Wednesday, October 15, 2008

Thoughts on the Sequoia Deck

Two things really struck me after reading the "RIP Good Times" deck that Sequoia Capital presented to their CEO's at an all-hands meeting last week.
First, the extremely well-done and convincing frontispiece. Looking at graph after graph of macro-economic data, one gets the overwhelming feeling of inevitability.  Of course this crash happened. Look at the numbers!  Rising consumer debt. Falling wages. Ballooning home prices. Diminished savings. Risky lending. Insane derivatives vehicles. Out of control deficits. Jeez. If it seems so inevitable in retrospect, why didn't anyone (other than Paul Krugman) see it coming? 
I'm not suggesting that Sequoia's economist are overstating the challenging nature of the current economy and the factors that got us here; rather, I am shocked that these economists weren't advising their banking and hedge fund friends to reduce leverage, anticipate the sell-off in equities, and prepare for 1929 all over again. Guess the money was too good.
Second, look at slides 46 and 47.  The "what should our CEOs do" slides. On slide 46 they admonish their CEOs to create must-have products with clear revenue models; understand consumer's ability to pay and the alternatives available from competitors; conserve cash and focus on profitability. On slide 47 they suggest an ops review in which the CEOs should focus on cutting unnecessary G&A and production costs, being realistic about closing business, developing only necessary product features, and seeking a return on invested operating dollars. Maybe I'm missing something, but isn't this what CEOs are supposed to be doing in ANY market?
That the very smart people at Sequoia, one of America's leading venture firms, feel that they have to tell their CEOs to ... well, to act like CEOs, tells me something about how much we've forgotten since the dot-com bubble burst and how much we all have been seduced by non-businesses (but ones with lots of users!) in the post-bubble web 2.0 froth.

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