Tag Archives: economy

Aaron Brazell

Why are Tech Jobs Declining in a Recovery?

This question, posed and somewhat answered by Kevin Kelleher of GigaOm. In the article, Kevin suggests that with M&A (Mergers and Acquisition) activity up, among other things, some 17,000 jobs in the past month have been lost.

From an investment standpoint, founders and venture capitalists have good reasons to cash out now. Market caps of public tech giants are rising “” the Nasdaq gained 15 percent last quarter alone ““ and so are their cash stockpiles: Microsoft is sitting on $49 billion in cash; Google, $24 billion. The IPO market is coming back to life, but not enough to meet the pent-up demand. And high-profile deals like the ones we’ve seen recently have a way of spurring on other acquisitions.

The risk is that, just as the quality of IPOs tends to deteriorate the longer a market boom lasts, a wave of M&A deals will bring on marriages that make less and less sense.

Kevin would be correct. Major acquisitions have been announced in the past few months including Adobe’s purchase of Omniture at an estimated $1.8B valuation, eBay’s sale of Skype for $1.9B in cash as well as the mammoth acquisition of EDS by HP.

337/365: The Big Money

I think it’s more than M&A though. I don’t claim to be anything more than an armchair economist, but I think there’s some sense that this recession isn’t over yet, even if the key indicators (sans unemployment) are heading north. For one, I think there’s a sense that as long as key Fed interest rates are maintained at a 0% or near-0% level, companies can continue to cut staff and pocket more money. Less money going to interest means more revenue in a trickle-down sense. More revenue means more cash on hand. Slashing jobs provides cover for higher profits. Wall Street likes higher profits. Stock prices increase. Especially since Wall Street sees no end in sight for 0% lending rates.

Additionally, there continues to be a risk of a whiplash recession resulting from hyperinflation. With an influx of newly minted cash into the market thanks to bailouts and the Troubled Asset Relief Program (TARP) bill, the economy runs the risk of quickly reaching a point where over-inflation becomes a very real risk. In an over-inflated market, the cost of goods, services and products increases while the value of money inversely decreases creating a vicious cycle that feeds upon itself. A company with $10B in costs suddenly needs $15B or $20B for those same costs. Meanwhile, the value of a single dollar declines in a proportional way feeding the frenzy.

In my non-expert opinion, the companies laying more people off are both reading the writing as well as feeding the lion.

These companies see the potential danger ahead and as any good, economically conservative, risk-averse company is, they are choosing to mitigate their risks in a completely legitimate and sensical way – cut costs via layoffs and other cost saving measures.

The danger this approach takes is that by doing so, they are feeding the Wall Street monster that looks for the increasing profit margins with little end to 0% rates. These investors buy the stocks, increasing the net worth of the company while simultaneously encouraging a pattern of layoffs and non-hiring.

Though companies will need to hire again (because you can’t just take artificial profits forever), there is little incentive to do so now, especially with the risk of a whiplash recession.

It’s a difficult-to-end cycle.

Photo taken by David Muir

Aaron Brazell

Will the Real Tech Community Please Stand Up

Our world today is diluted. The lines have blurred. Everyone has bought into this concept of community – that everyone has something for everyone and we’re one big happy family. Specifically, the concept of the “technology community” which is a term that has come to mean anyone who has a blog, uses social media or Twitter and engages online in some way or another.

Though this has been a trend that is akin to the frog happily boiling in an ever increasing pot of hot water, the reality struck me today as I saw this Wall Street Journal article about how Facebook and Zappos approach hiring. Facebook, of course, is the social networking platform that has become the largest social network on the planet and Zappos, the sexy company that was just acquired by Amazon and has made its name, not on selling shoes – its core business – but in its company culture and parties.

In the WSJ article, the writer begins with the statement, “For fast-growing technology start-ups, there are many approaches to employee hiring and retention.”

While Zappos is a great company, and their acquisition by Amazon (which is a technology company) certainly places them in the ranks of great Internet success stories, they are a glorified shoe store, using eCommerce, web marketing and buzz to execute on their core business. They are not a technology company.

This is not a pissing match over labels. If calling a company a technology company when they are not was harmless, I wouldn’t care. The reality is that it is a harmful trend that is hurting the real tech community. This is not about Zappos. This is about the hundreds of people who hang out on the social networks, using the technologies built by real technology companies and technologists, and who call themselves technologists because they use the tools.

Photo by rutty on Flickr

These are the people who go for job interviews that they are not qualified for hanging their hats on social media experience.

Being in social media does not make you part of the technology community.

The real technology community is made up of developers, I.T. architects, and even highly trained engineers with C.S. degrees. For the record, I have neither a C.S. degree or any degree at all. However, I have been slinging code for 10 years now and it continues to be my primary business, despite public speaking, book writing and social media engagements. I am a technologist. A marketer or a salesperson may be highly trained marketers or sales people, but they are not technologists in most cases.

Here are some thoughts. These are common. I’m not simply being a little over the top.

  • The most you know about memory leaks is when Firefox crashes. Do you know why? Can you debug it? Do you understand the concept of a memory leak and why it happens?
  • You don’t know how or why an API is important. If you have to ask what an API is, you’re not a technologist. You don’t have to know how to use it, but know what it is. If you don’t know why an API might be important, you’re also not a technologist.
  • Your evaluation of a good website is based on the UI and layout. Great design is important and great designers are hard to find. That doesn’t make them technologists. Though there are some who straddle both worlds extremely well. A website is not just a website because of the appearance. It’s about how data is used. Remember this video?

  • It doesn’t matter if a site is built in a compiled language (Compiled PHP, .NET, etc) or not. Yes it does. Why?
  • Your approach to business does not include principles of Object Orientation as understood by developers. OOP is huge with developers. Ask any Java, Ruby or Python developer. Can you apply these principles to business too? They do apply…
  • The most exposure you’ve had to XML is RSS. And at that, the most you’ve had is adding a feed to Google Reader.
  • Your idea of working for a web startup is as ‘community manager’. Yeah, there are some great community managers. They are people people, not technology people. Additionally, community managers are meant to be liaisons between users and developers. Stop calling yourself a tech person if you’re a glorified PR person.

Again, if this was simply a matter of labels, it would be no big deal. Social media expert? Go for it… Everyone is a social media expert. Entrepreneur? Unless you’re building the product yourself, you’re probably not a technologist. Businessperson? Sure. CEO material? Quite possibly. Don’t call yourself a technologist.

You’re HURTING us. This market is filled with people looking for work right now. And recruiters are out in force looking for the one person who can fill the role of two people and save their client money. So by you walking in the door and taking jobs you’re not qualified for simply because you can do some marketing, strategy and you know how to hack on a website, you’re hurting this industry of highly qualified, professional people.

Stop carpet-bagging on our industry and call yourself what you are. You are highly qualified marketers. You are highly qualified journalists. You are highly qualified business development people. You are not technologists.

Aaron Brazell

Tech Community Worthless to Economic Recovery

One of the most notable things about the dot com bubble burst is that the innovations and technologies established in the late 90s and early 2000s spurned the comeback of the economy and the establishment of a new economy of business and internet value. We called it, for better or for worse, Web 2.0 and it was marked by stark innovations in human interaction driven largely by the glut of bandwidth provided by undersea cables laid in the 90s. The technology that, arguably, caused the downturn that resulted in so many dot-com bombs, became the impetus for a new generation of business and spending.

Unfortunately, this new generation of internet technology, technologists and startups is so far not demonstrating any ability to lay the groundwork for the economic recovery and innovation. Instead, we continue to focus on “teh Twitter”, and marketing gimmicks played out by celebrities like Ashtun Kutcher and Oprah. We talk about the new look and feel of Friendfeed, seen Friendfeed focusing on making what we know better, but ignoring the very impetus for economic recovery proven time again – innovation. Something new. Something radical. Something that challenges the basis of the cultural and societal problems in existence that generate the economic problems affecting everyone, not just a subset of the population existing in a subset of the worlds geography.

In the 1930s, the United States (and by proxy, the world) faced the worst economic crisis in modern history (one could make the argument that the Dark Ages were actually centuries old and worse than anything generated by modern economic recessions). It wasn’t until society was forced to innovate, via programs instituted by President Franklin Roosevelt, that the economy began to recover.

Silicon Valley, as bubble-like as it is, has been the center of innovation in the technology world, for several economic cycles now. In every case in the past 20 years, the impetus for technology growth and recovery, can be categorized by new ideas, new companies doing new things. They don’t rehash the same cycles. They haven’t focused on the same ideas. They start over building from the plateau left from the cycle before – utilizing prior technologies and developing completely new things.

This is innovation and this is not what is happening in this cycle. Instead, the technology world talks about celebrity races to 1 Million Twitter followers. They talk about the mainstream adoption of these technologies. We live in years of yore, still conversing about how Obama won the White House using social media – as if that fact will somehow change our world.

We still talk about advertising on blogs, as if advertising sales are somehow going to spur economic recovery, despite a regression in advertising spending across the board. We still build companies based on an idea that free is a valuable asset.

BREAKING NEWS: The economy spins out of control while people keep spinning stupid ideas worthy of 2001.

It’s time to get smart about business. It’s time to start applying the entrepreneurial spirit that we claim as important to our culture. It’s time for the technology community to actually be important to the economy. It’s time to stop expecting that the President will call upon us as a community of change and innovation, when all we can do is talk about publicity stunts by celebrities.

Grow up, people. Get real about making a difference. Maybe we can actually get this country and this world moving again if we stop being stupid. Maybe. We are not necessarily the chosen ones. That right must be earned.

Aaron Brazell, Hall of Fame

Your Resumé is Causing Hiring Companies To Laugh At You (Revised)

I wrote this article, originally on August 2, 2007, long before the current economic slowdown and jobless numbers. The Department of Labor is reporting a national 8.5% unemployment rate, a number we have not seen since 1983. Nearly 1 in 10 Americans have no job, and those are just the people who filed for unemployment benefits. The number is 15% in some sections of the country.

The other day at a networking event, I introduced myself to a man who was milling around. I asked him what he did and he told me he was an IT Project Manager. Interested, I pressed for more. Which company, for instance, did he work for? That’s when he said he was out of work. My initial thought was how grateful I am that I have a diversity of skills to rely on to put food on the table.

Needless to say, there’s a flood of people looking for work. They are flooding Craigslist and the job boards. They are spitballing their resumés across the internet desperately trying to find someplace that will hire them. My advice: strike with precision accuracy. That does not mean only apply for jobs that are seemingly made for you, but do some homework. Look at the job reqs and tailor your resumé. Know about the company should they call you in for an interview. For posterity, here is the article, reprinted in full, from when I was a hiring manager.

Your Resumé is Causing Hiring Companies To Laugh At You

Graphic by Doug Belshaw

You know that companies are laughing at you right now, don’t you? It’s true. For a variety of reasons, you shoot for the moon and hope for the stars and hope that someone will be stupid enough to hire you. Why? Lots of reasons but it boils down to five main reasons.

You Didn’t Read the Job Requisition

It’s true. I get resumés all the time for positions at b5media and it’s apparent that the job posting and requirements were not read. It’s nice that you have 8 years of Java/J2EE experience, but if we are soliciting for a PHP developer, your experience doesn’t matter to me.

My Advice: Read through the job posting. If you feel like you have comparable experience, then apply. What do I mean? I mean that Java positions and .NET positions, while they are good experience for many companies, do not compare with people who do web scripting. This is a completely different ballgame and requires a different set of skills. If I ask for a PHP developer, I may be willing to talk to an ASP or Ruby developer. You’ll have to convince me, though, on Java or .NET. Likewise, if I advertise for a Linux engineer, we are looking for a semblance of Unix/Linux experience. Windows Server 2003 is helpful in some environments, but we know that you’re not qualified for a Linux position if the only server experience you have is in a Windows environment.

You Cite an MCSE as a Qualification

Many companies do still want MCSE’s. I’m not quite sure why because it’s a piece of paper that demonstrates no real world experience. Companies are more impressed by demonstrated experience in your environment than a piece of paper that only demonstrates that you had the wherewithal and money to buy a piece of paper.

MCSE means nothing in the real world. It’s great that you have an understanding of Active Directory. But can you make Active Directory dance? Have you transitioned from competent Active Directory admin to Active Directory ninja? Can you document verifiable accomplishments.

My Advice: Make sure that you can provide bullet point accomplishments. Your accomplishments are more worthwhile to a hiring manager than your piece of paper. Make me see that you are qualified for the position you applied for – don’t just tell me you are.

Your Resumé is Irrelevant

One thing I’ve learned from doing my share of job searches is to have a relevant resume for every sector you want to work in. As a hiring manager, I really don’t want to see how much help desk support you have if I’m recruiting for a development job. It’s obvious you are too lazy to actually tell me why I should hire you. In these cases, I delete your resume. I don’t hold on to it for further consideration later. I don’t pass it on to other hiring managers that might be able to use your skillset.

My Advice: Stay relevant. Tell the hiring manager why he should hire you with a resumé that is pertinent to the job you’re applying for. Include a cover letter that is sufficiently balanced between formal and informal so that the manager can read and have a good understanding of who you are outside of your resumé. I personally have three different slightly different resumés. I have one for development, one for systems and one for management. Take your time when applying and send the right one.

You Don’t Know Who You’re Talking To

In most cases, the company that is hiring has identified themselves. You have Google. You have blog searching. You have a variety of different ways of finding out about the company you are applying to. But you don’t use any of these tools. You don’t even find out what the company’s corporate website is. You haven’t taken the time to do your homework and find out if this is the kind of company you actually want to work for. Your laziness has been demonstrated once again.

For instance, at b5media, we make no secret that we are a blog network and that we’re proudly powered by WordPress. While having a blog and using WordPress are not things we require of our employees, it sure is nice if the candidate knows what blogs and WordPress are. It’s sort of important for our business.

My Advice: Use the tools at your disposal to formulate your resumé. Find out who you’re applying to. If you want to apply at b5media, you should probably know what a blog is. On a technical level, understanding of WordPress is fairly important. Make sure that if you’re applying as a junior developer at a non-profit organization, chances are you’re going to end up with junior developer pay with senior developer responsibilities and experience. Know who you’re dealing with before you go in.

Your Resumé is longer than two pages and Is Filled with Fluff

Yes, contrary to popular belief, we hiring managers expect that if you list every technology in the book, that you are able and willing to use them. However, we also know when people are stuffing their resumés with keywords. I know you were taught to do this by employment coaches and universities instructing you on how to search for a job. It’s really a bunch of hogwash though because we know. Let me repeat that: We Know!

We’re also not impressed by long resumés. We don’t have time to go through 4 pages of fluff to see if we can find the stuff we need to know in your resumé. It’s not a good way to win brownie points with me if you’re wasting my time.

My Advice: Recognize that very few people know everything and that you’re probably not the exception to the rule. It’s okay! Really! I’m not impressed by know-it-all’s anyways. However, your ability to distill a job requisition and figure out what we need to know without making us tell you is a good sign. You can get a lot of mileage out of a relatively short resumé that actually does hit the keywords we are looking for. (Hint: Refer to point #4 for helpful information gathering tips).

See? It’s important for your future and career to understand these points. I’m betting if more people understood these things, unemployment would be lower and you’d have a job that you really love. We want to hire those kinds of people. We want to hire you if you become that guy (or girl). It takes some effort but whoever thought that having a perfect situation without putting out the effort should be the norm, was smoking something.

At b5media, we want to hire the best of the best. Mark Jaquith and Brian Layman were both hired because they really fit everything I said above. Plus, it was easy to know about them because they blog, they use and develop on WordPress, they have the skillsets we needed for their positions.

Chad was hired because he has a reputation as a great ad sales guy and thats what he does.

I was hired, not because I have an MCSE (I don’t!) or a Computer Science degree from University of Maryland (again, I don’t even have a degree), but because I understood the company, the technology and the platform – all very critical for my job.

We have several tech jobs available right now. We’re hiring a Systems Engineer with Unix and architecture experience. This is not a gig, it’s full time, so if you’re not ready to quit your job, don’t apply. We’re hiring a support person, ideally in Toronto, but open to virtual support too. This is for blogger and channel editor support. It does require an understanding of WordPress.

I really want to find the right people, so if you are the right person and you can meet the above points, send me your resume at aaron [at] b5media [dot] com. :-)

Aaron Brazell

General Motors, The Feds.

In the early days of this blog, I wrote a lot about political issues. Frankly, when I was getting going in the blogging world almost five years ago, it was about the only thing I knew to do. Political blogging was huge and it was about the only kind of blogging that registered on the radar. Over the years, I’ve found my niche and it is clearly what you find here today. However, today I need to address a huge issue facing the American public, small businesses and every aspect of the American fabric of society. I must get this off my chest, because it matters to business in a way that nothing else in our lifetimes has.

As time goes on, I have gone from extreme right wing conservative to moderately progressive and still trend right on some issues. It doesn’t really matter though, because the principles that I believe in are firmly based in a sense of pragmatic, if not downright cruel, reality.

Over the weekend, the Obama administration did something completely unthinkable that will have a longterm negative impact on the enterprising and innovative American markets. The federal government made board level decisions on behalf of a publicly-traded company, General Motors.

It is clear to any objective mind that the General Motors (and to a lesser extent Chrysler) proposal for restructuring in the face of bankruptcy, and to secure taxpayer funds, was less than adequate. In fact, some rumors from within the company suggest that GM essentially sat on their hands as they approached the deadline originally agreed to with the Bush administration. Clearly, this is less than acceptable. Clearly, this mindset believes that they truly are “too big to fail” and that the feds would simply swoop in and rescue them yet again.

Clearly, clearly, clearly. Yet… none of this is clear.

The Obama Administration suggested a change to threatened the GM board of directors that they had to remove CEO Rick Wagoner.

I understand why. If Wagoner was too sluggish in his behavior, or “sat on his hands pending an Obama bailout” then he certainly needed to be removed. All evidence points to only positive results from his removal. However, the federal government directly intervened in the private sector governance of a publicly traded company.

This outrage is enough, but somewhat legal if they own a portion of the stock. IT’s expected that, as shareholders, the government would want a say.

However, here is the part that no one is talking about. In essence, General Motors has become a Wholly Owned Subsidiary of the United States of America. While your Orwellian alarms go off, let me rub salt in the wound. The SEC is supposed to regulate GM. That’s right, the Securities and Exchange Commission, a fully functioning independent agency of the U.S., is now tasked with regulating itself.

Can anything good come from this? I think not.

In an ideal world, one filled with unicorns and gryffons and other mythical creatures, the SEC executes their funtion without privilege or bias. In an ideal world, GM adheres to the same regulations put in place by the SEC that governs the market. In an ideal world. Since when has self-policing ever worked? Especially with the SEC.

To make matters worse, in an effort to stimulate company growth and remove government ownership of the company (yeah, right), the Feds are likely to make moves that will help GM, but may undercut the market. For instance, cutting the MSRP of automobiles by a certain percentage to stimulate sales. These kinds of actions are generally regulated by the Justice Department (as well as the Commerce Department) and fall under unfair trading practices.

At what point is a U.S. owned company able to compete on the open market without undercutting market tensions and forces, and at which point does the “adherence to market principles” mean the destruction of the company?

My feeling is that the longterm ramifications of bailing out and direct government intervention into the governance and conduct of a company is a dangerous precedent. Beyond a dangerous precedent, I believe it will only exacerbate the complete destructive collapse of the economy.

There will be some who call me crazy. Who call me a sensationalist. That tell me I am too conspiratorial. Remember this post when my predictions actually come to fruition. Within six months.

Aaron Brazell

Welcome to the Machine

Welcome my son, welcome to the machine.
Where have you been?
It’s alright we know where you’ve been.
You’ve been in the pipeline, filling in time,
Provided with toys and ‘Scouting for Boys’.
You bought a guitar to punish your ma,
And you didn’t like school, and you
know you’re nobody’s fool,
So welcome to the machine.

Welcome my son, welcome to the machine.
What did you dream?
It’s alright we told you what to dream.
You dreamed of a big star,
He played a mean guitar,
He always ate in the Steak Bar.
He loved to drive in his Jaguar.
So welcome to the Machine.

Remember that song? From the album Wish You Were Here, Pink Floyd in an almost prophetic motion saw a generational change coming years before it actually arrived. The song was widely believed to be about the music industry and the “slurping” of fresh blood artists into the controlling depths of the recording industry, but I see something far more nefarious and relevant to today in light of the economy and business.

Photo by <a href="http://flickr.com/photos/tonivc/382150181/">ToniVC</a> Photo by ToniVC

In fact, we are so out of our league with the concept of open innovation in a web environment that the generational, societal and economic corrections are about to kick in. The economics are already kicking in with the entire marketplace shrinking, if you look at market conditions, 50% in the last year.

I asked a VC a few days ago what he was investing in in a down economy and his answers indicate low-risk investments – that is, investments that are cash flow positive with an existing customer base. Yeah, not much risk and certainly different than the VC market we’ve been used to. If this is the mindset that is prevalent, there will be fewer innovators as less cash is available to be had. Fewer, or smaller innovations. Welcome to the Machine!

Generational corrections occur when a generational mindset changes. While my friend, Jessie Newburn is the resident generational expert in my circle of influencers, I believe she would point out that the individualistic Generation X that helped create the internet by challenging the established norms of the 1970s and 80, and who possessed the innovative prowess to create two generations of web companies is being replaced by a generation that is more likely to band together and hunker down for the nuclear winter. Hibernation, in a way. Those corrections are beginning to occur, I believe, as consolidations will likely become the name of the game. Welcome to the Machine!

Generational corrections beget societal corrections. Societal corrections merely reflect the mood of the workforce, the innovators and the money movers. When the finances dry up, the companies move into a mode of slow burn/slow growth as opposed to high burn/high growth, then business decisions are made safely. The Machine is safe. It is robotic and automated, programmed with computer-like precision. The Machine makes few (if any) mistakes, yet it is uncreative. It lacks pop and sizzle that innovators provide. When the society corrects itself away from innovation, it becomes precise and routine, but loses the juice that can be risky but productive. Welcome to the Machine!

If you’ve read this far and feel like I desire the demise of innovation, you have read me wrong. I do not. However, there are corrections happening that could last a long time (far beyond the 18 months experts think the economy will take to come back). It is a generational impact that could delay a proverbial Web 3.0 for 10 years or more.

With the trends of the incoming Presidential administration, my feeling is that the next generation of innovation could occur within the public sector itself, but won’t have the exposure or sexiness of that which was considered “hot innovation” in the last 20 years. Less private sector bling. More public sector growth.

What are your thoughts?

Aaron Brazell

Tribune Company Bankruptcy Highlights New Media Opportunity

About an hour ago, the privately held Tribune Company filed for Chapter 11 Bankruptcy protection. The Tribune Company is the owner of the Chicago Tribune, Los Angeles Times and Baltimore Sun, as well as a minority owner of the Chicago Cubs (not included in the bankruptcy filing).

The conversation I’ve heard around this news has been interesting. For as much grief as some of these main-stream press have caused some community members, mostly in politics or local governments where the Tribune papers are, the feeling is that metropolitan areas served by these papers currently cannot function without a hard format newspaper.

The cities with the biggest three Tribune papers all have alternative daily circulars. Kind of. Los Angeles could lose the LA Times and still have the Los Angeles Daily News. Chicago could theoretically lose the Chicago Tribune and still have the Chicago Sun-Times. Baltimore would be stretched thinnest losing the Baltimore Sun and leaving the Examiner (though proximity to Washington, D.C could position the Washington Post or the investigative journalistic Washington Times to fill the void).

What strikes me is the difference between long-standing community members (those who have been born and raised in an area, and have been shaped by the daily circular) and the generational transience of those who simply don’t care, and move from locale to locale throughout life.

I’ve personally lived in the Baltimore area for most of my life, and have no loyalty or affinity to the Baltimore Sun. But those who have lived here all their life (and maybe from another generation) have been directly impacted by the Sun and can’t cope with life without it.

In my life, I can’t answer the famous Palin question/non-answer “What newspapers do you read?” because I don’t. If there is a loyalty to a paper, it is the New York Times. Why? Because they adjusted to a world not based on the physical paper. They are no longer “the grey lady” and now represent something so much more, and have extended their base outside of the previously known and understood paradigm. (Of course, that won’t necessarily keep them out of trouble either, but I digress.)

It will not sadden me to see the Tribune company go. It is obvious to me that newspapers, like the Tampa Tribune, who don’t adjust to the 21st Century need to fail. That does not mean that the age of hard print should die. On the contrary, it is possible for news organizations to rise up around an open culture of information sharing and digital cultural change, and provide an offline (paper) offering as well. It’s not just a possible change. It’s a required one.

Also to be clear, Chapter 11 is reorganization… not apocalypse. The Tribune Company will likely spin off some of these assets to, hopefully, better digitally savvy stewards. It is possible for these papers to reinvigorate and jump into the 21st century as well. If not, they will be replaced by lighter, more nimble and astute media organizations that are digitally competent.

I can’t wait to see how it plays out.

Aaron Brazell

With the Holidays Comes Reason to Have Confidence

If you listened to the talking heads last week, you knew that everyone was holding their breath waiting to find out just how bad black friday sales were going to be. If you listen to the so-called experts, there was no reason for hope and the holiday shopping season would only be the nail in the proverbial coffin.

I suspected that people were not listening to the experts and saw a reason to hope in this economy. As touchy feely as “hope” can be in an area that is defined tightly by the ink of black and white P&L reports, hope, faith and confidence is the driving force behind an economy. We win big because we feel like nothing can go wrong and so we buy, buy, buy and invest, invest, invest. We lose big because the air of an entire way of life is deflated beneath us taking our will and drive to win away.

It’s all about the feeling.

So when economists said that this holiday shopping season would be the worst on record, and that people just weren’t buying like they used to, we could take the prophets at their word, or change the future.

According to Reuters, online sales spiked from a year ago. Some reports used the word “dwarfed” to describe the upsurge and this morning, economists were trying to explain away how they were wrong by saying there was “pent up demand”.

Yes, there was. And the economists missed it. The prophets prophesied doom and were wrong! Mind you, these are the same folks who willingly peddled the economic concepts that buried the mortgage market in the past year.

Folks, I am not an economist. I am not a financial adviser. I know what I hear on a day to day basis talking to people like you and I. I know people are buying. Yes, they are being cautious. But they are buying.

In fact, I may buy a new car before the end of the year when the dealers are dying to make any deal they can. I’ll save some money, and still buy, buy, buy. Don’t buy the hype. This is not the end of the world and the longer we go, the closer we are to the end.

Venture Files

Bubble, bubble, bubble – In Private Equity not Web 2.0 (Classic)

This is the first in an ongoing “Venture Files Classics” written by former Venture Files Editor Steven Fisher. The selections are chosen for historical reference as well as a notorious ability to be right. The original post from January 12 of 2007 can be found here

Being a serial entrepreneur I have been through many business cycles, but the Internet boom of the late 1990’s was an extremely heady time. People were so enamored with what the Internet could do, every one really believed that the old rules didn’t apply.

The reality was that those rules applied more than ever and with the crash in the early part of the century we have tried to learn our lesson.

With these new companies deemed Web 2.0, everyone is expecting another bubble. So many of the same types of companies have been funded so there are bound to be consolidation and just plain failure.

According to Michael Arrington, his entry “Bubble, Bubble, Bubble“, the despite the fact that some companies are failing, the sky is not falling.

In fact I would call this time around the ol’ startup track “saner, saner, saner”.

Despite many of these companies basing their success on being an aftermarket for Google, the smart ones I think many people know that you have to be in this to create a real enterprise and one that makes money. It is not so much about the VC’s but about the ability to use the low cost and barrier of entry to innovate.

But the Dead Pool is not cool

I think that the blog A VC gets it right his counter points on “Building It Up and Then Knocking It Down” are right. He says “over hyping young companies where people are working their butts off and then throwing them overboard quickly into a “dead pool” when they fail is not healthy.

I believe it is dead wrong to put this up there. It just feeds the fire for the chicken little’s of the world. Mike Arrington has known successes when he co-founded helped flip Achex and sold it to First data. I don’t know if he has experienced building a company from scratch and having it fail, many times from circumstances out of your control.

But there is a bubble developing and not where you think…..

The bubble is not with companies it is in the private equity market itself. The model of funding and the way people are evaluating companies is changing. The way investors look at companies is not based on a fast IPO but aligning it to be a sweet acquisition target.

This is helped in no small part since most VC’s invest like they are teenage girls. “Oooo, you invested in a video sharing site, I want one too! You put $5 million into social networking for eco-friendly baby boomers? Find me one so I can get one too!!

Here is how I got there:

  1. The amount of money chasing deals have lightening strike twice to find that repeat of unrepeatable past returns is growing rapidly
  2. The number of opportunities are declining and there are too many copycats plus the cheap money is pouring out to fund them.
  3. Not enough VC’s to serve on boards effectively and make the existing investments get to a proper exit
  4. IPO market is still not there and there is and there are only so many acquisition partners
  5. Higher prices of entry and lower returns

What I don’t know:

  1. When the IPO market might be friendly to tech stocks
  2. If investors will broaden their portfolio choices to get their money working in unique ways
  3. If funds might start giving their money back

Only time will tell if this comes to pass. If you have a good idea, the money is out there but might not be for very much longer.

Crystal Ball? 2-3 years or mid-2008 this is gonna come to a head. Only time will prove me right or wrong.

Editors Note: At the end of 2008, we do now know that the economy has imploded, not simply from web valuations. In fact, web valuations hardly played any part like they did in 1999-2000.

In fact, the web sector has seen much less damage, than the rest of the economy. In fact, there are still investments taking place, if devalued. A series investments for web companies typically range in the $1-2M range which in the larger picture is fairly small. Biotech companies, for instance, typically pull in around $20M for a Series A round.

That does not make the web sector immune, and in fact, Steve is correct in recognizing that there would be a bubble coming, and that it has arrived.