The Black Swan of 2020
Issue # 28
ROUGH WEEK:
No question that the Coronavirus is wreaking havoc on the global markets. Below is a snapshot from my Bloomberg screen, everyday this week was pretty damn crazy….
Warren Buffett says, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. As an investor, I am very focused on my shopping list:
WORK, ZM, DOCU, BA, DIS, JPM, SBUX, NKE, LULU, MSFT, FB, AMZN, AAPL, NFLX, GOOG, TSLA, JD, BABA, NLY, KMI, EPD, MCF, CVX, XOM, RDS/A, SLB and of course BRK/B
These are all companies that I would like to increase my position in on pullbacks.
Note: Nothing in this letter should be taken as investment advice, including and especially my shopping list! Always consult your financial adviser and if you don’t have one you should talk to my wife Jennifer Bill at Merrill Lynch Private Wealth Management, she is a Rock Star.
SEQUOIA CAPITAL:
Back in 2008 Sequoia Capital summoned Founders and CEOs to hear a presentation titled R.I.P. Good Times. The intent was to grab the attention of Sequoia’s founders and CEOs and to offer advice on how to navigate what would become the Global Financial Crisis. The presentation is still talked about today.
Sequoia recently published a Memo titled, Coronavirus: The Black Swan of 2020. The Memo is much shorter than the original 56 slides from the 2008 presentation, but the message is similar, get ready for some tough sledding.
Sequoia suggest you question every assumption about your business, including:
Cash runway. Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? Where could you trim expenses without fundamentally hurting the business? Ask these questions now to avoid potentially painful future consequences.
Fundraising. Private financings could soften significantly, as happened in 2001 and 2009. What would you do if fundraising on attractive terms proves difficult in 2020 and 2021? Could you turn a challenging situation into an opportunity to set yourself up for enduring success? Many of the most iconic companies were forged and shaped during difficult times. We partnered with Cisco shortly after Black Monday in 1987. Google and PayPal soldiered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. Constraints focus the mind and provide fertile ground for creativity.
Sales forecasts. Even if you don’t see any direct or immediate exposure for your company, anticipate that your customers may revise their spending habits. Deals that seemed certain may not close. The key is to not be caught flat-footed.
Marketing. With softening sales, you might find that your customer lifetime values have declined, in turn suggesting the need to rein in customer acquisition spending to maintain consistent returns on marketing spending. With greater economic and fundraising uncertainty, you might even want to consider raising the bar on ROI for marketing spend.
Headcount. Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.
Capital spending. Until you have charted a course to financial independence, examine whether your capital spending plans are sensible in a more uncertain environment. Perhaps there is no reason to change plans and, for all you know, changing circumstances may even present opportunities to accelerate. But these are decisions that should be deliberate.
Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.”
CONFERENCES:
The FinTech 2020 Summit at Squaw Valley was fantastic!
Phil Barkett, Lok Lee (sleeping) and I hosted about a dozen seasoned investors and founders for a long weekend of focused conversation on the future of FinTech. Downtime was spent skiing, fishing and watching some crazy UFC mixed martial arts action. A special thanks to Phil and my wife Jennifer for making some great breakfasts, lunches and dinners. We’re all looking forward to doing it again in 2021!
ALL other conferences that I was scheduled to speak at or attend have been cancelled!
I hope you enjoyed the letter and as always feel free to share it with friends and colleagues. If you are interested in startups you can join over 750 other backers that follow my syndicate here; I am currently syndicating a digital bank, Sable, that serves recent immigrants to the United States.
Have a great weekend!
- Sean Bill / MacroCrunch