On March 5, Sequoia Capital sent a memo providing guidance to founders and CEOs about how to manage through the coronavirus pandemic.
You can read it here (but hold your nose).
When I read the memo, I got pissed off. We’ve worked with a lot of Sequoia-backed companies over the years, and I would like to let you in on a poorly kept secret: Sequoia doesn’t care about companies or people. They only care about money. You know what I’ve never heard a Sequoia-backed company say? “Gee, I’m really glad we took that Sequoia money. Best. Decision. Ever.”
The Sequoia Memo
Here are some quotes from the memo (along with my snarky commentary).
“Coronavirus is the Black Swan of 2020.”
I have to say, that’s a really dramatic opening! For those who may not be familiar with the term, a “Black Swan” is an event that meets three criteria: (1) it is a surprise, (2) it has a major effect, and (3) after being witnessed for the first time, it is rationalized as something that could have been predicted if only if people were paying attention and looking at the right data. I don’t mean to be pedantic in a pandemic, but it’s debatable whether this is a true Black Swan.
But more to the point, it’s just a bunch of Silicon-bro jargon masquerading as original thought with the sole intent of stoking fear. What they should have said is, “We don’t trust you to spend our money, so sit out a few rounds until the adults tell you what to do next.” Because that’s what they were thinking.
“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.”
This is straight-up bullshit. The best time to market is when other people aren’t. Brand recognition drives market share. This is a buying opportunity for marketing. Build your brand recognition now and you’ll reap the rewards later as you gain market share against scared competitors (it worked for leading companies like SuccessFactors, Cornerstone OnDemand, and Ultimate Software during the global financial crisis). And keep in mind that Sequoia only has about a 5% success rate with their investments. They don’t care about all their companies. They really only care about unicorns. Oh — and one more thing — people need what we sell in Work Tech. The future of work just arrived at our doorstep. We will never return to the way we worked before. We can help — isn’t that we started all these companies to do?
“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.”
There it is. This is Sequoia at its core. Why wait to fire people? Go ahead and fire them now! And while you’re at it, see if you can squeeze the people left behind to be more “productive.” (Remember that part at the beginning of the memo when they talked about how much they care about people? Come on. Sequoia doesn’t care about people. They care about money.)
“Having weathered every business downturn for nearly 50 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.’”
Look, y’all — you know instinctively this whole paragraph is bullshit. Darwin? Really? They are just gaslighting you. They want you to get scared and stop spending money so they can protect their investments and marshal resources behind their big bets. I know a lot of companies who really regretted making fast adjustments during the global financial crisis because THEY ARE NO LONGER IN BUSINESS due to panic and wrong-headed austerity measures.
“A distinctive feature of enduring companies is the way their leaders react to moments like these. Your employees are all aware of COVID-19 and are wondering how you will react and what it means for them. False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action. Avoid this trap by being clinically realistic and acting decisively as circumstances change. Demonstrate the leadership your team needs during this stressful time.”
More gaslighting. They keep talking about taking “bold action.” But “bold action” is just a dog whistle for “fire people and stop spending our money, yo.” Oh, and about leadership? “Clinically realistic” is not a phrase I hear thrown around a lot about leadership. That’s management – not leadership. Leadership requires optimism; it requires believing in what is possible. Don’t let Sequoia suck it out of you.
“Here is some perspective from our partner Alfred Lin, who lived through another Black Swan moment as an operating executive: ‘I was serving as the COO/CFO of Zappos when I was summoned to Sequoia’s office for the infamous R.I.P. Good Times presentation in 2008, prior to the financial crisis. We didn’t know then, just like we don’t know now, how long or how sharp or shallow of a downturn we will face. What I can confirm is that the presentation made our team and our business stronger. Zappos emerged from the financial crisis ready to seize on opportunities after our competitors had been battered and bruised.’ ”
OK — so I can’t say what I want to say here without getting sued. I’ve witnessed firsthand this “management” style. It’s very Sequoia. But how did they possibly manage to live through that terrible Black Swan moment as an operating executive? Did they take a pay cut? Did they stand in line for toilet paper? Did they even make their own beans? Oh wait — Zappos sold to Amazon on July 22, 2009. So I guess that helped, too.
I love how these Silicon Valley myths get better and better with each telling. Just worth noting — Zappos increased their marketing spend throughout the global financial crisis (exactly the opposite of what Sequoia is telling their portfolio companies to do). Here are their 2007–2009 financials: SlideShare.
So How About That Sequoia?
Did I mention they have about a 5% success rate? This weekend, we analyzed 1,305 investments that Sequoia has made since 1975. Spoiler alert: They’ve been riding the coattails of some big, lucky investments in unicorns for a long time while they’ve mostly destroyed work technology companies.
In case you were wondering, they have made 28 work tech investments (in 12 companies) out of 1,305 investments that we analyzed. That’s 2% of their total investments. Does Sequoia know work tech? Absolutely not.
Here Is What Sequoia Knows:
Unicorn Investments (Where Sequoia Made All Their Money)
Unicorns are companies that exit for more than $1 billion. Let’s take a look at Sequoia’s unicorns.
- Nimble Storage
- A123 Systems
- Palo Alto Networks
These are great investments for sure! But when you make 1,305 bets (with other people’s money), you’re going to hit a few blackjacks.
The Bottom Line
Sequoia had an opportunity (like the rest of us) to reassure their portfolio companies and demonstrate their care for our people, our communities, and our country. Instead, they whipped up fear and uncertainty, gave bad marketing advice, recommended firing some people and making others work harder, told folks to hoard cash, said some stupid shit about Darwin, mansplained a bunch of stuff using jargon, and trotted out Alfred Lin so he could once again compare shit to Zappos. None of us are selling shoes, dude!
And we wonder why people are pissed at Silicon Valley.
Listen — this can be a brand-defining moment for your company. Don’t follow the herd. Keep your courage and think big. We’re all in this together. Take a look around and ask yourself, “How can I bring my people, my partners, and my customers closer to the company?” Cause when this is all over (and it will be over) people are going to remember how we behaved. I’m looking at you, Sequoia.
We are all in the Work Technology field. And the world of work just changed — for good. People need us right now. They are sitting at home isolated and uncertain. We are from companies that care about the employee experience. We are from companies that care about engagement. We are from companies that care about recognition and well-being and connectedness. We are from companies that understand the balance between performance and purpose.
This is our moment. People need us. We are the companies that can make sure that businesses and people stay focused, productive, and positive. Let’s be the industry that stepped up to the challenge! Let’s be the industry that helped people in uncertain times. What we do is more important than at any other moment in modern history.
Now get out there and tell people that the future of work has arrived!
P.S. Our senior strategists at the office are devoting all of our time for the next several weeks to provide complimentary consulting sessions. We have cleared our calendars and we are here for you. Let’s jump on the phone and talk about how to make lemonade out of a quarantine! Reach out here and our team will follow up to to schedule a session immediately