What the experts (and me!) say about 2023

For me, 2023 has been a year of two halves. The first half was the explosion of AI that has created many new companies, new opportunities and new visions of what the future looks like.?

It was also the year where we saw the end of cheap money, inflated valuations and companies being cast as unicorns. That explains the two very opposing views within the tech industry of 2023.?

These forces have impacted every company but in different ways.?

AI has levelled the playing field for smaller businesses, whose ability to automate means they don't need large engineering teams and can now punch above their weight. The lack of hyper-growth in the sector meant there has also been a levelling of salaries, and there have been challenges in attracting talent to companies of all sizes.

The state of the economy has certainly had an impact on companies and investors, and for many companies 2023 has been a year of survival. They’ve had less firepower to play with, we’ve seen massive layoffs, and small companies have had to hold on tight.

Many started 2023 still in a very good place, but they ended the year in a much tougher place, and some are right in the eye of the storm. Interestingly, other sectors started the year in a difficult place but have adapted and closed out the year strongly. I think there’s a lesson there about adapting to market conditions.?

It’s been a year of contrast for me and the Majar Group. Permanent hiring has been a much more challenging area, perhaps at its lowest levels for a while as a result of the operating environment I’ve been writing about all year. However our technology consulting business has thrived because companies are looking for solutions - and for people - to support them through periods of change, whatever the drivers of it may be.?

I find that clash of economic realities, people challenges and the constant march of tech innovation fascinating, especially how tech can potentially help the first two themes.

The tech itself has evolved

History shows us that there’s always a positive to come from difficult times, and we’ve certainly seen a huge reshaping on the technology side. Some say AI has been rushed to market but for many businesses, it came at just the right time.

Here’s what Andrew Gibson from Clear Bank told me this week: This year has been a real watershed moment for technology, with generative AI being front and centre. I feel a big part of this year has been about us adjusting not only to the fact that this technology exists, but that it is now accessible to the masses. 2024 will be all about how generative AI becomes integrated into our lives. Consumer expectations of software products will rapidly change, with natural language interfaces becoming a much more common way of interacting with applications. I expect there to be some truly mind-blowing products released over the next 12 months and I can't wait to see them!”

We’ve moved into a world where DevOps culture, serverless infrastructure and AI have become the norm, and I expect to see big returns in those areas next year. Cyber security has been another big theme in 2023 and one that I haven’t had the chance to mention much. In the old world (by which I mean 2022), building products and tech companies was a lot simpler. Mix software engineers, project managers, QA and infrastructure, and hey presto - you get a product.?

It’s great that new data capabilities have transformed how products are made. Cloud infrastructure and AI allow you to work with much more data, but it also means you are more exposed. As usual, big leaps forward come with risks attached, and the threats have been much more significant in 2023 than 2022. My view is that we will see more bad actors and cybercrime in 2024, with big tech companies and governments needing to work in collaboration to protect the masses.?

Big tech

In the battle of Big Tech, I'd say it's Microsoft’s year. I felt they were late to the party during the pandemic but with their investment in infrastructure and in firms like OpenAI, they have more than caught up. In my view, they’re leading the pack in the race to commercialise AI, and I’m expecting all sorts of collaborations and pilot projects in 2024.?

The negative side to big tech this year has been redundancies. I’ve had plenty to say about the boom & bust cycle in tech and its impact on both those who get let go, those who keep their jobs, and the brands themselves. I don’t know if the perception of big tech has ever been worse, and I hope things start to change in 2024.?

A mixed 'people' picture?

Normally, tech is a merry-go-round of talent, but I've seen less churn than usual in tech this year as people settle in their roles for longer, and embrace stability and realistic salaries over the usual lure of crazy pay and promises of growth.?

The economic pressures on tech firms have led to a 22% decline in the number of jobs posted this year . That's only half the picture though. Companies are still recruiting but it is much more targeted, as they respond to structural changes in their industries and look for specific relevant skills, whether that’s AI or quantum or other emerging tech.?

At the same time, there's been a shortfall in talent this year. Scarce skills are a big theme I return to in many of my newsletters, and there is still a big skills shortage in the UK. I hope the flourishing Hire-Train-Deploy sector will make a dent in that next year, it’s an area I am passionate about.?

Investors

It’s been a fascinating year on the financial side of the industry. Most VCs and PE firms spent January through to September in defence mode, circling the wagons and protecting their portfolios.?

Investors were more hands-on, asking companies to conserve money to maximise EBIT during a really tough time.

Ironically, at the end of the year, there’s always pressure to show growth or give some level of confidence to shareholders. From as early as September, I’ve started to see investment appetite return, and I suspect they’ll be doing much better in 2024.?

Oxford Capital has just raised $190 million that will be put to good use next year and I expect they won’t be alone in generating some activity.?

Here’s what Tony Zappala , partner at Highland Europe , said when I asked for his takeaways from 2023:?

“This year has been a challenging one in many ways. At a macro level, there has been a lot of uncertainty around the economy with inflation rising and central banks raising interest rates, compounded by geopolitical unrest. Within the Tech space, this has made it harder for both private and public companies to raise capital for new investments, and the guidance to management teams has generally been to focus on profitability. This has led to an environment with less emphasis on growing and on new initiatives, and a much more internal focus on the efficiency of the operations, often leading to a refocusing of business lines and layoffs. Painful though it is, in many cases, it was likely the right thing to do following the strong growth the sector had experienced in the prior c- 10 years of uninterrupted growth.

For 2024, I am cautiously optimistic. Interest rates will not come down significantly but don’t expect them to rise any further. Businesses will have in general completed their restructuring programs and will be in a stronger position to start considering growth initiatives once more and in particular areas of investment seen as strategic for the future such as AI. Investors have significant capital to deploy and I would expect the pace of investment to pick up compared to 2023, while not going back to the peaks of 2021 anytime soon.”

Another investment professional I know well is Toby Lywood from Oxx , and this was his take on 2023:

“It's been an incredibly tough year in tech. The ecosystem has seen an estimated 260,000 layoffs globally and a reduction of 44% in the venture capital funding raised in Europe compared to last year. AI has dominated the headlines, with predictions of its impact ranging from being the saviour of humanity to the potential end of humanity and everything in between.

This backdrop may not leave you feeling particularly optimistic about the future as we move into 2024, but I think there are good reasons to be positive. Despite a decline since last year, the data suggests that the tech ecosystem is still growing in the long term. 2023 had the third highest level of venture capital funding in Europe ever and this increased by 18% since 2020. This is likely to carry on as tech continues to play an increasingly important role in addressing some of the biggest challenges we face today. Without getting into the debate on the long-term impact that AI will have on humanity, I think that AI systems such as ChatGPT and Google Bard are huge opportunities for individuals to massively increase their productivity and everyone should be learning about them and experimenting with them.”

So it seems we agree that the tough times may be behind us, and good times lie ahead! Though I think it will be a slow Q1, things will accelerate through Q2 and beyond. Interest rates are levelling off, I also see renewed confidence in the market, and I think strong product releases and results from Big Tech will help.?

I am convinced that we are in a new industrial revolution. No business model can survive untouched for years as they have done previously, and companies that are agile and adaptable will thrive.

What’s your hot take on 2023? Leave a comment and let us know!?

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Best wishes from me, have a great festive period.?