Money's too tight to mention: cost-cutting, new economy-style

Even the tech titans are no strangers to job cuts. Lucent ended January with the news that it's axing 10,000 jobs. A couple of weeks later rival Nortel also ousted 10,000 staff. Dell added to the malaise that day with the announcement that 1,700 would go.

But it's all in the course of a year's work for these major league players. Economic fluctuations apart, multi-billion dollar revenue and hefty - if sometimes declining - profits will continue.

Smaller technology companies aren't so lucky. With many of them having no profit on which to issue warnings, job losses are essential cost cutting measures that can mean the difference between bankruptcy and flotation.

For start-ups with bank balances in the low millions, rather than billions, cuts are a drastic business. Consultants overseeing a cost-cutting exercise at one internet company suggested that highly paid staff should take less pay in return for a profit stake - in a company that doesn't make a profit.

Senior staff at Ramesys, an ebusiness software vendor, dismissed the idea in favour of flexitime and more stringent limits on overtime, but they do plan to go ahead with a significant number of redundancies. The hope is that a severe restructuring plan will place the company in a stronger financial position by the end of its tax year in May.

In a further money-spinning move Ramesys plans to sell its disused equipment and then lease the excess office space to third party companies as a storage facility.

Company management has admitted in internal memos that the severe cost-cutting measures won't save any jobs, but simply keep the company afloat until the end of the year.

And industry watchers share their pessimism. Ryan Prince, co-founder of business angel network iGabriel, claims many companies who over-spent on recruitment to attract the best talent are now suffering as the market slumps.

"Companies wanted to attract the best quality talent, but now people are seeing company valuations drop, sometimes by up to 95 per cent. But in order to keep the best people, you've still got to pay big salaries and that means giving up something else," he said.

Jonathon Steel, chairman of the Bathwick Group, says that Ramesys profit stake scheme is an example of how small technology companies are resorting to dot-com tactics to keep staff.

"If you let staff go, people get jittery, so how do you hold on to people seeking a future? You sell them a future. You sell them the golden handcuffs, even if at the moment they are just a plastic handcuffs."

However, he added that many small software vendors will continue to suffer as their dot-com customer base thins and the large corporates issue profit warnings.

Stephen Clarke, CEO of ebusiness education service the Ecademy, blames the current dire straits on indiscriminate investment by venture capitalists, and warns we need to take a more pragmatic approach to current market conditions.

"We're not witnessing a market downturn but there has been a wake-up call. There is a bit of due diligence going on by clients. Companies now have to prove that they have long term viability, and that shake out is a good thing."

He warned that companies like Ramesys, who are scaling back because they don't have enough business, cannot always blame the market.

"Downsizing has been happening, but when it comes to small companies some of them just shouldn't have got off the ground," added Clarke. "You can't say there is no business. The business is available if you provide a service that clients want."

But as the growing list of doomed dot-coms and internet ventures is proving, it's a thin line between innovative improvisation and a desperate struggle for survival.

Industry experts say long term survival will depend heavily on loyal, dedicated staff. However, Simon La Fosse, director at IT recruitment firm Harvey Nash, claims demand for experienced technology workers is continuing to grow. He says many employers view a stint at a failed dot-com as valuable experience.

What does this all tell us? With jobs still ripe for the picking, the temptation to jump from a sinking ship could be irresistible.