The ‘Oh, Shit’ Moment When Growth Stops
a16z.com
a16z.com
That sounds not entirely ethical / honest..
The original shark fell apart and had to be replaced, which added an amusing patina of involuntary performance art to that famously iconic work.
It's not known if the piece now includes an ongoing shark-replacement maintenance contract.
Most businesses live in the margins. This doesn't mean the business should be disbanded.
It isn't, that's simple. In any deal there are two main obligations for seller and buyer. For the seller to inform the buyer about any material things they are aware of affecting the item being sold ('duty to inform') and for the buyer to look at the item being sold long and hard to see if there is anything they can find that will affect their judgment ('duty to research').
So from an ethics and an honesty perspective you're 100% right, and from a legal perspective you are also right but that's where it gets hairy. Because the 'duty to inform' is not specified in enough detail to make that duty an explicit thing without wiggle room these cases (where a seller should have been aware of a defect but did not disclose it) usually end up in front of a judge and it is definitely not an open-and-shut thing that every such case is ruled in favor of the party filing the complaint. It's one thing to state that a seller should have been aware of something but quite another to prove that they actually were aware of something.
I've seen a deal or two where the seller was 'glad to be rid of 'x'' where you'd expect them to be perfectly aware of the situation and where the buyer did their DD and were totally happy with what they bought. So sometimes it is simply a matter of perspective and the supposed defects are simply not as relevant to the buyer as they were to the seller. But as a seller I'd rather err on the side of caution and inform the buyer even if that sometimes would mean a deal would not go through.
You can bet that after this remark any exits from a16z will be looked at just a little bit more carefully, if that is even at all possible. Most deals at this level go through a very thorough process making it fairly rare that a thing such as 'growth is stopping or about to stop' would slip through the cracks and I'm kind of surprised that a16z is of the opinion that a seller would be able to get away with this kind of trick without either risking the buyer figuring it out in time. That would have to be a fairly in-experienced buyer.
There are two reasons I can see for this fear. First, investors who are afraid to lose a lot of money that they put into the company. Second, leaders who are afraid to have to lay off a whole bunch of people because that's very painful. Are there other reasons that I'm missing?
Seems if you're bootstrapped and hire slowly, it's easier to keep balance in this situation.
A number of companies have been killed because the original founders were fired and replaced by a more compliant team - who unfortunately had absolutely no clue how to run that particular business.
I'm not a fan of constant growth demands. Companies can fake growth in any number of ways, especially after winning a round. Ultimately it's down to persistent paying customers - not transient customers, and not "users" - and sales/margins. Anything else is PR for potential investors.
My conservative view is that it's fine to run a stable, profitable business without spectacular growth. You may get killed by the competition, but you're just as likely to be killed by the politics and finance of over-extending a business without a real case for it.
Graduated from Hogwarts probably. Because even CEO-s are sometimes bound by reality.
Once a company reaches a certain maturity, it "knows" that it needs to diversify to some extent. But it's hard to generalize about diversification strategies because it's tough to agree on the right metric for company maturity. Too many of the historical examples we could use for discussion directly relate to changes in what the state has considered a monopoly over time.
Microsoft's corpse has similarly been squirting billions of dollars of profit through its several layers of tombstones for decades now.
Growth is not inherently positive, it depends on context. For example, if I tell you my cancer has grown 500% this year, it wouldn't be good news. And before you say this is a stretched analogy, it's not necessarily positive in tech either - if you're growing while bleeding money, all you're doing is bleeding more money. So how do you reach your conclusions?
It's definitely the metric that counts for the kinds of businesses Andreessen Horowitz cares about.
Microsoft and Yahoo are particularly confusing examples, because they are both very large companies who enjoyed a lot of first mover advantage, but were started almost 20 years apart. And then ended up as very direct competition, before settling down as symbiotic partners. If you really want to use an example from biology, you should look at gut bacteria.
Make no mistake, while Yahoo hasn't died YET, that is exactly where it's trajectory points unless it is able to significantly grow revenues in its core business.
But I think it's a good example of a company that makes a lot of sales and profits but because it's not growing like some of its peers is considered a zombie or lame duck. It's the 3rd largest in traffic after all!
Most companies grow and shrink over time. Some days/weeks/months/quarters/years/decades are better than others.
The important thing isn't "growth", but revenue and profit.
If you look at the statements for a VC fund, you'll see at most 2-3 winners that provide huge returns, and another 42 zombies (returned between 0x and 3x), which have little impact on the fund overall.
That's 42 tedious board seats, and 3 enjoyable board seats.
Ask a VC, they'll say the problem is that limited investors tend to call portfolio CEOs at random, and ask for a reference. That's pretty much the only reason that they need to pay attention to the zombie companies. And that's why a company that shuts down is better than a zombie that just keeps living without growth. One less board seat to deal with. One less set of arguing founders. One less VP they need to help recruit.
Or you could just save yourself the mental angst and build a profitable, sustainable business that doesn't require perpetual growth to keep the wheels from falling off.
It only matters if you have any morality since selling a company to investors for $10 billion when you know the wheels are about to fall off is not exactly the right thing to do.
Assuming a voluntary transaction, it is incumbent upon the investors to perform any due diligence they feel they are entitled to.
As long as everything is fully disclosed, an investor may purchase without recourse.
For example, M. Cuban achieved a $1 billion valuation of a company on $3.1 million in revenue and $2.7 million in net losses. This was transformed into a $5.7 billion exit months later. Yahoo's market cap was then chopped down by about 80% over the next few years.
As long as you don't lie or omit required information, you're not required to point out that a particular growth metric is slowing down, and can point to a different one.
(and as one of the other comments has pointed out, quite often the acquirer will shut down the acquired)
Silicon Valley has convinced many people (you included apparently) that it's virtually impossible to build a business with meaningful and sustainable profits simply because there are competitors or other forces that limit growth and market size. This is simply not true.
Hint: you don't need to own every mobile home park in America to be a millionaire several times over.
http://recode.net/2015/09/29/the-oh-shit-moment-when-growth-...
Edit. It is interesting that market saturation is not raised as a possible cause.
To my ears, all those phrases sound like "lay people off".
Now firing someone clearly and directly responsible for the reduced growth on the other hand...