November 9, 2005 – A Silicon Valley Turn-of-the-Century Tragedy

November 9, 2005 – A Silicon Valley Turn-of-the-Century Tragedy

The cycle of birth and death means a great deal more to me as a 60-year old than it did to me as a 30-year old and thankfully I’ve seen precious few of the latter among the people I have known since arriving in California in 1974. What I have seen a great deal of though is the birth and death of companies and corporations. The greatest mass extermination of legal entity “enti‘cide’” occurred at the end of the last century when silicon valley experienced an orgy of red ink spilling off income statements and balance sheets as from the body of speared animals. While most were left to die, others were eaten by larger corporations that were able to survive waiting for the weaker ones to become easy prey.

Every day in the newspaper were ads for auction houses selling off assets of a Internet enterprise that failed. These companies all came into being when financiers were willing to invest $50 to $100 million in a business plan with no clearly defined business model for producing revenue. Most of these ventures simply set up a web site to build traffic and hoped to sell advertising or hoped to divine a business plan to make money afterwards. Who remembers Boo.com, Toysmart and CraftShop.com. These companies spent lavishly on office space, furnishings and equipment, servers and workstations for their staff of round-the-clock workers who busied themselves hacking code to establish a compelling web presence.

I didn’t work for an Internet company back then, but rather a company that fed off the Internet’s booming business. My company sold pricey software to companies building chips to sell to Cisco, Nortel, and Lucent among others. These in turn, sold equipment to companies building the Internet infrastructure. When the web-based businesses began to starve for lack of renewed investment and no income, everyone in the food chain, including our chip company customers curtailed their spending, the nourishment that had been feeding my enfant company rapidly diminished until there was little to sustain its existence let alone foster its growth. Being in marketing, I was an early casualty. To husband what cash it had in hand, the company cut special deals with suppliers whereby it paid a smaller portion for a good or service promising to pay the remainder when it began to generate revenue. Suppliers booked the cash upfront discounting the transaction to make the sale—they were as hungry as their customer and would take less rather than risk losing even the meager amount being proffered.

I left in October 2001, a few weeks after the Twin Towers had been devastated—a metaphor for the economic meltdown that followed; Bin Laden attacking a symbol of capitalism and wrecking his intended havoc. I contented myself doing odd jobs disheartened at the prospect of looking for full time employment. As the year drew to a close even the small supply of odd jobs was being consumed by others like me eager to earn a fraction of their salary to keep the bill collectors at bay and to salvage some modicum of their self-respect. By the New Year 2002, I had gotten lucky and landed a new full-time job, with a small start-up who miraculously continued to prosper in these terrible times.

My old company had managed to make it into 2002 after jettisoning all those not directly involved in producing new product. The company had also completed the sale of a substantial part of their assets thus providing funds to last through the year. I began to believe that the struggling enterprise might have the wherewithal to survive the famine. But as 2002 drew to a close, the signs of economic starvation once again began to appear. Unknown to me at the time, the emaciated legal entity had made a bold attempt to raid a rival in an aborted attempt at a leveraged buyout backed by long suffering customers of the rival.

In the hostile takeover my old company president had made a last desperate bid for a controlling interest in the stock of his archrival at a point when the rival’s stock had sunk to under a $2/share. Customers tired of poor response to their requests and exorbitant pricing passed the hat and made the offer with my old company’s president as the leader of the effort. Somehow news of the hostile takeover began to leak in advance of the offer and the stock price rose abruptly putting the acquisition out of reach and the attempt fizzled leaving my old company no alternative but death. When the weaker predator puts all its strength into one attempt to deal a fatal blow and the blow misses the mark, death is the only recourse. And so it was that the little entity slowly bled to death: one of the many Silicon Valley turn-of-the-century dramas.