a similar story with disk drives, another business that offered unattractive margins, low growth, and not a lot of meaningful opportunities for clear competitive differentiation.

It’s when we get to PCs that the verdict becomes a little harder to render and more ambiguous. Yes, PCs are a low-margin commodity, and IBM wanted no part of the consumer market. It got tired of surrendering PC margin to the likes of Microsoft and Intel, which carved out the biggest profit percentages with operating systems and microprocessors, respectively.

Nonetheless, PCs (mobile or desktop) are included in every enterprise solution. IBM also might have been able to devise innovative value (if not outright differentiation) in the design, features, and functionality of the boxes for deployment in specialized business environments. They could have used their considerable experience and knowledge of enterprise requirements to become the un-Mac, the business-oriented inversion of Apple’s consumer mystique. It also might have saved its Global Services and other sales teams a degree of effort in sourcing and integrating PC into customer deployments.

But would it really have been worth it? Would it have provided enough value to compensate for the hassle and low margins associated with a commodity hardware business? In all likelihood, no. That’s why IBM probably made the right call.

Microsoft, of course, is the polar opposite of IBM. If Microsoft isn’t the jack of all trades and the master of none, it definitely is a hyperactive tradesman that wants to be involved in any project with commercial potential.

Its consumer forays have been more unsuccessful than successful, and they have distracted the company from extending and expanding its presence and in enterprise markets of all sizes. On the basis of opportunity cost alone, Microsoft has squandered resources on dismal consumer-oriented products (Bob and Zune, anyone?). Those resources could have been assigned to gainful, less-quixotic endeavors in the enterprise.

I am not saying that IBM is absolutely right and Microsoft absolutely wrong. We might find that IBM’s lack of networking hardware, for example, becomes a factor in its battle against Cisco and HP for supremacy in the converged data center. What I am saying is that Microsoft’s own mixed results belie Ballmer’s implicit claims of superiority.

As pointed out in the New York Times article, shares of I.B.M. are up about 30 percent since 1999, while shares of Microsoft have dropped about 30 percent during the same period. Since Ballmer invoked shareholder value as his measuring rod, it seems fair for us to beat him with it.

In the final analysis, if IBM suffers from having a focus that is too narrow, Microsoft suffers from having one that is too diffuse.

In Fusing HP’s Printer and PC Units, Hurd Continues Remaking HP in his Image

He probably wouldn’t want it portrayed as such, but HP CEO Mark Hurd is considering a move that his predecessor, aspiring politician Carly Fiorina, made several years ago.

Hurd is considering merging his company’s printer and PC businesses, putting them under the purview of Todd Bradley, chief of the company’s PC group. Fiorina combined the two businesses back in 2005, before she was ousted in a palace (well, boardroom) coup.

When Hurd took the reins at HP, he separated the businesses. Now he’s on the cusp of bringing them back together, though for different reasons than Fiorina had when she combined them.

Back then, the printer unit was the redoubtable cash cow and the PC unit was struggling. While the printer business hasn’t fallen off the face of the earth — it’s still a huge contributor to HP’s earnings — its growth has stagnated. Meanwhile, the PC group has done relatively well, taking share from Dell, competing effectively in business and consumer segments, and doing particularly well in higher-growth notebooks.

Some think Hurd would like to transmit some of that PC mojo to the printer group — hence the mooted change. But one has to keep in mind that Hurd is a relentless cost cutter. Before joining HP, his raison d’etre was his merciless focus on lean and mean operations. He brought that spartan philosophy to HP, and he’s been fervently pursuing reductions in operating expenditures ever since he got there.

I suspect the reasoning behind this move, should it occur, is not predicated on a strategic stroke of visionary brilliance visited upon Hurd during a spell of intense meditation. No, I think this has been driven primarily, if not exclusively, by methodically calculated cost-cutting considerations.

Hurd hired Bradley because he liked the severe cut of his jib. He probably believes his man is eminently suited to bring discipline and order — not to mention scores of potential employment redundancies — to a printer business run by an old-school HP veteran, Vyomesh “V.J.” Joshi, who’s been with the company since 1980.

There’s no growth strategy behind this move, but you will find an obsessive emphasis on reducing costs to boost the bottom line. Hurd is continuing what he sees as his mission to remake HP in his own image.

Cramer Gets 3Com Egregiously Wrong

We can respectfully argue as to whether 3Com will rise again as a meaningful contender in enterprise networking. My view is that 3Com won’t make the cut, but I respect the opposing positions others have taken.

Some of 3Com’s advocates point to its cash holdings, its low debt, its standing as a low-cost enterprise-networking alternative to Cisco, its global scope and potential to grow in developing markets (Eastern Europe, Latin America, Asia), and its relatively broad product portfolio.

Those are salient data points, and I think a plausible case can be made for 3Com. I disagree as to whether 3Com has the network-management and software smarts to stitch together and orchestrate its disparate point products into comprehensive solutions that can compete effectively against those from Cisco, HP, and Juniper. Still, I understand that others have a factual basis for saying that 3Com has decent product breadth and could, if the stars align just so, combine its TippingPoint intrusion-prevention systems (IPS) with its networking products to constitute something of an alternative to its bigger rivals.

Personally, I don’t think 3Com made the right choice in attempting to retarget itself at the high-end enterprise. In my view, it should have remained focused on small-to-medium enterprises (SMEs), where a relatively simple switch with a price advantage still can, as often as not, win the business. Even with Nortel’s enterprise-networking products, obtained through its acquisition of Bay Networks, scattering to the winds in recent years, solid enterprise competition for Cisco already exists in the form of HP and Juniper. At best, 3Com will serve as third or fourth banana.

Again, though, that’s an argument one can have with others respectfully, through different interpretations of the same sets of factual data.

What shouldn’t be countenanced, though, are blatant factual errors, especially those that easily could have been avoided by basic fact checking. Tub-thumping television stock hawker Jim Cramer made an egregious error last week when he mistakenly suggested that 3Com’s erstwhile joint venture with China-based Huawei remained not only intact, but that it was flourishing.

Here’s a summary of Cramer’s remarks on the subject, as excerpted from his blog at CNBC:

3COM has another force driving sales right now as well, China, where it’s been growing steadily since 2003. Remember, China committed $40 billion to build out its wireless infrastructure, and 3COM, through its joint venture with Huawei, will take advantage of that. The company already controls 32% of the Ethernet-switch market and 33% of the router market there. Cisco is bigger in the Middle Kingdom, but those numbers are still significantly higher than 3COM’s standing throughout the rest of the world: just 3%. And 3COM’s direct business in China accounts for 40% of total sales, and it’s growing.

H3C, as the joint venture is called, sells to larger enterprise clients than 3COM’s main business, which focuses on small to mid-sized companies. H3C’s branded products recently launched outside of China, and Cramer’s predicting that even a small bump in market share outside of the company’s geographical base “could be huge for 3COM’s earnings.”

That’s just wrong. 3Com’s joint venture with Huawei no longer exists. 3Com bought Huawei’s stake in the JV and kept the name. Huawei is pursuing an entirely course, with a different set of products. Increasingly, Huawei competes against, rather than cooperates with, 3Com.

That’s why Huawei’s contribution to 3Com’s revenues is shrinking. Effectively, after 3Com bought out the Chinese firm’s stake in the joint venture, Huawei became nothing more than a sales channel for 3Com. That sales channel is rapidly vaporizing.

Those changing dynamics explain why 3Com is aggressively trying to expand into other geographic markets. That’s also why the company is trying, yet again, to claim a leading role in enterprise networking. The dissolution of the 3Com-Huawei joint venture and the ensuing diminution of Huawei as a 3Com sales channel sales are fundamental keystones to understanding 3Com’s current predicament.

I am discouraged, though not surprised, that Cramer got it wrong so egregiously.

He could have averted the error with just a modicum of fact checking. If he had listened to 3Com’s analyst conference call, read the transcript of that call, or perused the company’s previous quarterly reports, he would have avoided the mistake. That he didn’t bother suggests that you should treat much of what he says with a mountain of salt.

With IT “Not a Great Place to Be,” Siemens Moves Could Affect Nortel Asset Sales

Siemens AG, the sprawling German engineering giant with multiple business units, is completing a “tough” fiscal year, according to a Bloomberg report.

Although none of Siemens’ business units is knocking the cover off the ball, the company’s information-technology businesses have not helped the corporate cause.

Information technology is “not a great place to be in these days,” says Joe Kaeser, Siemens’ Chief Financial Officer (CFO). He reports that Siemens will review joint ventures, including Nokia Siemens Networks (NSN), the wireless-networks business whose ownership it shares with Finland’s Nokia. Kaeser said the unit is not meeting Siemens’ performance targets.

Another Siemens joint venture is Siemens Enterprise Communications, partly owned by private-equity firm The Gores Group.

Siemens Enterprise Communications recently bid on Nortel’s enterprise business assets. Avaya submitted the highest auction bid, but the sale is being reviewed by the Canadian government. While not tendering a bid as high as Avaya’s, Siemens Enterprise Communications’ proposal offered greater benefits to Canada. Nonetheless, if Siemens’ commitment wavers to its enterprise-networks joint venture, Avaya might win the Nortel assets by default.

Earlier in the Nortel garage sale, Nokia Siemens Networks advanced the stalking-horse bid for Nortel’s wireless business. It eventually was overtaken at auction by a $1.13 billion offer from Ericsson.

Siemens has said it might have to write down the value of its stake in the unprofitable NSN. It’s possible, though not yet probable, that Siemens might want Nokia to buy out its stake in the company.

Depending on how Siemens proceeds, NSN could find itself constrained from bidding on Nortel’s LTE patents. Ericsson and RIM are thought to be at the front of that particular queue, but Nokia — a smartphone vendor as well as a purveyor of wireless-networking equipment — would have reason to consider a bid.

GE CEO Says We’ll See Weakest Recovery in Decades

Yesterday I wrote that we aren’t mired in a typical recession and that we shouldn’t expect a typical recovery. What we’re going through is qualitatively different this time, and we should not expect the consumer-driven US economy to return to its formerly robust health soon.

Well, General Electric Co. CEO Jeffrey Immelt agrees that this recovery will be different, and not in a good way. Speaking in Singapore, Immelt warned today that high unemployment and slower lending will drag on U.S. economic growth, likely resulting in the weakest recovery in decades.

Said Immelt:

“There are reasons to believe that this recovery could look different from ones in the past. There’s not a lot of confidence that it’s going to be great.”

“Easing up money has always been the elixir to keep the economy in recovery mode. But once you get interest rates to zero percent, you can’t go much below that, which is kind of where we are right now.”

“A lot of the jobs lost in financial services and construction are never coming back.”

Later in the same address, Immelt said the following:

“How the Chinese economy does in the short-term is probably more important than sitting there praying for a robust recovery in the U.S. I bet they (the Chinese) make it through this crisis and come out stronger.”

Google Nearer to Completing On2 Acquisition

Google moved one step closer to completing its acquisition of On2 Technologies today.

Video-compression vendor On2 announced that it and Google have been granted early termination by the Federal Trade Commission and the Antitrust Division of the Department of Justice of the mandatory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

With that milestone achieved, the two companies have satisfied a key condition for completion of the proposed merger. The deal also is subject to the adoption of the merger agreement by On2 shareholders at a special meeting.

The only serious threat to the consummation of the acquisition is a lawsuit filed by dissident On2 shareholders unhappy with the price the company’s officers extracted from Google.

Although the shareholders behind the lawsuit contend that On2′s directors violated their fiduciary duty in not seeking another prospective buyer and in failing to negotiate a higher price from Google, their case might be difficult to prove. Google could probably make it go away by agreeing to raise its offer by a few cents per share, but there’s been no indication that’s about to happen.

Microsoft’s Free MSE “Good Enough” to Take Consumer Share from Symantec, Others

As Microsoft today releases its free anti-malware suite, Microsoft Security Essentials, the for-pay vendors of competing products are moving the goalposts and repositioning to fight on different turf.

A replacement for Windows Live OneCare, the for-a-fee security suite that was retired at the end of June 2009, Microsoft Security Essentials (MSE) includes anti-malware and anti-rootkit protection. It does not come with a firewall, but Microsoft provides a free firewall with Windows.

Microsoft is positioning MSE as a capable, lightweight anti-virus, anti-spyware program, pointing out that it consumes fewer resources than for-pay anti-malware suites from the likes of McAfee, Symantec and Trend Micro. Microsoft also has positioned MSE as a worthy rival to any of the free anti-malware offerings on the market.

As eWeek notes, the product will be available in eight languages and 19 countries.

Mary-Jo Foley of ZDNet’s All About Microsoft points out that Microsoft is aiming MSE at the consumer market, where many customers are unwilling or unable to pay for security software. She explains that Microsoft representatives believed it was worth offering customers a free product to help thwart security breaches on unprotected Windows PCs that could be used as bots to infect other users’ systems.

The free suite is a client-only offering, with no centralized server capabilities. It does not include the enterprise-class business features associated with Microsoft’s for-pay Forefront security products, which provide not only anti-malware protection but also real-time reputation services, archiving, encryption, disaster recovery, and policy enforcement. Then again, not many consumers require those features.

Predictably, the for-pay anti-malware vendors are attempting to change the rules of engagement. Recognizing that Microsoft is a threat to vaporize revenues they derive from for-pay consumer anti-virus products, these vendors are trying to play on consumers’ fears and on Microsoft’s status as a relative newcomer to the anti-malware space.

Said Con Mallon, EMEA Consumer product marketing director at Symantec:

“The security industry has moved on from the product Microsoft is launching. Unique malware and social engineering fly under the radar of the traditional signature based technology employed by free security tools such as Microsoft’s. . . . “

“We believe the false sense of security provided by this tool is almost as dangerous as having no security at all. The latest generation of internet security is real-time and reputation-based, operating in real-time and not relying on a signature being produced and downloaded before the computer is protected.”

You can almost see the smoke billowing from his ears. Considering some recent anti-malware test results, Symantec might want to hold its fire.

Microsoft’s MSE received plaudits recently from independent testing firm AV-Test GmbH, which evaluated its performance in combating nearly 3,2000 common viruses, bot Trojans, and worms.

Said AV-Test’s Andreas Marx of MSE:

“All files were properly detected and treated by the product. That’s good, as several other [antivirus] scanners are still not able to detect and kill all of these critters yet.”

What’s more, Symantec’s Endpoint Protection failed a recent Virus Bulletin anti-malware test that Microsoft passed using the same AV engine built into MSE.

The fact is, for many consumers, especially in developing markets, what Microsoft is offering with MSE will be sufficient, particularly considering the price. The for-pay vendors of consumer anti-malware suites will lose market share and revenue to Microsoft. It’s not a question of whether they will lose business, but of how much.

Microsoft will continue to charge for its Forefront offerings for enterprise security, and that’s where Symantec, McAfee, and Trend Micro should look to make their stands. In enterprise markets, they will have a better chance to successfully exploit Microsoft’s relative inexperience as a security player.

SEC Foists Well-Intentioned Governance Reforms on Dell

Dell has filed a tentative settlement with the Securities and Exchange Commission (SEC) relating to an investor lawsuit.

Dell pursued the settlement after the SEC determined that the company had exaggerated sales by $359 million and profits by $92 million during a period extending from 2003 beyond 2006.

As John Oates of The Register put it:

Dell has settled a long-running court case brought by disgruntled shareholders, who accused management of artificially boosting Dell’s shareprice so they could offload their personal holdings.

Even so, nothing in the settlement concedes wrongdoing by Dell representatives. Instead, the agreement requires the company to fork over $1.75 million in legal fees and to enact numerous corporate-governance reforms.

Dell, for example, must ensure that at least 60 percent of board directors will be independent (at least in name and in theory). In future, each director will receive training at Dell’s expense, and directors will have “complete and open access” to Dell management and employees without requiring coordination involving the chairman or board-liaison office.

That last provision, well intentioned but somewhat naive about the wily ways of the boardroom, will be a double-edged sword for Dell employees. In my experience, board members can have their own hidden agendas, often impenetrably opaque and inscrutable, not to mention intensely politicized.

While I understand that the provision is meant to foster laudable honesty, probity, and transparency within the company, I also know that board members cannot always be trusted to put the interests of a whistle-blowing employee above their own convoluted priorities. Employees best tread warily in that serpent’s den.

Still, in no way do I condone the dubious practices alleged to have been perpetrated at Dell. So let me make my position clear: I encourage employees to speak out emphatically on ethical violations and questionable business practices within their companies, but I also encourage them to document all relevant interactions and to consult counsel every step of the way.

Remember, people at the top of the corporate food chain rarely serve themselves up as scapegoats, as a certain case involving a former McAfee employee makes clear.

Auspicious Timing and Plans for Newegg IPO

I like a few things about the IPO announced today by Newegg.

First, I like that the company — a web-based retailer of computer products for businesses as well as of consumer electronics — is taking advantage of a window of opportunity on the equities markets.

At least for the moment, sunny rays of optimism have broken through the dark clouds of despond. Conditions could change again, though, so Newegg is striking while the markets are comparatively hot (hey, tepid is the new hot). The psychology of American investors, in particular, could be negatively influenced by chronically constrained consumer spending domestically.

I also like what Newegg wants to do with a portion of the IPO’s $175 million in proceeds. The company wants to expand its business operations in China, where it is seeing considerable growth. It’s a smart move. The Chinese economy has continued to grow throughout the worldwide downturn, and it will grow faster as China’s consumer class reaches critical mass in the next five to ten years. A strong presence in high-growth China could insulate Newegg from slow growth in North America. (The company also is expanding into Canada.)

Finally, I like that Newegg is responding proactively to competitive threats, seeking to preclude incursions into its established markets while moving aggressively into new ones.

The timing of Newegg’s IPO, as well as the underlying strategy and use of proceeds associated with it, has been well considered.

Does Microsoft Appreciate Its Core Market?

Over at TechCrunch, Michael Arrington is running a serialized interview with Microsoft CEO Steve Ballmer. The piece published today, on what Microsoft perceives as major opportunities, is well worth reading.

What interests me about how Ballmer articulates and categorizes Microsoft’s big opportunities is that he doesn’t clearly cross-reference or group them according to whether they are aimed at consumer or business markets. Instead, he breaks them down into three broad buckets: short-term opportunities, predicated on and extending businesses in which Microsoft already is active; long-term opportunities, comprising big-market ideas that will take ten years to bring to fruition; and shortcuts, comprising acquisitions of various shapes and sizes.

The article supplies plenty of grist for the analytical mill, but Ballmer’s conflation of business (enterprise) and consumer opportunities is particularly intriguing, if only because it might account for Microsoft’s inability to fully realize its growth potential in enterprise markets. Of course, it also might explain Microsoft’s longstanding and ongoing failure in consumer markets.

This blind spot, which is all the more remarkable in a company as rigorously logical and systematic as Microsoft, comes to the fore in the Arrington interview when Ballmer discusses what he calls “communications collaboration and productivity,” the biggest area of investment for the company.

At one point in the interview, Ballmer defines the area as represented by “the tools and technologies both at home and at work to help people communicate, collaborate, to be productive.” I don’t doubt that these tools and technologies will be used at home as well at work, but they’ll be used primarily for business purposes, regardless of where they’re used. It’s a distinction that Microsoft needs to make.

One of the things Microsoft must be clear about in future, regardless of whether its products or services are used in an office or in the home, is whether the primary value of the offering is connected to business (productivity) purposes or to recreational consumer use. Microsoft sometimes fails to draw that distinction as clearly as it should, which is why we see consumer failures such as the Zune and also why we see the company fail to tap its full enterprise potential.

Here’s a simple question that starkly illustrates the issue: Do people use Office — a gargantuan Microsoft cash cow that is present in businesses and homes — because it provides productivity value as a business-oriented tool or because it delivers fun as a recreational vehicle? I think the answer is obvious.

Following from Ballmer’s conception of deriving and extending growth from areas in which Microsoft already is successful, that understanding should lead to adjacent short-term opportunities predicated on business utility. I am not saying Microsoft isn’t pursuing such opportunities, but I am wondering whether they’re fully exploiting them.

If Microsoft had remained focused on what it does well, how did it end up in the consumer weeds with Bob, MSN, Zune, Xbox and even the Xbox 360 (which continues to struggle toward profitability)? Does Microsoft fully understand what it does well and why?

Fortunately, Ballmer seems to be placing greater emphasis on Microsoft’s enterprise growth prospects. That’s a wise choice. Microsoft has plenty of headroom in enterprise markets — SMB and above — but it needs to reinforce and extend its presence before others start cutting into it.

Startups Fewer in Number, Less Ambitious in Scope

The economic downturn, called the Great Recession by some, is supposed to be over. Numerous economists and pundits have pronounced an incipient recovery. If it has arrived, it’s an odd sort of recovery that is barely perceptible, even invisible to many.

We know the downturn has taken an enormous toll on the information-technology industry in North America. We know that jobs have been lost, companies have gone out of business, and that venture capital has contracted. We also know, as an article in today’s Wall Street Journal notes, that fewer startup companies – in all industries, not just technology – are getting off the ground.

From the WSJ:

Company formation typically dips slightly in recessions, says Brian Headd, a Small Business Administration economist. Earlier this decade, business starts — including new businesses and units of existing businesses — fell 9% between the third quarter of 2000 and the first quarter of 2003, the BLS says.

This time, the decline has been steeper. Business starts fell 14% from the third quarter of 2007 to the third quarter of 2008; the 187,000 businesses launched in that quarter were the fewest in a quarter since 1995. The number ticked up slightly in the fourth quarter, the latest data available. But those new establishments created only 794,000 jobs, the fewest since the government began tracking the data in 1993.

The reasons behind the declining numbers of startup companies are relatively easy to identify. Funding, from venture capitalists and banks, is harder to get. Entrepreneurs, recognizing the funding squeeze, are become less tolerant of risk, choosing to pursue less-ambitious startup ideas or not to pursue them at all. Many would-be entrepreneurs have chosen to ride out the economic turbulence as employees of larger, established companies.

For the most part, businesses that are getting started are smaller than those launched in previous periods, even in past recessions. That’s directly attributable to constrained funding, which compels entrepreneurs to focus on businesses and markets that require relatively modest capital expenditures and that already exist as established niches. Unfortunately, these smaller businesses are inclined to grow less than previous generations of startups. That means they will generate fewer jobs, too.

Also troubling is that many new businesses are in areas – such as babysitting and house-cleaning services – with low income potential. Relatively fewer businesses have been launched in areas with higher income potential.

One mistake being made by the mainstream business media is that they continue to treat the downturn we’ve been experiencing as just another recession in just another business cycle. That diagnosis just isn’t correct. I think this downturn’s origins, its immediate effects, and its long-term repercussions are different from what we’ve experienced previously.

We’re witnessing a reconfiguration of the global economy, not just an attempted rebound from a typical recession. Some things, such as high-powered spending by US consumers, are not coming back to their former glory. With new regulations and an overdue wariness inhibiting financial chicanery, Americans will save more and spend less. Their homes are no longer veritable automated teller machines, their jobs are no longer secure, and their retirement savings are no longer assured.

Conversely, China, which funded US consumerism by buying US bonds, has begun to lay the groundwork for its own consumer economy, largely in a bid to lessen its reliance on manufactured exports to the USA and Europe.

These are huge tectonic shifts beneath the surface of the global economy, and they don’t seem to be fully appreciated by the business press. Looking back at the past-performance charts of previous cycles won’t give us an accurate guide to where we’re heading this time.