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).

Sequoia Capital on startups and the economic downturn

View SlideShare presentation or Upload your own. (tags: depression recession)

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.