Oct 13 2008

what’s a company to do?

Now that I’ve received a link to the Sequoia "Holy Shit" presentation about 30 times along with about a dozen emails asking "what do you think?" it’s probably time for a post.  My partner Jason has a great post up on the subject (with a more general discussion of how the current markets effect our business – definitely worth reading) and Brad has some practical advice up this morning on his blog as well.

There’s no question the markets have changed dramatically in the last few weeks and that there are serious short and long term considerations for investors and companies.  Here’s my 2c.

1. Don’t panic. Markets are cyclical. While everyone knows this, it’s hard to keep perspective in downturns. Particularly when those downturns are bigger/faster/scarier than you were expecting.  That said, it’s good to keep a long term view about things (but see below for some ideas for the short term as well). The rules have NOT changed. The market is not fundamentally different.  No more so than it was during the bubble (after which we were reminded that things like real products, customers and a business model were important); nor during the last downturn (during which investors who carefully continued to invest were rewarded); nor today.

2. Worry about what you actually control. It’s easy to lose sight in wild market fluctuations of those things that are actually within your control. Don’t.  Worrying about things you have no control over will drive you crazy.  Worrying about those things you do control will drive you to better/smarter decisions.

3. Back to basics.  Relating to #2 above, now is the right time to consider your core assets/business attributes. It’s easy in good times to get distracted by spurious data points (and sometimes get rewarded for it).  Now is not the time for that kind of distraction.  To be clear, I’m NOT saying now isn’t a time for your business to invest wisely, just be focused and deliberate about what you’re doing.

4. Conserve cash.  Whatever you think about the current market volatility one thing that is widely agreed on is that capital raising (whether debt or equity; early, mid or late; private or public) is much harder today than it was a few months ago.  Since it’s not clear when things will ease up, don’t go crazy with the checkbook.

5. Invest wisely. I firmly believe in investing through cycles (since you can’t time markets – certainly not in my business). This is as true for companies as it is for investors. Reacting to market turmoil by putting your head in the sand it about as smart as when a threatened ostrich does the same. It may make you feel good for a few moments, but isn’t a wise short- or long-term strategy.  Down markets bring as many opportunities as they do pitfalls – especially for companies that were well positioned from a product, cash and market standpoint before the sell-off.