Silicon Valley prepares for financial storm of century

I was walking around Palo Alto yesterday afternoon, visiting startups to see what the mood is. One scene stuck out for me. I was walking to my car with Tapulous CEO Bart Decrem and a friend of his ran into us in the street and said “nice job getting funding last month.” They make apps for iPhone, including my favorite Twitter iPhone client, Twinkle.

It was said in the same tone someone along the Texas coast might have been met after getting nice new storm windows right before a big hurricane rolled into town.

Over at Zuora in Redwood City I talked with Tien Tzuo, CEO. They are shipping a new system that enables subscription-based businesses to easily be built. He used to be head of strategy at Salesforce and talked to me about how Salesforce weathered the previous storm back in 2001. That’s a common theme I’ve heard as I walked around the valley last night. Most of these leaders have been through a pretty brutal downturn in 2000-2003. He said it was pretty lucky that Salesforce only had to lay off about 10%. They had plans sitting around to expand a lot right before 9/11 hit and Tzuo said that if they had put those plans into place things would have been a lot worse.

It’s learnings like these that are serving entrepreneurs well as they batten down the hatches and prepare for the financial storm of the century (even though they are all hoping it just turns out to be a mild little storm, off camera you can see in their eyes that they are expecting the worst).

Over at SocialText’s offices (which is where the first BarCamp was held, so the offices hold some significance to many geeks around the world) founder Ross Mayfield is holding a brave face. He’s preparing for a launch tomorrow morning of a major new suite of services aimed at enterprises as he shifts his company away from just doing wikis to doing something a lot broader. More on that in the morning after the embargo ends (although on their Web site they are already talking about SocialText 3.0, so you can get a sneak peak now).

All of the companies I visited, in fact, are shipping new products/services that they hope will help them get through the storm. One thing I felt after visiting with these companies and the leaders who run them is how optimistic I felt. They all know a big challenge is heading toward them, but they are entrepreneurs. As Bob Ackerman, famous VC, told me, entrepreneurs are a little crazy and love a good challenge.

Over at techVenture, a well-known Silicon Valley recruiting firm, CEO Fadi Bishara said he had tons of clients who were hiring and wants to hear from anyone who is a developer or an executive in web software.

One last datapoint: I’ve been listening to KGO Radio (San Francisco’s top rated talk radio station) a lot lately and I’ve heard a couple of business owners say on radio that their credit has already been shut down. I can’t verify that, so if you have stories of how your business is being affected by the credit crunch, please let me know here, or offline at scobleizer@gmail.com.

Good luck preparing your business for the storm of the century, we’ll be watching and reporting from the front lines on University Ave. in Palo Alto, CA.

41 thoughts on “Silicon Valley prepares for financial storm of century

  1. Hehe, “ski is falling”, a good one. ;-)
    Sky is not really falling but US economy is in a deep #@88D, probably the biggest one since 1930 so fasten your seat belt the ride is about to start…

  2. Hehe, “ski is falling”, a good one. ;-)
    Sky is not really falling but US economy is in a deep #@88D, probably the biggest one since 1930 so fasten your seat belt the ride is about to start…

  3. I’m tired of all the hype, the exaggeration, the “ski is falling” talk. Wall Street just tried to rob all Americans and the average American revolted. The Congressional Black Caucaus all voted against the bailout. What do they they know?

    hmmm…the Democrats are the majority party and they could not vote to override the Republicans as they have for 2 years. What’s wrong with this picture?

    Did the world collapse? Did the 2nd Great Depression happen? No. Most Americans are so ignorant of their own history they have no idea how severe the 1929-1941 Great Depression was, so they loosely throw around the term like they do the term “Nazi” with no understanding of the gravity of that term.

    The world continues to turn. The American public was not fleeced by Barney “employ my friends at Fannie” or Calude “I stole 90 million from Freddie” or Chris “Countrywide gives me special mortgage deals” Todd.

    The market created this problem and the market will right it. The Fed cannot be everyone’s personal piggy bank. Thank God, the socialist solutions were blunted for a time, anyway.

  4. I’m tired of all the hype, the exaggeration, the “ski is falling” talk. Wall Street just tried to rob all Americans and the average American revolted. The Congressional Black Caucaus all voted against the bailout. What do they they know?

    hmmm…the Democrats are the majority party and they could not vote to override the Republicans as they have for 2 years. What’s wrong with this picture?

    Did the world collapse? Did the 2nd Great Depression happen? No. Most Americans are so ignorant of their own history they have no idea how severe the 1929-1941 Great Depression was, so they loosely throw around the term like they do the term “Nazi” with no understanding of the gravity of that term.

    The world continues to turn. The American public was not fleeced by Barney “employ my friends at Fannie” or Calude “I stole 90 million from Freddie” or Chris “Countrywide gives me special mortgage deals” Todd.

    The market created this problem and the market will right it. The Fed cannot be everyone’s personal piggy bank. Thank God, the socialist solutions were blunted for a time, anyway.

  5. On a small scale, I was at a stationary store and the shelves were bare. I asked why and the owner said all of their vendors stopped allowing 30 day credit on orders — cash only.

  6. On a small scale, I was at a stationary store and the shelves were bare. I asked why and the owner said all of their vendors stopped allowing 30 day credit on orders — cash only.

  7. The perfect storm or the perfect opportunity?
    What will be heading towards you?
    If your company makes money and is without debt, the perfect opportunity is possibly coming.
    Whereas if your company has debts and no income the storm could finish the company.

  8. The perfect storm or the perfect opportunity?
    What will be heading towards you?
    If your company makes money and is without debt, the perfect opportunity is possibly coming.
    Whereas if your company has debts and no income the storm could finish the company.

  9. Our CEO tightened the belts back as early as Q4 2007 and really clamped down by the end of Q1. Even though we were planning an IPO this year, we’re now on track to make it through 2008 without needing additional funding. We’re pushing hard to expand our government business and other sectors that don’t depend so much on credit. Not bad for a startup. I’d take our CEO over either candidate right now.

  10. Our CEO tightened the belts back as early as Q4 2007 and really clamped down by the end of Q1. Even though we were planning an IPO this year, we’re now on track to make it through 2008 without needing additional funding. We’re pushing hard to expand our government business and other sectors that don’t depend so much on credit. Not bad for a startup. I’d take our CEO over either candidate right now.

  11. The rest of the country aside, how this will effect his immediate tech sector will be a large weeding out of the me-too I know a VC projects, with a refocus on projects that fall into one of 3 categories

    1. Built with a sustainable business model – ie b2b or something that brings monthly revenue

    2. Planned long shots with serious commitments by investors who know exactly what they are getting into (not just MBA’s with blank checks and a directive to find 1 out of 10 being a hit)

    3. True entrepreneurs. Who in this case can be defined as one who spends money like they do not have any and takes personal offense to inefficiency and failure.

  12. I recently got hired at a startup (about 3 weeks ago). I explicitly asked the CEO what his thoughts were on current market conditions. His words were “solutions that drive real return on investment will do well.”

    I agree.

  13. The rest of the country aside, how this will effect his immediate tech sector will be a large weeding out of the me-too I know a VC projects, with a refocus on projects that fall into one of 3 categories

    1. Built with a sustainable business model – ie b2b or something that brings monthly revenue

    2. Planned long shots with serious commitments by investors who know exactly what they are getting into (not just MBA’s with blank checks and a directive to find 1 out of 10 being a hit)

    3. True entrepreneurs. Who in this case can be defined as one who spends money like they do not have any and takes personal offense to inefficiency and failure.

  14. I recently got hired at a startup (about 3 weeks ago). I explicitly asked the CEO what his thoughts were on current market conditions. His words were “solutions that drive real return on investment will do well.”

    I agree.

  15. mz: good point, but at this point I believe they are telling me the truth. If not, that’ll be clear very quickly anyway and then they won’t have credibility when the economy does pick back up. Most CEOs care a lot about that, believe it or not.

  16. mz: good point, but at this point I believe they are telling me the truth. If not, that’ll be clear very quickly anyway and then they won’t have credibility when the economy does pick back up. Most CEOs care a lot about that, believe it or not.

  17. For any corporate exec, it would be hard to truthfully state thoughts about the challenges ahead, without unduly worrying the troops. Last thing you need are employees preemptively jumping ship because the CEO or CxO was telling FastCompany that the company may have credit problems potentially leading to payroll delays.

    I would expect the CEO of any larger than 5 or 10 person company, to be guarded about their views on the road ahead.

    Hey, the president and a presidential candidate had continued to sugar coat it – or should I say deny it – up until last week. Presumably to keep the masses from panic. Wy should a CEO be any different?

  18. For any corporate exec, it would be hard to truthfully state thoughts about the challenges ahead, without unduly worrying the troops. Last thing you need are employees preemptively jumping ship because the CEO or CxO was telling FastCompany that the company may have credit problems potentially leading to payroll delays.

    I would expect the CEO of any larger than 5 or 10 person company, to be guarded about their views on the road ahead.

    Hey, the president and a presidential candidate had continued to sugar coat it – or should I say deny it – up until last week. Presumably to keep the masses from panic. Wy should a CEO be any different?

  19. I have been building my new business without debt or any other financing, it is hard work coming from a the ground up and I am still finding it difficult at times to keep my head above water, but I know that there is no plug to be pulled. I have never believed in loans and have never had a significant one. Its the reliance on debt that has caused these problems in the first place!

    My business will grow very slowly compared to debt financed ones, I know it. My software, while good will have to wait much longer before I release it as I am the only developer working on it and I have to make money in the meantime to keep a roof over my head, which is an expensive thing to do in the UK. I have gone without the fancy food, alcohol, car, big screen TV, DVDs etc that most of you will be used to and because of that I’m still my own boss.

    I weathered the first storm working for a web dev company that was also without debt thanks to selling an in-house developed site to a large corp before the crunch. It was tough but we watched other similar sized companies fall like flies around us as the banks wound them up, we got their business and grew!

    Don’t take out loans and hang on in there, the web ain’t going nowhere!

  20. I have been building my new business without debt or any other financing, it is hard work coming from a the ground up and I am still finding it difficult at times to keep my head above water, but I know that there is no plug to be pulled. I have never believed in loans and have never had a significant one. Its the reliance on debt that has caused these problems in the first place!

    My business will grow very slowly compared to debt financed ones, I know it. My software, while good will have to wait much longer before I release it as I am the only developer working on it and I have to make money in the meantime to keep a roof over my head, which is an expensive thing to do in the UK. I have gone without the fancy food, alcohol, car, big screen TV, DVDs etc that most of you will be used to and because of that I’m still my own boss.

    I weathered the first storm working for a web dev company that was also without debt thanks to selling an in-house developed site to a large corp before the crunch. It was tough but we watched other similar sized companies fall like flies around us as the banks wound them up, we got their business and grew!

    Don’t take out loans and hang on in there, the web ain’t going nowhere!

  21. “Ross pointed out to me that all the great companies started in, or were small during, the last financial storm”

    Yes, i follow Ross and this point is what excites me (being not just not small, but miniscule). It gives us an opportunity – i suspect most opportunities will be in some kind of financial revolution around technology, but even beyond that too.

  22. “Ross pointed out to me that all the great companies started in, or were small during, the last financial storm”

    Yes, i follow Ross and this point is what excites me (being not just not small, but miniscule). It gives us an opportunity – i suspect most opportunities will be in some kind of financial revolution around technology, but even beyond that too.

  23. Steven: I think both. Also, they see downturns as an opportunity (if they survive). Ross pointed out to me that all the great companies started in, or were small during, the last financial storm. So, they know that if they can hold on through the worst they’ll come out with available resources on the other side on which to build.

  24. Steven: I think both. Also, they see downturns as an opportunity (if they survive). Ross pointed out to me that all the great companies started in, or were small during, the last financial storm. So, they know that if they can hold on through the worst they’ll come out with available resources on the other side on which to build.

  25. Robert: Fair point. I guess what i’d like to know is whether they are scared or see it as a challenge (some may say both).

    I remember in 2001 a lot got out – and others took on the challenge and we had Web 2.0.

    Will the output of this be Web 2.0 SP1 ?

  26. Robert: Fair point. I guess what i’d like to know is whether they are scared or see it as a challenge (some may say both).

    I remember in 2001 a lot got out – and others took on the challenge and we had Web 2.0.

    Will the output of this be Web 2.0 SP1 ?

  27. Steven: it’s far from business as usual. Not if you look in their eyes. They are trying to make the best choices they can to give them the best shot at riding out this storm. That’s a totally different attitude than I’ve felt hanging around entrepreneurs before.

  28. Steven: it’s far from business as usual. Not if you look in their eyes. They are trying to make the best choices they can to give them the best shot at riding out this storm. That’s a totally different attitude than I’ve felt hanging around entrepreneurs before.

  29. We rely heavy on debt-financing, and lately it has noticeable that all of our creditors are becoming very strict on spending and utilization, although we are plowing through it, and everything is going good, looking forward to the challenge.

  30. We rely heavy on debt-financing, and lately it has noticeable that all of our creditors are becoming very strict on spending and utilization, although we are plowing through it, and everything is going good, looking forward to the challenge.

  31. The line that strikes a chord with me is “They all know a big challenge is heading toward them, but they are entrepreneurs”.

    With those of us who have been battling away for some time trying to create something and don’t have these corportate shares and pension schemes it’s really business as usual.

    Granted the more established startups will have some issues – but many of these started with nothing anyway to where they are today.

    Entrepreneurship is one of the few obsessions where having nothing makes you work harder and it’s why i stay determined to succeed. More positive posts like this please :)

  32. The line that strikes a chord with me is “They all know a big challenge is heading toward them, but they are entrepreneurs”.

    With those of us who have been battling away for some time trying to create something and don’t have these corportate shares and pension schemes it’s really business as usual.

    Granted the more established startups will have some issues – but many of these started with nothing anyway to where they are today.

    Entrepreneurship is one of the few obsessions where having nothing makes you work harder and it’s why i stay determined to succeed. More positive posts like this please :)

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