Tuesday, 14 October 2008

Shame on you, Sequoia

Sequoia Capital, one of Silicon Valley's A-list venture capital firms seems to have turned in to Jack Jones, that character from Dad's Army who runs around in a moment of crisis shouting "Don't panic Mr Mannering", whilst panicking like crazy, causing everyone else to panic too and achieving precisely nothing.

Last week, as has by now been widely reported, the firm called about 100 or so CEOs of its companies together and in outrageously dramatic style, with pictures of tombstones and dead pigs, tried to scare the living daylights out of them about how terrible the market is going to be over the next two years and how people should start slashing and burning their costs now or crash and burn within months.

Talk about playing to the gallery. They must have known that the "story" would end up all over the web, so I guess in that repect it probably achieved its objective.

Now, I'm not saying that times aren't going to get very hard over the next couple of years. Of course they are. Everyone knows that and certainly every entrepreneurial CEO knows that. One would hope that the CEOs who managed to raise money from a firm of Sequoia's quality would know that better than most. I talked about this as far back as February and it has played out exactly as expected. You don't have to be a genius to figure this stuff out.

The actions you take are obvious too. Anyone who was anywhere near the Dot Com crash knows the game. To make a big song and dance about all the facts and figures and then deliver some blindingly obvious action points at the end - well, what was all that about?

I wonder what it was like being one of those CEOs. If any of what was said was any news to you then how on earth did you manage to get money from Sequoia in the first place? If you were the type of CEO who actually ran a company during the dot com crash and came out the other side, then you must have been biting your tongue as these guys strutted around. Perhaps you actually gave the Sequoia guys some advice (although I doubt it, I bet everyone kept their heads down and pretended to take notes as the pearls of wisdom rained down).

If I had been present I might have tried to help by offering the Sequoia guys some advice, from the CEOs perspective. Here are my 5 points (in case anyone bumps in to them over in the Valley :)

1) at a time like this and assuming we both have the same objective of surviving, it's not about YOU (Mr VC) it's about me (Mr CEO). The question you need to ask yourself is "what can I really DO to help your company, Mr CEO?" not "what can I SAY to make me look tough and clever?"

2) last time in the dot com crash, there were hoards of VCs trying to keep busy by engaging extremely busy CEOs in updates, pitching, updates, pitching. Eventually the VCs firms realised this, got rid of the time wasters and everyone's happy. But it took you'all a long time to sort that out last time around. So, Sequoia, this time, cut deep and cut early to keep all those time wasters away from your CEOs who are engaged in hand to hand combat in the market right now.

3) Speaking of cutting, every person lost at a VC firm probably saves at least $250k, so every 4 bodies you can lose at the VC firm frees up an extra $1m and saves another one of your portfolio companies. And please let's not talk about your office space (unless you are going to allow me and my 20 guys to come and take a chunk of it over at no cost for the next 18 months? Now that WOULD be useful).

4) Where's your rolodex now? VC's talk about being "more than money". Well it's easy to be "more than money" when everyone is buying and everyone is doing deals. That's like saying "I'm good at getting wet" when it's raining. Ok, if you are really "more than money" then now is the time to show it. Now is the time when you sit down with your CEO and say "here are the 5 concrete things that I can do for you right now". If you can't do that then leave the poor guy alone and let him do his job.

5) The only reason why companies survive times like this in decent shape is because their leader decides that come hell or high water he or she is going to make it happen. It's about confidence, commitment and bloody-mindedness. It's not about lists of obvious actions. Calm. Grit. Determination. Has anything you have done or the way you have done it helped to instill in your CEO that determination and commitment to survive come what may? Or have you just suceeded in chipping away at it with all your tombstone talk?

I remember being at Goldman Sachs in 1994, in the fixed income area. It was the worst bond market that year that anyone could remember. At one point in the year one of the senior Goldman partners pulled the division together. In a calm, steady tone he laid out the situation. No shocking slides. No shouting and arm waving. Steady, clear, coldly realistic but confident and determined. Expect cuts. Focus on the customer franchise. Hit the singles. Work together. Stay very close. We came out of that meeting as one team, clear, determined, knowing what we had to do. That's class.

And before you go around patronising your own CEOs please remember, just because you are panicking, it doesn't mean we are. We do what we do because we are entrepreneurs, we love it all, the ups, the downs. We are not afraid. We don't panic. This is what we do. As Omar says "It's all in the game, yo".

No comments: