Why do technology companies fail?

The collapse of ProActive Services this week raises the questions as to what are the risks for an IT company and why do they fail.

There is a perception in the market place that IT is expensive and that IT companies make a fortune.

It is true some do, such as Microsoft, Apple, Facebook and a raft of others. The successful IT companies do seem to make better profits than many other types of businesses. However, these ones we all see in the public eye are the exception not the rule. In almost any industry there are standouts. In IT, they are very public and can grow to be very large, more so than some industries.

However, there are thousands of IT companies in Australia that none of us have heard of. After 24 years in the industry I meet new companies every day and am often surprised to find they are over 20 years old (that is old in IT).  

We all see that technology is evolving at a rapid pace and it seems to drive the pace of everything else by creating new ways of doing things. It also creates new directions, and as a technology company, it is necessary to keep selecting which direction to go in.

This past week has also seen TrueCrypt technology for encryption vanish in a swirl of mystery with unidentified coders responsible for creating the freeware tool and also for pulling it from the market in a ‘now you see it, now you don’t’ stunt.

Technology is a fact of life today but it is still fluid and evolving. It is only companies that have a current technology or solution that will survive for more than a few years and this needs management in all of our businesses.

There have been some very public mistakes made, like Microsoft building MSN to compete with the internet. Today it is mad to think you might build a competitor to the web. Yet a private system with no viruses and no hackers controlled by Microsoft might be really handy about now. Microsoft had the resources to change track and pull together an internet strategy before it sank them but they had to play catch up. Small businesses don’t get that luxury. Back a wrong product or a couple of wrong products and the costs mount without the relief of effective sales to fill the budget gaps.

Similarly, providing poor service due to wrong systems or poor company culture will lead to a decline in revenue that if not well managed will lead to a company’s demise.

There is nothing easy about becoming a successful IT company, unless you happen to get lucky with a piece of innovation you trip over, get a patent on and have sell itself. Most work very hard for many unprofitable years to be that lucky. So, as with any business, a technology business is at the mercy of its market, both its supply chain and its clients.

If you are stuck with the wrong IT company – which is not moving with the times on cloud solutions, secure systems to combat the web and sound advice on technology road maps – perhaps you should consider changing before you are forced to.