Riding Out the Storm: Lessons from the 2000 Dot-Com Crash
Updated: Apr 6, 2020
By Jim Sorenson, Chairman of Sorenson Impact Foundation
About Jim - From Entrepreneur to Impact Investor
Raised in a family of entrepreneurs, Jim Sorenson discovered the power of impact investing as a tool for scaling solutions to local and global challenges, and for creating significant economic value. After developing a potentially disruptive technology, Jim was in the process of taking the company he built, Sorenson Communications, public. However, only two days before the scheduled launch, the dot-com bubble burst and halted the markets. Jim went back to the drawing board and in collaboration with a hearing-impaired family member realized that they could transition the company’s products to enhance communication for the deaf and hard of hearing. When it eventually sold, Sorenson’s company was among the largest leveraged buy-outs of the time, and was estimated to have increased employment opportunities for the hearing impaired population by approximately four times! Jim was inspired by his company’s ability to positively impact an underserved population while also operating with an effective business model and generating profit that ensured ongoing sustainability. He was intrigued with the idea of finding market solutions to meet the needs of underserved communities. Since then he established the Sorenson Impact Foundation, which invests in scalable, innovative social entrepreneurs, as well as the Sorenson Impact Center at the University of Utah, which is a “think and do tank” focused on social impact and policy.
This article explores Jim’s outlook around the current economic instability created by the COVID-19 pandemic and strikes an optimistic tone about what could emerge from this period of uncertainty.
The global spread of COVID-19 has wreaked havoc on a booming U.S. economy and forced the creation of a $2 trillion stimulus package aimed at averting the onset of what would likely be a bruising recession. This is all the more difficult to comprehend because this current period of financial instability is not rooted in the misguided of toxic subprime mortgages or the unabated over-inflation of stocks. Instead, communities, businesses, and governments across the globe are for all intents and purposes being held hostage by a highly contagious disease.
Sorenson Communications and the dot-com bubble
While the COVID-19 pandemic feels like unprecedented circumstances, in my experience of both life and business, there are always lessons to be learned and applied from the past. In the fall of 2002, I was the head of Sorenson Media, a company that was the product of several unsuccessful attempts to penetrate the video phone mass market during the devastating dot-com bubble burst. The realities of an unreceptive market and the flight of impatient investors had left me with the difficult decision of either shutting down or going in a new direction. I made the fateful decision to alter the course of a fledgling company by pivoting its technology toward services for the deaf community. Ultimately, that decision turned a potentially significant loss into an overnight financial sensation. The innovative technical solution took off growing from $0 revenues to over $120 million with $60 million in EBITDA in 2.5 years.
Building a Business with a Social Purpose
The social impact was equally impressive. Our product transformed the communication capabilities and employability of millions of deaf and hard of hearing individuals, while creating nearly 10,000 jobs, many of which were for the deaf. This was a watershed experience for me. As a serial entrepreneur, I’d been making calculated bets like this my entire life, but one insight was new: I realized that a business could benefit society or solve a social problem while generating a financial return. In fact, the financial return helped the business to become self-sustaining to better scale the social good. My experience with Sorenson Communications planted the seed for my life’s journey into impact investing.
Impact Investing and Opportunity Zones
I established the Sorenson Impact Foundation (SIF) in 2012 to combine this philanthropic philosophy with impact investing. By taking this new approach to philanthropy, SIF has catalyzed potentially game-changing businesses working to provide sustainable improvement in jobs, education, healthcare and overall livelihoods in underserved communities around the world. These investments range from Ear Access, which provides high quality and low-cost hearing solutions for children and young people in developing nations, to Simpa Networks, which provides solar power systems for residences and small businesses in India.
When the Opportunity Zone incentive was included as part of the 2017 Tax Cuts and Jobs Act, I viewed it as a lever to encourage more investors to become impact investors. Leading by example is something that was instilled in me from an early age, which is why I launched theCatalyst Opportunity Zone Funds in June of 2019. Just last month, Catalyst announced four investments, including one to SOLA Impact. SOLA is a firm committed to developing affordable homes for people and families in opportunity zones located in South Central Los Angeles. There are several other similar types of investments Catalyst will be making during the course of 2020 and beyond.
Putting people first
As the COVID-19 pandemic halts economic activity across the world, we are now pivoting our impact investing to help shore up our portfolio companies that are generating great impact, and yet are vulnerable to the financial impacts of the pandemic. Many of these companies are on the frontlines, providing health care and other essential products and services to those who are most vulnerable. We are also seeking to help catalyze early-stage, innovative social entrepreneurs who are courageous in developing the business solutions needed to help overcome the harmful effects of the virus and its economic consequences.
These are incredibly challenging times. However, as painful as current conditions are, new ideas, innovations and businesses will be born out of this crisis. We saw this following the 2008 Great Recession, which acted as a catalyst for the growth of the gig economy.
Ensuring the growth curve that emerges from this latest financial shock is focused on underserved communities must be a priority. Now is not the time for predatory practices and financial opportunism. Rather, it is the time to place low-income communities and communities of color at the heart of impactful projects. Dr. Anthony Hood, Director of Civic Innovation at the University of Alabama, puts it best:
If “you do things to communities, you are imposing your will on them. [If] you do things for communities, you create dependencies. When you do things with communities, you empower them.”
This should be front of mind with investors, developers, and businesses as we seek to emerge from this crisis.