November 09, 2008

Sequoia Capital Death Spiral Presentation

This presentation from Sequoia Capital circled the internet a couple thousand times --- a presentation that suggests startups might be well-served by taking a hatchet to expenses now, rather than going through a death spiral of tiny cuts.

The theory sounds good. Of course, Sequoia Capital didn't offer any evidence that this is the best strategy. But it is a nice presentation with lots of graphs indicating pending doom.

All of you who run
Multichannel Forensics forecasts know the real impact of cuts in marketing, don't you?
  • Brands in "Retention Mode" face dire long-term growth and profit consequences by hacking marketing expense today. However, the hatchet-like approach will appear really positive in the short-term, because sales won't decrease much this year.
  • Brands in "Hybrid Mode" have a lot of options for cutting marketing expense.
  • Brands in "Acquisition Mode" can take a hatchet to marketing expense, knowing that because they do not retain customers at a sufficient rate, the business will bounce back quickly when the economy returns. However, the hatchet-like approach will have dire consequences on top-line sales this year and next year.
Before taking the advice of a presentation that offers no proof that taking a hatchet to the business is the "best" advice, run a few scenarios for yourself. Your own data will lead you to self-evident conclusions, conclusions that may run counter to the advice of the folks who created this presentation. Or the data may correlate well with the advice in the presentation. But at least you will make the decision for yourself.

I'm confident you can build these tools yourself, if you need to. If not, I'll be happy to help.

Click on the image below to enlarge it.