Thursday, October 30, 2008

Tech, The Tightening Economy, and a Different Way to Look at Start-ups

For publications that track Tech and Tech start-ups -- a lot of recent news themes have been about layoffs and how this economy is impacting start-ups. Part of that's happening as people try to come to terms with how this economic climate is going to affect the business of Silicon Valley. Recently, there was a story floating around about a meeting where Sequoia Capital -- a notable VC firm with early investments that include Google and Apple -- and the CEOs from their start-ups. During the meeting, they gave them a presentation that presented a dismal economic forecast (I've embedded this Slideshare presentation which is alleged to be the Sequoia preso).

And in an amusing comment on this presentation, Tony Perkins published this commentary -- What Sequoia Really Meant, Commentary: A Timely Reminder for All Start-ups. This contains a satirical letter about what Sequoia would really like to say to their CEOs. Tucked inside the humor are some underlying truths like these:
Market size and timing are everything! We will not pay to teach people why they should like your product. VCs waste billions on start-ups developing products before there is even a market for them.
Our investment mantra is to ignite raging infernos with a single match. If you don't get the analogy -- it means that we are cheap, cheap, cheap! There are only two jobs in any start-up: "making the product" and "selling the product." If you have someone on your team doing neither of those jobs, fire them!
And the one quote from this that I wanted to highlight:
All we know is that the days when we can sell a highly unprofitable company like YouTube to Google for a $1.6 billion-plus are over. (At least for now.)...
Let us tell you one more time: If you aren't cash-flow positive before you spend all the money we have given you, don't come back looking for more!
With of the news surrounding financial announcements, tech, and start-ups, it seems like there are some people out there who are looking for another major shift in the start-up world similar to the Dot Com Collapse from the 00-01 period of time. If you didn't know better, you'd think that Silicon Valley is sitting on another generation of Web Vans teetering on collapse. But one thing that you need to keep in mind is that, for all of the Web 2.0 software companies you hear about -- from the successful ones to the ones that are going to bring social networking to the office supply chain -- there are also companies that are developing things like ICs for next generation wireless or optical networks, systems for integrating software inside the data center, and a host of other companies that are focused on real-world business problems. For these start-ups, success or failure isn't about what's fashionable this week, it's about securing a customer that can carry them to the end of the year -- or gaining traction with a key customer that validates their business.

These are the types of start-ups that you might not hear about unless you are in that market. They're probably not publishing videos on YouTube simply hoping to get noticed. They don't measure their success in the number of uniques. And for many here in the valley, these are the kinds start-ups that we work at. There's no gourmet chef, no big parties -- and you're probably not going to get rich. I think that this may be one of the most missunderstood aspects of life in the startup world -- it usually isn't some sort of get-rich-quick scheme. Typically, it's too much work for okay money, but the people that you work with are smart, talented, and generally some of the best that you'll ever work with. It's also an opportunity to rewrite how things are done and to see the world in unique new ways -- where you don't have to hear "this is how we've always done it". And for some of us, that's what makes it special.

When you boil it all down, I continue to remain hopeful and optimistic about the economic climate here in Silicon Valley. The Valley that I know isn't really built on the economics of yet-another-spin-of-the-latest-hyped-technology, it's built on the adoption of solutions that transform businesses, communities and life. It's evolution in the fast lane. And, while it may be that the once giant Yahoo is becoming this "era's" Boreland or that "social networking" may be this era's "pen computing", there are some companies right out there, probably just down the street, that are putting the foundations in place to change the way you live.

Thursday, October 23, 2008

Silicon Valley Weather Report - Tight With Increasing Frustration

A quick note about this post: Initially, I started this post simply to comment on a TechCrunch post about economic tightening here in the Bay Area. But while I was working my way through commenting on it, a bunch of other items and interesting indicators started popping up about the economic climate here. It's left me wanting to write more about the economy here, so -- duh dhuh duh -- yet another theme was born.


I'm still down here in the weeds, trying to hack my way through project after project and get to a space where I've freed up time to post -- not enough resources and too many projects. While I work my way through this stuff, here are a couple of items that I found interesting in recent weeks.

In this Techcrunch post, An Ignoble But Much Needed End To Web 2.0, Marked By A Party In Cyprus, Michael Arrington writes about the changing economic times and their impact on business here in Silicon Valley. This post piles onto a post, Silicon Valley Could Use A Downturn Right About Now, that he did about a year earlier about the strong climate for start-ups and how, once piles of start-up money start dropping around here, vast hoards of cash-sniffing sycophants descend on the place like flies. It's the downside of living in "a bubble." On this theme from his post, I completely agree. It's this part of his post that I have issue with:
The first to go will be the bulging marketing and communications departments at all those startups - the very people who make Silicon Valley such a nasty place to be in the boom times. But as the number of startups dwindle, it won’t be so hard for them to get attention from press and users, so those marketing and PR flaks won’t be missed all that much (of course, the people without jobs won’t be happy).
We Found the Source of all Waste, Fraud and Abuse...
Perhaps you have seen this concept before -- the idea that marketing is a source of great evil, the corporate tapeworm, a parasite on the back of the engineering shark (why would anyone want a computer that comes in different colors?).

I'm not going to get caught up in some argument surrounding corporate stereotypes and what the role of marketing is within an organization. It doesn't surprise me that TechCrunch gatherings started drawing PR people -- it's a new media outlet and Michael Arrington is their editor in chief (I'd guess that a party that includes the top editors from the New York Times is similar) -- but to see the "the problem with this internet bubble is all of the PR and marketing people" meme is disappointing.

But, as I said, forget about all of that stuff. My issue with this whole thing is really more of an issue with an internal inconsistency in the "Web 2.0" concept. A core part of what these "Web 2.0" organizations should be doing doesn't involve traditional PR and outbound marketing. If you want a good framework for some of those core concepts with what a "Web 2.0" company should be, check out Seth Godin's Meatball Sundae. Web 2.0 is supposed to be all about user-engagement, user-involvement -- user's and their content bringing the value to the platform that you're producing. It's the idea that you don't sell that, and if you do, you don't have to. As Godin notes, good Web 2.0 is about being integral to the customer's needs and earning customer loyalty and their permission to work them, not interrupting them.

To me, that's where the real disconnect sits -- the essence of the current Internet "bubble". For about the past year or two it seems like there's been this idea that there's some incredible "transform-the-world" aspect to some of the aspects of social networking. Every time that I've been on Facebook, I can't find anything on there that makes me feel like I need to use it. Don't get me wrong, I'm sure that it's useful for a select audience, but that audience doesn't currently include me. Contrast that with LinkedIn. Although I haven't been hired for a job using LinkedIn, the tool is interesting enough that I've been using it for over a year. That being said, I've also seen a number of listings for Marcom positions at LinkedIn -- but whatever it is that they are doing, it wasn't some traditional outbound marketing program like an ad or a well-placed article that connected me to the tool and these types of programs don't keep me using it.

Who are you going to cut? Ghostbusters!
It's difficult for people and organizations to make the changes that are implied by some of those web 2.0 concepts -- to abandon many traditional marketing techniques and practices. But it's not just marketing people that struggle with that -- it's also the people across the organization that aren't involved in marketing. In many organizations, management and accounting also wrestle with those traditional perceptions. Downturn? Need to tighten? Let's cut marketing -- those guy's spend money and there's always lots of waste there.

One of the more interesting things that I've seen recently is this TechCrunch post, an email from Jason Calacanis, the CEO at Mahalo about how to handle layoffs. Mahalo is one of a number of start-ups that have recently announced lay-offs as the economy tightens (I'm planning on a roll-up of recent news about the changing start-up economy in a subsequent post), but this email is an excellent explanation of the strategy that Mahalo used to analyze their business. Oh, and check out this quote:
The first step was getting out our P&L and looking at each line item in detail. For our business, we have a large editorial group, a modest technology team, almost no marketing costs except for our Mahalo Daily video show, and extremely tight overhead. We haven’t built our sales group yet, so that line item doesn’t exist.
So much for throwing sales and marketing overboard like so much dead weight -- you can't cut spending on something that you don't spend money on. So here's the question -- is the great albatross of marketing a real issue or is it just a myth, a convenient meme to help support some notion that the reason that failed is because of those sock-puppet TV commercials?