JUST THIS WEEK, APPLIED MATERIALS announced an additional lay-off of 2000 employees. Over the last few months, Brobeck, a prominent technology law firm folded, Goldman quit its prestigious Menlo Park location retracting to the city, Red Herring magazine stopped publication after predicting for years "what is hot, what is not", many heavily venture-funded companies have quietly disappeared, and there have been numerous downsizing announcements from companies of all sizes. Is there an end to this carnage of the technology industry? Will we ever see good times in Silicon Valley again?

My belief is that technology industry will thrive in due course. Fundamentally, technology has been a prime driver for productivity improvement in the developed world and increasingly also in developing countries. Breakthroughs in semiconductors and embedded software are transforming consumer electronics, entertainment, home appliances, automobiles, and the manner in which we manage personal information and tasks. I, for one, will use only digital cameras in the future, because of the ease of organizing, touching-up and sharing digital photographs.

Why is the technology industry in such a mess right now? I believe that this unprecedented trough has occurred because we have forgotten (or are unwilling to remember) what it takes to conceive, nurture and build great technology enterprises. There is a lot of talk about “back-to-basics” in the Valley—much of it superficial—and often limited to minimizing cash burn. Unfortunately, much more of a culture change is needed for the technology industry to return to its former glory. Rather than in a specific time-frame, technology will thrive again when industry participants are truly focused on creating sustainable long-term value.

The technology industry has depended on start-ups for its continued success. Start-ups are able to pursue seemingly off-beat ideas, develop innovative technologies, and in general can be transforming agents. Early stage companies drive larger enterprises to improve their technologies and product offerings. In addition, start-ups are also fertile feeding grounds as acquisitions for established technology companies allowing these companies to enter new related business areas rapidly and efficiently. It is hard to believe that Cisco, Microsoft or even IBM would be where they are today without this rich ecosystem.

Therefore, I believe that the recovery of the technology business is critically dependent on a healthy entrepreneurial environment. I have no idea when this might happen, though I certainly hope it is sooner rather than later. The following catalysts appear to be essential for this revival.

• Entrepreneurs need to pursue only those areas where they have unique expertise and those they are passionate about. I see too many mercenaries—masquerading as entrepreneurs—floating around Silicon Valley, looking to jump on to the next flavor of the month. They have no convictions or special expertise, all they want is a quick buck. It is no surprise that there are 100+ start-ups in storage and Wi-Fi. Entrepreneurs (and their venture capital partners) must focus on creating value and something that will stand the test of time. They need to look for markets that can be served in new innovative ways, with differentiated products or solutions, providing sufficient barriers to entry. Entrepreneurs need to understand that if the fundamentals of the business are in place, the financial rewards will follow. Ditto for the VC community.

Yahoo and eBay are great examples where founders did what they were passionate about.
• Power must shift from VCs to founders and executives. While financing an enterprise appropriately is important for success, nothing much happens without exceptional founders. VCs have to understand that company founders and executives have an intimate knowledge of the market, technology, competition and whatever else is needed for success (or they should not have been working with these people in the first place). In the last few years, VCs have assumed too much power and founders have been forced to cater to the whims of the VCs rather than follow their own instincts.

I have uniformly seen that great VCs, like Bill Draper, Bill Davidow, and others treat founders with immense respect and receive great admiration in return. They become trusted advisors, not taskmasters, to the founders. When I founded Integrated Systems, I enjoyed a tremendous partnership with Greg Avis, my venture backer, and it was greatly motivating (and ultimately financially beneficial) for both of us. Sadly, many of today's inexperienced (or incompetent) VCs treat founders like dirt. The results are often predictable. Valley VCs, in general, need a massive dose of humbleness.

I also believe that the technology VC industry needs significant downsizing, much like the start-ups. Too many managing partners are collecting large management fees from oversized funds. These partners feel compelled to show activity to justify fund size, spoiling the environment for legitimate start-ups.

• The expression “serial entrepreneur” needs to disappear from the technology lingo. To me this is an oxymoron. A serial entrepreneur sounds like someone who throws things together, sells the half-finished concept to an unsuspecting buyer and skips town before the truth is discovered. An entrepreneur must have the power of conviction. Bill Hewlett, Gordon Moore, Sam Walton, Ray Kroc, Bill Gates and many others worked on one enterprise their entire life and still did not feel that their dream was completely fulfilled (OK, Gates has a few more years to get there). Yes, at times the best outcome is to merge the enterprise, but the entrepreneur's initial mindset should be a long-term commitment to the venture.

• The focus needs to shift from ideas to execution. I admit that good innovative concepts are needed to maximize success, but exceptional execution carries the day over the long term. The basic thesis of an organization evolves over time, but the need for good execution is constant. Dell started with a fairly mundane concept of selling PCs by mail order, an idea anyone could have copied and some like Gateway did. Microsoft started with a Basic language interpreter and by most measures Apple had better technology than Microsoft in the early years. Among start-ups, I am often appalled to see an utter disregard for fundamental issues, like customer satisfaction. The culture of good execution needs to be ingrained early—and deeply.

•Everyone needs to understand that any technology company at the end of the day is a business. Business success is measured by franchise value and operating financial parameters. In particular, all businesses are valued on discounted cash-flow or similar measures. Effective use of resources is essential for success. I remember reading the HP Way, where Hewlett and Packard correctly pronounced that profit is what customers pay over HP's cost for a job well done.

Let me share here some telltale signs that might indicate progress towards recovery. We will start hearing more about “barriers to entry” or “competitive advantage” and less about “exit paths.” Founders and start-up executives will be willing to take risks, for example with salary cuts, to move to small companies, with the conviction that success will more than compensate for the risks. Start-ups might start having names that give a clue to the nature of company's business and are not tongue-twisters. Real-estate owners and company advisors will ask for cash rather than stock. I imagine several of us old-timers can add to this list.

Happily, I am beginning to see very early signs of change. Much needs to be done. Silicon Valley has risen to past challenges and, I believe, will do so again.

Naren Gupta is Vice Chairman at Wind River Systems (NASD:WIND). Gupta co-founded Integrated Systems in 1980 and served as its President/CEO from founding till 1995. He was one of the first founders of Indian origin to take a company public as its CEO in 1990. Gupta holds a B. Tech. from IIT Delhi, an MS from the Cal-Tech, and a Ph.D. from Stanford in engineering. He also serves on the boards of Tibco Software (NASD:TIBX), and Quick Eagle Networks. Naren Gupta is married to Vinita and they live with their two daughters in Woodside, California.