Sequoia Capital’s “R.I.P. Good Times” deck made the rounds on the web last week. It’s Sequoia’s take on what happened with the economy and what their portfolio companies should do to weather the storm.
What was their advice before the downturn?
The analysis is good and the advice sound, but it also begs the question: What was their advice before the downturn?
Now they are saying you should:
- Control spending
- Throttle back growth assumptions
- Cut earnings assumptions
- Focus on quality
- Lower risk
- Reduce debt
They also say that you “need to become cash flow positive” and “spend every dollar as if it were your last.”
So what was their old advice? Did they encourage their companies to spend more than they had, skimp on quality, grow grow grow, take on more risk, and accumulate more debt?
Was being cash flow positive not a favored strategy before the downturn? If it wasn’t then, when was it going to be? If you weren’t in a position to make money when times were good how are you supposed to be in a position to make money when times are bad?
Another thing I want to take issue with is this notion of “good times.” What was so good about the times a few months ago or even a few years ago for these companies? If you had to keep borrowing to stay afloat, were those good times? If you were running a business with no revenue coming through the door, were those the good times? If you were hiring more people than you really needed, where those the good times? There’s nothing easier than spending other people’s money. So fun and frivolous times, maybe, but good times, no.
Monday morning analysts
One of the things that always bugs me about downturn analysis is how the “experts” always seem to be a day late. After the missed earnings call or the market downturn the analysts come out and downgrade a stock or sector or market. So they miss their earnings number on Monday and on Tuesday you’re telling me to sell the stock? What’s expert about that?
This Sequoia deck gives me the same feeling as the stock analyst who screams “SELL” after the gloomy numbers go public. Good advice comes before the bad times roll, not after. Anyone can look back at an event and dole out sound advice after it happens. The people worth listening to are the ones who were giving the good advice before it was fashionable.