Original title: Sequoia Heavy Report: The most serious moment of warning has arrived...

Original source:Public Account-Business News

At an internal sharing meeting, Sequoia America warned that a serious moment has arrived:

The biggest change in the past period of time is that capital has changed from free to expensive. The best-performing asset has become the worst-performing asset.

Simply put, the world is re-evaluating what business models are valuable when capital becomes expensive. When the moment of severe testing arrives, the most important thing is to learn to pause and think. Only those who are best at coping with changes will survive.

Growth at any cost will no longer be recognized. The era of growth at any cost and rewards has passed.

This recovery will not be a V-shaped reversal, but a long-term repair process.

The following is a summary of the key points of the sharing session:

Sequoia Capital, the venture capital firm behind Google, Apple and Airbnb, has won over the tech industrys Cassandra for the presentations and memos it shared with its portfolio companies during the economic crisis. Able to predict the future).

In a 52-page slide titled Adapting to Endure, Sequoia lists the current volatile financial markets, inflation and geopolitical conflicts as key factors of uncertainty and change. Sequoia told founders not to expect the economy to rebound as quickly as it did after the pandemic began because monetary and fiscal tools to drive economic recovery have been exhausted.

At the same time, Sequoia also advises founders to act quickly to extend runway and comprehensively examine the business for excess costs. Dont think of cutting valuation as a negative, its a way to save cash and grow quickly, which will help you go further.

There will be no “V-shaped recovery” this time

Although the U.S. economy declined in March 2020 due to the epidemic, it rebounded quickly afterwards in what economists call a V-shaped recovery, which Sequoia believes will never happen again. The report points out that monetary and fiscal policies have been exhausted, and continued inflation and geopolitical conflicts further limit the ability to solve problems at the macro level.

In response to the epidemic, governments around the world have adopted fiscal and monetary stimulus measures to fill the huge gap caused by the epidemic. This helped prevent a very severe recession, but it also had serious consequences. This release is reflected in asset prices, especially in the stocks of remote working and e-commerce companies that fit the epidemic theme.

Federal Reserve balance sheet, Figure: Sequoia

The market downturn will have an impact on consumer behavior, labor markets, supply chains and more. This crisis will be a longer cycle, and although the duration cannot be predicted, preparations still need to be made. The two core tasks of the Fed are to maximize employment and control price stability, but it seems that they are not doing a good job at present. Not only did Sequoia foresee the crisis, but well-known venture capital firm Light Speed ​​also mentioned in a blog post that “the boom era of the past decade is undoubtedly over.”

Who can survive?

1. Who can survive in this situation?

The answer is survival of the fittest:

In the end it is not the strongest of the species that survives, nor the smartest, but the ones that are best at responding to change.

Just like companies A and B in the diagram above, company B, which responds the fastest, has more cash flow and is more likely to avoid a death spiral.

So we suggest that you calculate various ways to save costs, such as shutting down some projects, stopping research and development, reducing marketing expenses, or others. This does not mean that you should act immediately, but you should know that if you need to use it within the next 30 days , you are ready.

We saw that in 2008, all companies that cut back on spending ended up doing better.

Dont think of cutting back as a negative, think of it as a way to save cash and run faster.

Additionally, think about the decisions you plan to make in relation to the decisions you wish you had made.

Focus and decision-making can be very difficult when you only have six months of cash flow left, so no matter how much money you have left, start thinking now.

Rainy days are more suitable for overtaking

Crisis = danger + opportunity. F 1 driver Alton Senna once said: You cant pass 15 cars on a good day, but you can on a rainy day. For startups, hiring becomes easier during a recession and there are fewer competitors.

Therefore, a crisis is also an opportunity. You can also regard the present as a once-in-a-lifetime opportunity, and you will become stronger if you survive.

So what kind of person can not only survive, but also win?

Those founders who face reality, respond quickly, have discipline and principles, and don’t regret it.

Moreover, recruitment will become easier in the future, and there will be fewer big companies competing with you.

So, treat the moment as a once-in-a-lifetime opportunity, play the cards in your hand, and you will become stronger in the end.

How do you become stronger in times of crisis like this? Opportunities only come to those who are prepared.

Founders need to face reality, overcome their fears, and make adjustments in a timely manner. Just as slow-growing but still profitable companies now have the financial flexibility to pull back from cash-burning companies, and the status of growth stocks versus value stocks changes, crises are often the tipping point for everything.

Great companies in history were born in crises, such as Amazon and Google after the Internet bubble in 2001; Twitter, Uber, Airbnb and Okta after the 2008 financial crisis. Sequoia believes that in the next few years, the best and most determined startups will buck the trend and quickly occupy the market.

How to prepare?

We will lay out a framework that has been used before in some very difficult crisis moments and has been refined over the years.

1. First, you must prepare yourself mentally.

① Face reality: This first step is the hardest.

Every collapse begins with the founder not really facing the harshest reality; as a founder, as a CEO, you have to face reality; there may only be so much your team or directors can help.

② Face your fears.

Now that you have faced your reality, you must prevent yourself from falling into a negative cycle.

You have to break out of this cycle of negative emotions to truly know how to get us out of our troubles.

③ Have the courage to overcome fear.

Courage is a choice, so choose to have courage.

Whatever we are going to face today, it will not be worse than the uncertainty we faced at the beginning of the COVID-19 pandemic. We will overcome everything.

④ From crisis to opportunity.

The word crisis written in Chinese consists of two characters. One represents danger, the other represents opportunity. The word apart is danger + opportunity for change. President John F. Kennedy previously used it as danger + opportunity, making it a very popular term.

In fact, when there is a crisis, the opportunities for change are more interesting. Given the opportunity for change, the strong can become weak and the weak can become strong.

Growth stocks that everyone once wanted are being sold off, while value stocks are being coveted. Slower-growing but still profitable companies now have the financial flexibility to pull back from cash-burning companies.

If you clearly see the opportunity and are ready to seize it, then this change point will be a new opportunity.

2. Second, prepare your team.

① Start with “why” and reiterate your mission vision/values

This is very important for the true believers you hire.

② Show your leadership

Know your audience: customers, employees, investors, etc. They all need to be reminded why they were included in your vision for the future in the first place. They are all looking to you for direction and expecting you to take decisive action.

③ The last thing is to make your team consistent, ask for their commitment and contribution, or... politely ask them to leave and lighten the lifeboat.

3. Prepare your company.

Capital tightens its pockets and pays more attention to corporate profitability

When liquidity is plentiful, the best-performing companies are capital-consuming, such as technology and some new IPOs. But now the market is reassessing what business models are valuable as wallets tighten. As liquidity tightens, these companies become the worst performers. Among all software, Internet and financial companies, 61% currently have a market value lower than their pre-pandemic price in 2020. This is equivalent to the market completely ignoring the development of these companies in the past two years, even though most of these companies have doubled their revenue and profits in these two years.

Sequoia believes that the main ways to help startups survive the cold winter include:

• Reorganize the team: Reaffirm the companys mission, vision, values, and retain valuable employees

• Pay attention to cash flow: always keep an eye on the fuel tank

• Increase profits: broaden profit channels, improve economic models, layoffs,

• Financing or debt financing: even if the cost is high

• Focus on investing in the main business: Stay away from undisciplined and principled market pursuits. For example, Airbnb has cut off most of its products but increased investment in the key hosting business and long-term accommodation business.

• Innovative thinking: Focus on solving problems with better solutions instead of investing money in problems. Changing the problem is the only option.

This is a turbulent era

Cisco after the 1987 financial crisis, Google and PayPal (U.S. online payment service providers) after the Internet bubble burst in 2000, Airbnb (U.S. vacation home rental company) during the 2008 financial crisis, Doordash (U.S. vacation home rental company) during the 2020 COVID-19 crisis A takeaway company founded by three Chinese Americans).

But we also believe that victory in the coming years will depend on companies ability to make the tough choices decisively to deal with the potentially uncomfortable challenges of the past two years as a result of the expansion and distortion of free capital.

The primary goal of this sharing is to change our mindset.

We are in a time of uncertainty and change, and your decisions during this difficult time will have a significant impact on your company.

These are turbulent times and managing change is everyone’s job and task.

The purpose of our gathering here today is not to be anxious together. Quite the contrary, we believe that the best, most ambitious, and determined people will buck the odds and create truly extraordinary things.