In 2001 the stock market literally jumped off a cliff, companies that I had believed and invested in like Exodus and Infospace went from hero to zero in months, and as the new CIO of the Global Markets dotcom called Direct Markets and later MLX, had to run 8 rounds of reductions in force before 9/11. Also that year, the boardroom balance of power shifted and Stan O’Neal, Ahamass Fakahany, Tom Patrick and Arshad Zacharia took the reins of the company that I loved. That’s another story I need to write, but not today!
I have written before about 9/11, the First Trade and more, but what happened next is the movie I feel that we are part of again right now. In November of 2001 8 weeks after 9/11 I was invited to an offsite in WestChester, NY, where my then boss informed us that he was the new head of infrastructure and each of us were given new roles; I was to run Networks and Market Data and many others shared services like Email and more. He also informed us that we were going to have to cut costs severely (circa 50%) in order for the company to survive 2002.
I left the offsite with a drive back to the house I moved into 2 weeks before 9/11 which was still full of unpacked boxes, musing on how it was possible to make those kind of cuts after the cuts we had already made in 2001. I had also just finalized my divorce so was very short of money personally as well, so taking large amounts of risk didn’t feel appealing. However!
I met with my new team that was somewhat punch drunk after a year of 24×7 working, 9/11 recovery and job reductions. I told them of the targets we had been asked to achieve and saw fear in many eyes wrt their own jobs and families. I asked them to go away and think about all the things that we did that we didn’t need to do and each direct report worked within their organizations to come up with these lists. We got back together a week later with a list of over 100 items. These items fell into 3 major categories
i) Providing services to the whole firm, that were not being used ubiquitously
ii) Implementing solutions or projects where the same thing was being requested each time (e.g. fix connectivity to buy side, trader voice connections, b2b connections) but were being executed as bespoke projects.
iii) Inconsistency in products, solutions and operating model that led to higher costs, operational outages and more
We had also learned a number of lessons from 9/11 which I/we were determined to implement, such as “the internet is the most reliable network in the world”, and its orthogonal corollary, point to point circuits of any kind are brittle and can all break at the same time (if they are routed through a common point, or have a common architecture achilles heel).
In the next meeting, I had the full cost analysis completed by the finance organization as well, which showed that over 85% of the costs were external costs buying services, products from 3rd parties mostly from AT&T, BT, Reuters, Bloomberg and a few others. I committed to the team that we would take the costs out we needed to take out without losing internal headcount. All-in!
We looked at how we could virtualize or what would now be called “Cloudify” all of our services including our metropolitan area network which connected all the sites in NY and NJ. We built a very aggressive approach with the vendors to every single service. Remote Access, Metro area Network, B2B connections, Trader Voice all became clouds which were provisioned virtually through providers such as GRIC, Verizon, Radianz, Radianz/Verizon and the costs were reduced in many cases by 90+% per unit. We had a great discussion with AT&T who were our outsource network partner about what it meant to go “All In” on achieving our financial goals and innovating the way we had started to go. We halved their revenue in 2002 from 2001 and we worked on that together, and in the end we all learned capabilities that allowed us to apply the same techniques to other use-cases to drive cost using innovation in many of the services delivered. It wasn’t an easy set of conversations but we were very determined, and we delivered the 50% P&L reduction in one year. In market data we took the same approach, and I will write separately on that in the future.
Coming to 2023, I see some of the same pressures being brought to bear on enterprise technology teams. In recent conversations/dinners and just catching up with friends still engaged in enterprise pursuits, numbers of 25+% net reductions have been thrown out, and as we all know budgets in years like 2023 are not really hard budgets, they will change based on the fortunes of the business.
At Sand Hill East we have invested in many companies that have the same kind of financial and innovation impact as the solutions, services and products we innovated in 2002. We have known for the past 2 years the impact that was likely to happen after so much cash and money supply was put into the economy. Wherever possible we have encouraged our startups to take 2 years of funding even at dilutions that didn’t look appealing at the time but do now. Nearly all of the AI related cohort of our portfolio deliver outcomes that massively reduce cost, drive customer experience, customer sat and customer success higher and faster.
Here are some things you can do in any company in 2023 to get the same kind of results we got in 2002. These are things I would do if I were still an enterprise executive :-
- Replace / Augment humans in customer support or Operations with AI
Netomi.ai and JAID.io deliver solutions for B2C/B2B2C and B2B respectively which automate using “AI workers” responses to customers over IM, Email and most recently voice channels. In analysis of the cost savings, Netomi delivers a 40X cost reduction with a higher Net Promoter Score or customer satisfaction, and the data starting to come from JAID implementations is showing the same.
2. Leverage AI Platforms to reduce knowledge-worker intensive work
Skyhive.ai provides real-time information on skills, careers, job availability, pricing and more to allow a massive time reduction for HR professionals and managers who need to have the global job market at their fingertips. This will be very important in 2023, particularly for companies that are able to grow into the recession because they offer cost cutting capabilities.
3. Reduce Mainframe costs by converting Cobol code to Springboot Java
Cloudframe.com allows you to easily move your Cobol code to fully dockerized spring boot Java which can be run on Mainframe ZiiP engines at a 90% cost savings or Linux/Intel/AMD/ARM in your data center or on Azure or Amazon to achieve >90% cost savings. You can leave the codebase in Cobol and get these benefits or you can migrate the decades of business logic to Java and hire modern developers to maintain and enhance it. Major Fortune 100 clients already including one of the worlds largest Telco’s and one of the worlds largest credit card issuers, and multiple banks are already up and running.
4. Reduce your Sales costs and improve efficiency by automating Customer engagements and CRM
Winn.ai provides technology to literally steer the dialog between your sales teams and their prospects, automate the capture of the conversation and upload to your CRM.
5. Reduce costs and drive Operating Efficiency with Slack, CRM, GoogleApps, O365
Temporall.com is one of our most recent clients. They maximize the effectiveness of your digital workplace by providing the analytics and insights on workplace tooling so you know who is/isn’t using the tools and what they are being used for, so you can make better decisions. Fast. Simple deployment and almost immediate payback.
6. Deploy an Internet centric Zero Trust network
Zscaler.com delivers solutions that allow corporations to reduce attack surface significantly and reduce costs of networking across branch networks, retail networks, data centers and cloud whilst driving full transparency of security, threats, attacks and vulnerabilities. Because Zscaler is born in the cloud and inline, it also reports on customer experience using ZDX on an individual user/application basis. It’s literally like having a magnifying glass on customer experience.
7. Deploy Pure Storage solutions
Purestorage.com delivers Nand based storage solutions that are cheaper, faster and better than any of the alternatives. They have an Evergreen platform that is designed to minimize Opex (Significant Power consumption reduction), with the best ESG metrics in the industry and in particular a really good story on e-waste. The solution works equally well on-prem or on cloud (See CloudBlockStore for details) and allows you to mix and match while you determine your best long term strategy for compute. Strong platform technology, strong ESG story and strong market share winning ability, adding many new logos every quarter.
The opportunities above apply to almost every kind of company, I am going to write a follow up to this article to discuss cost savings opportunities inside the verticals of Finance and Insurance in the next couple of weeks.
The final thing to remember with cost-cutting is the simple math of it; if you have to cut headcount, never make the mistake of cutting less headcount earlier on to “see how it goes” when you have already been given a target. If you had to cut 30 people at the beginning of the year to make the target it will be 60 by April and 120 by September, so make the hard decision early or you may have to make a really really hard decision later. You also can’t predict if you’ll be asked to make more savings later, so it is always better in my experience to know your path to any target at the time you are given it.
Andy Brown is CEO Sand Hill East, CTO Fintech Innovation Lab, ex Group CTO of UBS, Chief Architect of Merrill Lynch & Paribas and has held a number of roles using innovation to drive outcomes in major corporations across finance, telecomms, oil and pharma.