A CEO's Sequoia Meeting Notes
blog.weatherby.net
blog.weatherby.net
Really grim news if it turns out to be true.
But these are the cards life is throwing at us. We are not the first generation to go through this, nor we are the last. One day we will look back and be proud we endured. It will be a great opportunity to refocus our priorities, to work on preventing this to happen again.
But you're right. Thems the breaks. Make money for people, and you will make money. Who knows, in 15 years you might find yourself in the perfect position to make a lot of bank.
Or maybe Sequoia is overestimating the damage and we'll be fine in 36 months. Keep hope alive?
Which Generation? The baby boomers trying to retire on their savings that are slowing being wiped out?
The Gen Xers that should be comming into their peak earning years?
The Gen Yers that are starting out in the work force?
Or did you mean to say that the entire population will suffer for a generation, generally considered to be 20 years?
Drats, screwed again! Curse you demographics.
//shakes fist
My guess is that the Gen Yers will be most affected.
Here is my reasoning based on my moms family. She has 12 siblings.(No TV:) The stage is the Mexican crisis from 1976 to 1994. The older siblings had already achieved something when the crisis started and they fared ok, some even did very well. However, the younger siblings have always struggled. They entered the workforce just when the crisis started. And they were never able to do ok, even after the crisis ended. By that time they were in their late 40s.
Truth is that the Dow can drop -- mainly out of emotional overreaction -- but if companies are genuinely producing value, then it will correct upwardly. A sudden, huge loss in the market like we've been seeing is never a sign of anything except emotion. Actual bear markets are signaled by trends, not jumps.
Dow falls below 9,000
Stocks slumped Thursday afternoon with the Dow falling below 9,000 as the Treasury's eye on buying stakes in struggling banks failed to reassure investors amid the ongoing credit crisis.
The last fifteen years, you'll note, have been especially good: only one minor blip in 2001 since the last recession ended in 1992ish. We can't expect that kind of thing to last forever.
According to this analysis:
http://www.amateur-investor.net/Secular_Bear_Markets_vs_Secu...
there were secular bears (as measured on the Dow) from 1906-1921, 1929-1949 and 1966-1982. No reason there shouldn't be another one now.
On the upside, this means relax. It doesn't mean we're all gonna die. It just means we might have to live though the 1970s again, except with better clothes and worse music.
The stock price is based on what people think is going to happen if look at our GDP and savings rate to see if there is any economic growth.
http://www.cnn.com/2008/POLITICS/10/09/eichengreen.depressio...
Excerpt:
Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley.
Every time the economy and stock market turn down, financial historians get predictable calls from reporters.
Could this be the start of another Great Depression? Could "it" possibly happen again? My stock answer has always been no.
The Great Depression resulted from a series of economic and financial shocks -- the end of a housing bubble in 1926 and the end of a high-tech bubble in 1929 -- but also from truly breathtaking neglect and incompetence on the part of policymakers.
It couldn't happen again precisely because policymakers know this history. Fed Chairman Ben Bernanke is a student of the Great Depression. Treasury Secretary Henry Paulson remembers the mistakes of Andrew Mellon, Herbert Hoover's treasury secretary.
"The biggest economic problem we know about is the Great Depression. Policymakers know how to deal with that; therefore we are fine."
Maybe the new global economy contains challenges which current policymakers don't know how to deal with. And if these challenges aren't met, we might end up with Great Depression effects, due to a different set of initial causes.
Or, maybe everything will settle down in a week or two.
"We can be confident, I always answered, that there will not be another Great Depression because policymakers have read financial histories like mine. At least that was my line until recently. Now I have stopped taking reporters' calls."
While he could mean that he's now getting so many requests that he can't be bothered to return them any more, I wonder if instead he meant that he can no longer give the "it can't happen again" message. Lending credence to this interpretation I think, he goes on to point out the ways in which the problem could continue to worsen without drastic action.
Andrew Mellon remembered the mistakes of 1873....
The Great Depression wasn't "Great" because of Hoover, but because of FDR's policies, which extended it for seven years (according to the latest research from UCLA). If it wasn't for WWII, the GD might have gone on even longer.
:(
To be fair, maybe the advice was mis-communicated, or maybe the speaker was talking about VC-funded monoliths who had grown too quickly (and hired poorly), but it seems kind of foolish to fire engineers at a tech company, just because you think you "already have a product".
But you should fight very hard to keep talented/experienced engineers around and happy. They very much could become your strategic advantage while everyone is cutting things!
Then again, I believe that a team of three great engineers lightly managed by another engineer (with some management skills) can outproduce a dozen or more mediocre developers managed by an MBA, so I've always planned for our company to produce more code in less time and for less money than our competitors.
--- I fully agree with this. Best managers are the ones that are really strong technically, and that still do some/little coding. They know exactly what's going on, and reward competence over arse-kissing.
Doesn't save money, or time in the long run, especially in engineering. It makes sense only in things like design, logos, etc, but not in your core business.
I would fully recommend to all my competitors to outsource their engineering as much as they can.
In the 90s, I was terrified of outsourcing. It started becoming very popular and there were quite a lot of people declaring the end of the American developer as a result.
Then I found out I was going to be working with an offshore team during a project for a large financial firm. The offshore company that this financial firm was using was reputed to be one of the best in the business.
When the code came back, I was no longer concerned about outsourcing. If anything, there was a whole career to be had resolving the issues in the cut and paste code that got sent back.
Never under-estimate the damage that the language barrier can do to a product.
While it's not always the brightest strategy, it's not always a stupid idea either.
Even if they're wrong, most of what they said is a good practice regardless of economic state.
Focusing on profitability, becoming cash flow positive, trimming fat & reducing overhead are good practices always. Some of the other ones, especially if you're trying to attract and retain talent, are not.
You'd think this would be common sense, but based on how many companies are run, it's not.
I never said anything about short term profitability directly, but I should have clarified.
Some companies - and yes I know this sounds ridiculous - don't focus on short-term or long-term profitability. They are built to be acquired. Or they only focus on the top line (sales) while almost entirely ignoring the bottom line (net income, cash flow).
The difference was that they had time. Lots of runway. We might very well not, and the goal is to extend that runway.
Google is the exception, not the rule.
Don't discount their type of business strategy just because it doesn't suit your personal risk preference.
"but must dollars earned have a good chance of being a Google's"
Are you saying that the few companies "make" the portfolio (i.e. the anomalies and hits carry the return) or? If so, I agree, but the hits aren't all run like Google.
My personal risk preferences have nothing to do with this argument.
I was talking past you because in my mind I wasn't seeing a distinction between having a long term, high growth business and being unsure of how to monetize.
While your stance is prudent, most of the greatest tech company success stories of this decade were from companies that didn't know (for certain) how to monetize, because they were so far into uncharted territory. And even though there are only a few of those companies, they seem to be earning most of the money between companies started in this decade. So being more focused on technology than profitability is a valid business strategy, as long as you have runway. That's what I'm saying, and what I think you disagree with.
"So being more focused on technology than profitability is a valid business strategy, as long as you have runway."
Yes, I agree with this. Which is why I don't really have a problem with companies like Twitter (you can debate the technical merits, but it's certainly different). They've kept their team lean and haven't taken gobs of money right away and all at once like some of these other startups
My comments were more aimed at investors & companies that spend money just to spend money on either me-too ideas (e.g. many many ad networks, social networks) or overcapitalizing companies that aren't ready for it. They and their brethren aren't investing in the development of cutting edge technology at all, they're doing something because everyone else is.
The problem with some of these over capitalized startups is they throw themselves in to risking seeking situations.
But the full recipe seems like it's designed for stasis, not growth.
My deal includes a mix of startup and acquisition (with cash flow). The M&A investors I've worked with are hardly vision-oriented, and their schemes are just variations on the house-flipping theme. So guts and vision are just not part of their makeup or mission. Their latest analogy is the ship dropping anchor and waiting for the fog to pass, but this sounds more to me like they think they're in quicksand and just don't want to move for fear of sinking more.
There will be a "Next Big Thing," but this current crop of investors (if exemplified by who I've worked with) will not be a part of it.
I think this crash is analogous to the long depression:
http://en.wikipedia.org/wiki/Long_Depression
But I doubt it will take as long to recover as it did in 1873.
QUOTE:
The weak dollar is boosting demand for our goods abroad, and lower gas prices are making Americans feel more flush. Add in the cash that the Fed has been hosing into the banking system and we are bound to see growth in 2009. "If all this stimulus has no effect on the economy, that would be a rarity indeed," says Paulsen.
Standard & Poor's chief economist David Wyss expects a mild recession that ends next spring. "Gradually we will regain confidence in the market. Lower oil prices and a falling trade deficit will help," he says. "This is a financial panic, not an economic one."
Of course, that could change if the financial panic doesn't abate soon. If banks remain too scared or broke to lend, would-be home buyers will be frozen out of the market. If that happens, home values could fall even more, crimping confidence and putting the brakes on the economy's greatest engine: the consumer.
"demand for our goods abroad" is barely a consolation prize. The effects from that are so long term and abstract that while they might help us climb back out, they certainly don't fix the immediate problem, which is businesses having to cut back because they don't have the cash to operate today. It's like saying you get to take a tax deduction because you had a big loss. Sure it might help but it's not nearly as nice as not having the loss in the first place. Same deal with oil.
Financial crisis + time becomes an economic one. Financial crisis means that employers are considering layoffs (it's even in the article). Risk of job loss is the biggest thing controlling my personal confidence level, and I certainly can't be alone in that regard. Discretionary spending drops (things are already hurting in tourist towns), and the layoffs continue.
I suspect the depth and breadth of this depend on the health of the remaining financial institutions. I feel unprepared to speculate on that, since I don't understand the complexity of what we're already in, but things sure aren't looking good right now. :/
Seriously. If things are as bleak as the Sequoia panickers are saying, then most of their companies should probably just cut their losses by selling off capital assets and closing their doors. Better that than going down in three years with nothing left.