Recessions typically don’t help businesses and cities. But Seattle might come out ahead of other metro areas if economic activity plunges in the near future.
That’s the surprising take from tech industry veteran Hadi Partovi, CEO of education nonprofit Code.org and a longtime investor who made early bets on companies including Facebook, Dropbox, Airbnb and Uber.
Speaking at a New York Times event in Seattle this week about the region’s startup ecosystem, Partovi said a recession “would help this region in many ways.”
His logic: recessions hurt all companies, but those most impacted are ones with unprofitable business models or shaky balance sheets.
Seattle, in contrast, is home to two of the world’s four most valuable companies: Microsoft, which has around $134 billion in cash and short-term investments; and Amazon, with about $55 billion in cash and marketable securities.
“In a recessionary environment, Amazon would be well ahead of its competitors at the tail end of that recession,” said Partovi, a former Microsoft manager and founder of iLike. “At the front end, nobody wants it. But three years later, who survived the best?”
Talks of a potential recession have been ongoing for months, but recently ratcheted up with the coronavirus outbreak. The Dow fell 1,191 points Thursday — its largest point drop in history — and the S&P posted its worst day since 2011.
Vladimir Dashkeev, an economics professor at Seattle University, said he’s skeptical of any statements regarding positive, short-term effects of a recession.
“It is very unlikely that either Amazon or Microsoft would declare bankruptcies as a crisis develops,” he told GeekWire. “Yet, it is as unlikely that they will make it through the crisis without any losses and even improving their positions.”
Microsoft this week said it will miss quarterly revenue guidance for a core business segment that includes Windows due to the coronavirus outbreak.
For Amazon, the crisis is threatening the company’s third-party marketplace, which accounts for more than half of its revenue. And Amazon’s “lean inventory” approach may leave the retail giant more susceptible to a supply chain shortage compared to competitors, The New York Times reported.
Beyond the well-funded public corporations, Seattle’s tech economy might also fare better than other cities in a recession due to its enterprise clout. Startups that sell to other businesses — also known as B2B companies — make up more than half of the GeekWire 200, our ranking of top privately-held Pacific Northwest technology companies. They may survive longer than startups that rely more on individual consumers.
Partovi said that Seattle startup Convoy, which facilitates transactions between trucking companies and shippers, would make it out of a recession in a strong position.
“Convoy’s market advantage is the efficiency it can bring to trucking,” said Partovi, a Convoy investor and board member. “So in a world of everything tightening up, when everybody needs to save money they’ll look for what is the most effective and efficient way to do things.”
But Dashkeev said it wouldn’t be smooth sailing for a company such as Convoy in a worst-case scenario for the larger economy.
“The growth outlook switches drastically in case a global recession arrives and people downgrade their expectations,” he said. “Then Convoy will have to solve the problem of what to truck, rather than how to argue they do it more efficiently than their competition.”
Watch the full event above with Partovi, Convoy CEO Dan Lewis, Redfin CEO Glenn Kelman, The Riveter CEO Amy Nelson, and Karen Weise of the New York Times.
Source: Geek Wire