Silicon Valley Frontlines

100 Companies That Will Survive 100 Years - Not!!

Back in January Forbes published a list of 100 companies that - in their view - will still be around in 100 years based on 4 key factors - Strategic Governance, Human Capital, Environment and Stakeholder Capital. One good thing about this, of course, is that none of us - including the author - will be around to find out if he's right or not (though, darn it, I will give it my best shot)!

Interestingly enough, the original research behind the list was done by Innovest Strategic Value Advisors - who a month later were acquired by RiskMetrics group and therefore no longer exist (on their own anyway)! At least they didn't put themselves on the list ...

Not surprisingly, some of the companies on the list are the ones doing very basic things. Digging stuff out of the ground and flogging it to unsuspecting passers-by, like BHP-Billiton. No Exxon-Mobil though! Some are still basically monopolies  - East Japan Railway Company???

Interesting to look at some of those on the list vs. some who are not. No U.S. bricks-and-mortar retailers (no WalMart, no Costco). J.Sainsbury in the U.K., yes, but H&M from Sweden?? No Ikea? OK, so most Ikea stuff does fall apart quickly but they do have a pretty good, responsible model. Air France - KLM is on the list??? No Singapore Airlines, no Virgin, no British Airways???

In the Valley or technology related, here's what they have. On the list are:

• AMD(surely not?? See my thoughts below on this)
• Amazon.com (yes, totally agree. Disclosure: I own AMZN stock)
• Dell (don't think so - no longer the behemoth or cost leader and not enough innovation)
• Ericsson (maybe)
• HP (don't think so - HP will break up into many parts before then or be cost-cut into oblivion)
• Intel (yes)
• Nokia (maybe)
• Roche (if they keep the innovation at Genentech going)

Who's not on the list? No Apple. No Google. No IBM. Or anyone else in tech for that matter.

So, lets look at a couple of examples. Why do I question AMD's inclusion? Well, on May 1st - just two days from now - they will have been around exactly 40 years. During that 40 years they have managed to have accumulated losses through the end of 2008 of $6.2 billion. That's right - in 40 years they have lost $6.2 billion. Basically every penny of the $6.1 billion investors over the years have put into it. You can see this right here on page 93 of their last annual 10k filing with the SEC. Given that the fundamental premise of any business is to deliver increasing value for all stakeholders over time, surely this is a monumental failure? Does this seem like a company that could be around in 10 years, let alone 100?

By comparison, Apple, a younger company, has retained earnings (cumulative profits) of $16.6 billion on $7.6 billion of money put in (page 3 of this filing). They have top management, not just Jobs, and the best products and innovation in their category on the planet. Enormous cash flow. Disclosure - I own AAPL stock. I don't own AMD. Or Dell.

So, the list looks like rubbish. But, heck, its a lot of fun!!

Getting Those Pesky People Numbers Straight ...

Image by niallkennedy via Flickr

I was just reading a note on VentureBeat about Apple's reduction in employees - or rather "full-time equivalent" employees at it's Apple Stores. Between Anthony Ha and Peter Kafka's comments they rather seem to mess this up and miss the point. Here's an extract from Ha's post:

Apple may have just announced an impressive second quarter earnings, but that doesn’t mean everything is going gangbusters. Revenue growth has slowed at Apple’s retail stores, and the Cupertino, Calif. company just revealed via a filing with the Securities and Exchange Commission (spotted by CNET) that it has cut its retail workforce by 1,600 “full-time equivalents.”

Update: As Peter Kafka points out at MediaMemo, that term most probably means man-hours and not employees, per se:

But let’s be clear: Those aren’t 14,000, or 15,600, employees. Those are 14,000, or 15,600 “full-time equivalents” — basically, an accounting term that measures the number of man-hours Apple is paying for, not the number of men (or women) it is employing. So the very strong likelihood here is that Apple cut a lot of workers’ hours, but not workers themselves.

Here's my comment:

Ok, so you (or Kafka) should understand what makes a "full-time equivalent" (FTE) employee. A single (no, not marital status - one person) employee working a standard 40 hour workweek is "one FTE". Two part-time employees working 20 hours are also "one FTE". Even if they are married, not single. Four part-time employees each working 10 hours are still "one FTE". Even if they live in a commune.

Get it?

Its very likely many Apple Store employees work part time (if not they would not bother counting FTE's - they would just have "employees"). Thus, if Apple got rid of 1600 FTE's they have likely impacted more than 1,600 real people's lives. 3,200 real people if all of the souls disposed of worked an average 20 hours a week each.

And if they are indeed married - and have kids - many more people's lives than that are impacted. But I digress. Yes, Kafka may be right to assume AAPL just cut people's hours. Even if that is so, it has to be more than 1,600 actual souls impacted one way or another.

Still a great company with great products. Waiting for the next iPhone in June ....

Jobs and No Jobs ...

The Mercury News reports that Silicon Valley's jobless rate just hit 11% - which of course includes not only the direct tech jobs lost but the collateral damage to all the other jobs dependent on the Valley's tech health. 

Despite that, one has to remind oneself its still not as bad as the period after the dot.com implosion when over 100,000 jobs were lost in 12 months (vs. apparently some 36,000 in the last 12 months) and the doomsayers were once again predicting the end of the world as we know it. 

There are some glimmers, some signs that we're nearing a bottom. Could be wrong of course. But when Wells Fargo reports record profits, Intel says inventories are down and orders are picking up, Rosetta Stone IPO's and very successfully (up 40% in first day trading and one of three April IPO's to date), lots of new startups are getting formed and the influx of startups from Europe and elsewhere heading for the Valley just seems to accelerate every day, I'm hopeful that this is more than grasping at straws. 

OK, I know Rosetta Stone is not a Valley company, nor was Changyou.com Ltd., a game developer out of China. But the Valley's underlying investment thesis for startups still requires a liquidity event at some point and IPO's, along with M&A, are a necessary option to keep the strength and hope of the Valley going. Any real signs of life are good!

In the meantime, what should both an employed Valley worker and newly liberated job-seeker do? No magic wand, but here's how I think everyone needs to look at things, employed or not.

1. There in no such thing as job security that somehow gets handed to you, by length or service or whatever - get used to it. 
2. Security is ... skills, expertise, ability to do things other people can't do, flexibility, energy etc. In other words, marketability. 
3. Don't stay in one job - or even one company - for more than a few years. Indeed, only as long as you are still learning and growing. Yes, you want to contribute - but make sure your job contributes to the growth and development of YOU as well.
4. Don't job hop either - you need to show a track record of being somewhere long enough to make a difference.  
5. While experience is good, don't lead with "I'm a 20-year IBM veteran". However great you are - and IBM is - it paints you as a career company person who just got dumped. Focus instead on skills, achievements and contributions.
6. The job market and work environment continually evolves. Be prepared to see your career become one with no traditional employer, but a series of overlapping gigs developed from networking and marketing yourself. 
7. You're in charge - no-one else can do this for you or sell or market yourself as well as you can. 
8. You are never too old. Experience and the right, positive attitude go a long way and are still highly valued in the right circumstances
9. Network, network, network ... and use the tools of the new internet, the social media of Web 2.0. Twitter, LinkedIn, Facebook etc. Write a blog (yes, it does work!). Become KNOWN!
10. Consider your own startup. Really! There has never been a better time! 

Marketing Spend. Worth it, or not?

Image via Wikipedia

Having been CFO at a number of tech startups over the years you develop a strong sense of what's worth it and what's not when it comes to the various priorities for investing money in the growth of the business. Of course it varies from company to company, but experience (and common sense) say that, for example, having integrated business systems (lead management, salesforce automation, customer relationship management, finance etc) deployed across the company makes sense, while fragmented, stand-alone or point solutions generally do not. Despite which many companies end up with the latter rather than the former because of lack of leadership and vision in these areas at the outset.

Probably the hardest area to evaluate is one of the most important - the company's marketing spend. Particularly for early-stage businesses the key challenge is to get the word out and become known, become "top-of-mind" in a prospective customer's evaluation of the choices. Without that, the best ideas or technologies don't go anywhere.

The good news these days is that the appearance of social networks, the reach of the internet, the effectiveness of new search and advertizing solutions and many other factors have all combined to provide astonishingly effective - and cheap - alternatives to traditional marketing efforts. Here are some examples of what I think is worth it and what's not on the marketing side for early stage tech companies.

Worth it:

• Viral PR. Cultivating key influencers such as bloggers and via new media such as Twitter. 
• Speaking engagements on panels and at events.
• Highly focused and optimized key-word search advertising.
• Compelling, engaging and search-engine optimized websites
• Engaging smart, hip folks in such as Matt Stewart and JoAnn Peach to devise the strategy and make it happen.
• Online case studies, customer references and success stories.
• Lead managment solutions such as Marketo or Eloqua.
• Hip, fun, cheap videos such as Flaii's, using employees and associates. 

Not Worth It:

• $12,000 a month (or more) retainer-based PR with traditional agencies. I hate that stuff. You  might as well set fire to $100 bills and enjoy the show.
• Large, fancy tradeshow booths and splurges at big events. No chocolate fountains! Still better to have a speaking slot than a booth though!
• Advertising in traditional print media. Its dead or dying, hugely expensive and no-one cares anyway. 
• Lots of traditional print collateral and materials.
• Sponsorships
• Trash and trinkets - T shirts, lanyards, tschotckes ... urgh!!!

Raising Startup Funds in Today's Environment ...

Whether its one guy/gal with an idea or a more developed business ramping up rapidly, one thing they all worry about is cash. Funding. Where - in this environment - is the money coming from to move the idea/product/technology/business to the next stage?

Because I have a track record (I've raised over $80m in venture capital in the last 10 years for a range of startups) - and because I'm a finance guy - founders and execs in startups tend to turn to me for help in figuring this out. Well, there's no magic wand, that's for sure.

Consider the range of traditional funding sources at various stages and what's going on out there. In the rough order from very earliest stage to the later stage funding rounds, here's what its like out there now:

Friends and Family:

These are the traditional backers of the Next Big Thing to help Johnny get it under way. With a group you might raise $100k or so. However my guess is your Mom, best buddies and Uncle Bill have all seen their home values collapse, their 401k's beaten up and their own jobs disappear in the last year. Not a great environment to invest in your latest harebrained idea, really.

Angels:

A traditional Valley source for a few $100k's. However many of these have also seen a big drop in personal wealth. But they are more risk tolerant than Mom, and probably understand the idea and the opportunity a lot better than Uncle Bill. And at least you won't have to face them at the Thanksgiving dinner and explain why there's more than one turkey in the room. Still pretty hard though ...

Alpha, Micro-Cap and Seed Stage VC's:

Better. Collectively, perhaps with Angels, you might still raise up to $1 million or so. Stiff competition for the cash. But they are "risky idea" stage investors and the money is still out there.

Series A Venture Capital:

So your idea has turned into technology and thence into a product/service. And, wonder of wonders, its getting traction in the market. Assuming you've checked all the boxes - team, market opportunity etc etc - then this is still a viable source. Here we're in the $1m - $3m range these days.

Venture Debt and Equipment Leasing:

As I've said before, don't borrow unless its a clear bridge to a next equity funding event. Otherwise its a pier to jumping into much deeper water than you really want. But don't worry, no-one is lending anyway.

Strategic Investors:

These are the big corporations who might invest as much as a few $m for the right opportunity. Still possible these days, particularly with a real strategic partnership. Problem is, in true shortsighted American business knee-jerking, many strategics have pulled way back or have even moved to stop any new investments in this environment. These are the same companies now downsizing or divesting the acquisitions of the last few years in a "change of strategy" because the "market environment has deteriorated rapidly". Don't get me going ....

Series B, Series C etc etc ...

Hard, hard, hard. You'd better have the engine running on all pistons ...

Tough? Yes, of course. But you know what? This is STILL a great time to start a tech business. And there is money out there. But you need to really work hard to earn the right to have it

Two Interesting Posts ...

Image by Sklathill via Flickr

Over the weekend I checked out quite a few other blogs and sites and a couple of things caught my eye.

First was Fred Wilson's blog post "Earning Your Media". Now here's a great use of Twitter by a small business called Kogi that operates two Korean barbeque taco trucks (!) in L.A. Basically they twitter their planned location each day and their 13,000 or so followers then know exactly when and where to get the goodies! Isn't that great! No cost media to your closest followers!

Second was by Camiile Ricketts on VentureBeat purporting to be a comprehensive list of venture capital firms that are "walking dead". These are firms that no longer have funds to invest, are closed down etc. While the list appears to need further scrubbing it clearly reminds one that the VC world is not always a happy one ...

Regrettably, I Can't Recommend "Fault Line"

I just finished "Fault Line", the Barry Eisler thriller set in Silicon Valley that I discussed in my March 21st blog post. Unfortunately I can't recommend it. It's way below the standards of his prior six novels, all of which featured John Rain, the Japanese/American assassin specializing in deaths made to look natural.

"Fault Line" is a mess. Eisler beats the underlying estranged brothers theme to death - to the point where I just skipped whole paragraphs. Same with the Iranian/Amercian Silicon Valley female lawyer who must be a link to terrorists because her name is Hosseini" stereotype. Hello Barry, remember our President's middle name? The electorate got over that one a lot faster than your character Ben. At the same time the underlying plot of bad guys trying to get their hands on the only copies of an encryption software program and killing anyone in their way falls completely apart when you find out who the protagonists are ....

Eisler is a fun and engaging writer who misfires badly here. Bring back Rain!

Work - Life Balance ....!

So I'm at the Web 2.0 conference in San Francisco this week, and sitting in on a workshop about pitching to VC's. In addition to Christine Herron from First Round Capital and Bryce Roberts from O'Reilly AlphaTech Ventures there were some guest entrepreneurs and CEO's, one of whom was Jeff Bonforte who recently became CEO of Xobni ("Inbox" spelled backwards), an exciting startup with a plug in that helps you organize your email inbox.

Jeff is quite a character (take that however you like) but he spent some time talking about life in a startup and how important it is to get a good "work-life" balance. For instance, he quoted a study someone did to show how a software programmer's productivity drops dramatically after 50 hours in a week. He also noted how ridiculous it is that so many startup people wear their 100% commitment to their idea or business as a badge of courage (I'm paraphrasing but that's the general idea).

Shortly after, Jeff starts getting distracted by checking his mobile device while still doing his talk (another typically silly multitasking thing everyone does here) and then tells the audience he's keeping an eye on it because he and his wife are due to have their first child that day.

Am I the only one to see the irony in this?