I just received the following document, which describes a meeting Sequoia Capital had with the CEOs of all their companies. While I was not in attendance myself, I have every reason to believe things happened substantively as described:
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.
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.
This is a global issue and not a ‘normal’ time.
There is significant risk to growth and your personal wealth.
Manage what you can control. You can’t control the economy, but you can control everything else.
Don’t trust your models and spreadsheets. All assumptions prior to today are wrong.
Focus on quality.
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.
Capital Preservation <----------------------------------> Grab Market
Everyone should be far to the left (capital preservation)
Requirements of our companies:
You must have a proven product
Your product should reduce expenses and drive revenue
Honestly assess your solution vs. your competitors.
Cash is king [have you gotten this message yet?]
You must get to profitability as soon as possible to weather this storm and be self-sustaining.
Engineering: Since you already have a product, strongly consider reducing the number of engineers that you have.
Product: What features are absolutely essential? Choose carefully and focus.
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.
Pipeline: Scrub and be honest with yourself.
Assess your situation. Drop your assumptions, start with a blank page and start zero-based budgeting.
Review all salaries
Change sales comp
Bolster your balance sheet—if you can add $5M to your coffers, take it and save it.
Get Real or Go Home.
It certainly sounds bad.
I’m not one to believe end-of-the-world scenarios, but even if you discount the opinions greatly, this is a disturbing position. Indications do seem to be that we are truly historic economic times. On the other hand, I don’t believe that we’re in for a “15 year problem”, as Eric Upin puts it.
Note: The document was edited for format, but no editing was made to the content.
Addition: I now have the slide deck from this meeting (3.1MB).