So I have been away from this Blog for over a year. So much has happened with Sprout that it is time for me to start documenting the journey again. So here’s a first post to remind myself to get back at it.
Received this email today from an advisory. Match this with Ron Conway’s post on Techcrunch and the message is clear. Lean, mean, and survive.
Today, Sequoia Capital hosted a mandatory CEO All-Hands Meeting on Sand Hill Road (where else?). There were about 100 CEO’s in attendance and let me tell you, the mood was somber. I’m not one to perpetuate doom and gloom or bad news, but let me underscore this for you: We are in a serious economic downturn and this is just the beginning. Immediate, decisive and swift action is required, along with frugal, day-to-day management of expenses and our business is required.
Here are the notes from the meeting.
· Mike Moritz, General Partner, Sequoia Capital (he moderated the speakers).
· Eric Upin, Partner, Sequoia Capital (Eric ran the $26-Billion Stanford Endowment Fund and knows a few things about Economics and investing.)
· Michael Partner, Sequoia Capital (Michael was recruited to start Sequoia’s very first hedge fund, coming from Maverick Capital and Robertson Stephens. I know him from my BEA days.)
· Doug Leone, , General Partner, Sequoia Capital
Slide projected on the huge conference room screen as people assembled inside the conference center to take their seats: a gravestone with the inscription: RIP, Good Times.
· The only time Sequoia’s assembled all CEO’s like this was during the dot.com crash.
· We are in drastic times. Drastic times mean drastic measures must be taken to survive. Forget about getting ahead, we’re talking survive. Get this point into your heads.
· For those of you that are not cash-flow positive, get there now. Raising capital is nearly impossible if you’re too far off of cash flow positive.
· There will be consequences for those who hesitate. Act now.
· It’s always darkest before it’s pitch black.
· Survival of this storm means drastic measures must be taken now, so you will have the opportunity to capitalize on this down turn in the future.
· We are in the beginning of a long cycle, what we call a “Secular Bear Market.” This could be a 15 year problem. [many slides on historical charts of previous recessions, averaging 17 year cycles.]
· The credit market [versus the Equity markets] are the issue and will take time to recover.
· Inflection point: Make changes, slash expenses, cut deep and keep marching. You can’t be a general if you turn back.
· This is a global issue and not a ‘normal’ time.
· There is significant risk to growth and your personal wealth.
o Manage what you can control. You can’t control the economy, but you can control everything else.
§ Cut spending. Cut fat. Preserve Capital.
§ Don’t trust your models and spreadsheets. All assumptions prior to today are wrong.
§ Focus on quality.
§ Reduce risk.
· Note: Michael had a lot of slides that were charts, data points and comparisons.
· A “V” shaped recovery is unlikely [√]
· Cuts in spending will accelerate in Q4/Q1. Look at eBay—this is just the beginning.
· This is a different animal and will take years to recover.
· Getting another round if you’re not profitable will be rough.
· Do everything possible to get to cash flow positive. Now.
· Nail your Sales and Marketing message.
· Pound your competitors shortcomings. They’re hurting and they will be quiet. Take the offensive.
· In a downturn, aggressive PR and Communications strategy is key.
· M&A will decrease dramatically and only lean companies, with proven sales models will be acquired.
· Spectrum discussion:
o Capital Preservation ß———————————-à Grab Market
o Everyone should be far to the left (capital preservation)
· Requirements of our companies:
o You must have a proven product
o You must cut expenses. Now and deep.
o Your product should reduce expenses and drive revenue
o Honestly assess your solution vs. your competitors.
o Cash is king [have you gotten this message yet?]
o You must get to profitability as soon as possible to weather this storm and be self-sustaining.
· Operations review:
o Engineering: Since you already have a product, strongly consider reducing the number of engineers that you have.
o Product: What features are absolutely essential? Choose carefully and focus.
o Marketing: Measure everything and cut what is not working. You don’t need large Product Marketing, Product Management teams.
o Sales & Business Development: What is your return on this investment? The Valley has gotten fat with Sales people: Big bases, big variables. Cut base salaries on sales people, highly leverage them with upside (increase variable) and make people pay for themselves via increased sales productivity. Don’t add sales people until you’ve achieved your goals with sales productivity. Be disciplined.
o Pipeline: Scrub the shit out of it and be honest with yourself.
o Finance: Defer payments, what is essential? Kill cash burn.
· Death Spiral
o The death spiral sucks you in, you’re in it before you know it and then you die.
o Survival of the quickest.
o Cutting deeper is the formula for survival.
o You should have at least one year’s worth of cash on hand.
§ Assess your situation. Drop your assumptions, start with a blank page and start zero-based budgeting.
§ Adapt quickly
§ Make your cuts
§ Review all salaries
§ Change sales comp
§ Bolster your balance sheet—if you can add $5M to your coffers, take it and save it.
§ Spend like it’s your last dollar.
I don’t often get personally excited to meet people… let me explain that. Most people I meet with these days are all business related and are great opportunities for me to share what we are doing at Sprout and to build relationships for the company and myself as the CEO. Today I have a meeting with Mitch Kapor and it is a bit different. I have been tracking Mitch for many years from his early days building a kick ass application (Lotus 1-2-3) to his eventual involvement in the Open Source movement(s). Being a proponent of open source software myself since my early days of installing Slackware with a dozen disks.
Mitch is also more than just about technology. He has made a contribution to the world through his philanthropy and also his work to close the chasm between the have and have nots. His foundation today hits many of my personal causes around equity, global climate change, access to education for low income and minorities, etc. I guess I hope someday to be able to balance my technology interests with ways to help change the world. To continue the work I started when I founded Netcorps many years ago. I want to be like Mitch ;)
Box.net released a killer new widget today. I can’t for some reason copy the code using firefox on my Mac, but I sent them an email to see what they have to say.
So why is this widget so cool? Well, it’s a music player. It’s a photo sharing tool. It’s a way to distribute large files. In other words, it’s just an incredibly useful tool with numerous applications.
Beyond its utility, there are a couple of other things to note.
I have not seen a widget that does a better job of enabling new sign-ups (and logins) through the body of the widget. To date, services that require registration have had a real hard time making effective use of widgets. Opening up a new browser window and forcing someone to join or sign in is just so ….. clunky. It sort of defeats the whole point of being a distributed service.
Box.net does an extremely elegant job of making new sign ups fast, easy, and painless – all within the body of the widget. Anybody who has been grappling with how to reconcile forced registrations with widgets should definitely take a few minutes to try out Box.net’s solution. You might learn something – I know that I did.
So what are the implications of this? Let’s say that I’m reading a blog and there’s a music track that I like being shared via a Box.net widget. Without ever leaving the blog, I can grab the music track, join Box.net, and set up my own Box.net widget pre-loaded with that music track. And of course, it doesn’t have to be a music track. It could be a photo, a presentation, a whitepaper. It’s easy to imagine Box.net enabling a rapid spread of files around the Web.
The other thing that I love about this widget is how it fits into Box.net’s business model. Box.net makes money by charging folks for file storage. They give you up to 1GB of file storage for free, and up to 5GB for $4.99 per month. What the widget does is to sign up people for the free trial version of the service, all within the user experience of the widget publisher site.
By providing a one click “Share in my Box” functionality, Box.net is effectively leveraging the content of the widget publisher to propagate its widgets – and more importantly, sell its file storage service. The beauty is that folks don’t even know they’re signing up for a free trial of a file storage service – they are just grabbing a piece of media that they like for their blog. It’s brilliant. From a business model perspective, it’s far more intuitive than say, YouTube’s widget strategy.
So while the debate continues about whether widgets can ever make money, Box.net has quietly built a widget that will drive qualified lead after qualified lead to their revenue engine.
Web 2.0: Buzz-Monitoring and Tracking | Smashing Magazine is a pretty killer blog post on how to measure our blog or any site’s buzz online. A definite must read for those that care.