On crashing markets, common sense and obvious things.
By now most everyone that reads web blogs has heard about the leaked Sequoia deck.
And then there was the Benchmark memo from Bill Gurley.
The moral of the story? Slim down or die.
I’ve since received copies of these slide decks from at least 15 different sources over the last week.
Little wonder given the week we just had. The Dow industrials finished down 128 points, or 1.49%, at 8451.19, the lowest finish since April 25, 2003. Some investors who normally would be jumping to buy beaten-down stocks after a 22% drop over eight trading days just weren’t convinced. And the reason for that is because this downturn isn’t like all the others. If you haven’t already taken a look at the Sequoia presentation you really should. Most Americans just don’t get this kind of perspective emailed to them. Something of a perk for those of us who work with smart folks in the tech sector perhaps.
The challenge that I had with this material is that I just really didn’t know what to do with it. I’ve always believed in doing as much as you can with the least amount of money. I never spent salaries on staff that we didn’t need. I don’t buy software we don’t need. I don’t hire people to do work that I think we can do ourselves. That includes hiring PR and tradeshows. We don’t pay rent for more space than we need.
I don’t know that our perspective is the right one but it’s one that I’ve always been very proud of nonetheless. By spending only the money we need we feel that we provide more opportunities for our investors and our employees. Even though Pressplane recently closed $1.7 million in Series A venture financing we still only have 4 full time people on staff. One of the reasons that I’ve been attacted to start-ups is because I enjoy working in a more disciplined atmosphere that is largely governed by the limited resources we have available to us. The start-up game usually involves uncertainty around revenue and when that revenue stream kicks in to start offsetting your burn rate. Interestingly, most people actually believe their projections. Don’t! Your initial streams of revenue will always be lower than you projected and your growth will be slower than you predicted. With the credit market getting tighter and tighter it isn’t hard to see that it may not be easy or possible to raise more money. And, go ahead right now and assume that future funding will come at a price.
Slide decks like this make me sleep better at night. Do you know why? Because it feels obvious. That’s right. This stuff should feel obvious. It should BE obvious. More start-ups go out of business for really stupid reasons than for really good reasons. People built really dumb things. People hired too much. People spent too much on PR and advertising. People spent too much on tradeshows. How many times have you heard about a start-up that went out of business and the reason for it was something that was really incredible – something you never might have caught yourself? Not that often right? Usually the clues were obvious. Really ornate offices with front desk admin, Aeron’s for everyone, free bowling and beer in the basement are always a sure sign that a pre-revenue start-up is probably not appreciating every dollar they have in the bank. This last summer I visited a Silicon Valley company that had virtually every kind of cereal and granola bar you’d see in a Safeway for free to all employees inside their 1,000 square foot kitchen. Doesn’t take a rocket scientist to figure that one out.
In many ways that’s exactly what this game is about. When your car isn’t running right do you immediately tear the engine out and rebuild it? Or, do you check the tank first to see if you’re just running out of gas?
Use your head.
Get the basics right.
Don’t believe your own BS.
Ask common sense questions all the time, every day.
Don’t assume any little detail is too little to stop caring about.
The rest of the things you probably couldn’t have prepared for anyway.
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