Sam Parr discusses Sequoia Capital's crisis playbook: their 2008 "RIP Good Times" memo warned of the financial crisis, and their 2020 COVID memo told startups to cut costs and raise capital regardless of valuation. Parr runs his company lean enough that the advice doesn't require major changes, though he admits he previously under-invested in growth.
Let's start with the Sequoia memo.
Okay.
Did you read this?
No, I avoided it on purpose.
Nice.
Denial.
The best, the best approach.
Yeah, I— we haven't raised venture capital, so it's a little bit different.
Not as applicable.
Okay, so you explain.
So let's explain what it is. So Sequoia is one of the biggest venture capital firms here in Silicon Valley. They are famous for back in 2008, I want to say, they released this presentation called RIP Good Times. And they basically, they called an emergency meeting of all their portfolio companies. They invited them to this dinner, locked them in a room, put this presentation up on the screen that was basically like, hey, the good times we've all been experiencing are about to end. Here's why. Most of you entrepreneurs, you have not been a part of these cycles. We've been investors through the dot-com boom and the bust and then this, boom, and this was right before the sort of financial crisis of 2008, and they told him, look, money is about to become hard to come by. We are going to have a giant financial crisis that will have ripple-down effects to you guys, to your customers, to your clients, to your investors, and so you need to start tightening up. Anything you're wasting money on, you need to stop wasting it. Anything— if you haven't raised money, if you don't have 12 months in the bank, you need to go raise money right now to sort of be able to endure a downturn. And they just released another one, which is the new Sequoia memo. So that was 2008. Now they released a new one, and they basically were like, look, this coronavirus stuff is a— this is a once-in-a-hundred-year virus. And there's this— it happened in China, which is like, when you shock China, you shock the global supply chain. And also, now that travel is gonna stop, a whole bunch of business is gonna come to a halt. The stock market's gonna go into a panic because we've been in a 10-year bull run and that's about to sort of end anyways. So they told him the same thing. Change your spending habits, you need to tighten up. Raise money if you have an offer out there, take it. Don't worry about valuation, just take it and get the money in the bank. And you know, you need to go into sort of survival mode. You need to change gears. And that's what just came out, which I think is very interesting. Have you made any adjustments to your business?
Not yet, but I live like this anyway. I'm kind of a cockroach in the first place. Yeah. And, and I actually think that me living this way has kind of been a, a consequence. It has been, is hurt me more than it's helped me actually. Mm-hmm. I think it, it, it made it so I wouldn't spend enough money, which if you have a machine that turns a dollar into more than $1, dump the, dump the truck, your money truck.
It like what, ad spend or what do you mean?
Yeah. I mean, look, if you have a, a funnel where You, or a product where if you just spend more on marketing or spend more on engineers or spend more on content creators and it turns that new customer into more than what you acquired them for.
Right.
Then if anyone had a, a little machine that turned $1 into $1.01, the name of the game is throw as much money on into that machine as you possibly can, as fast as you can. Yeah. And I've had those machines and I didn't capitalize on it. And so I've lived this way all the time. Right. And I think it's actually hurt me a lot. But in times like these, bring it on.
Yeah, you don't need to adjust.
We haven't changed how we've done things just because we're always tight. Yeah.
And your company's in a good position. Like just now before this, we were looking at a company's P&L and it was like cash in the bank, $220 grand or something like that. It's like, dude, you're a couple of months away from insolvency, you know, if that was the case. Whereas you guys are in a much better position.
Yes, I do. I am. I do have a little fear. I don't know how I feel about this corona thing, what it means for business. I do think that I am on the side of, I think it's bad, but I don't think it will be as bad as I think, or as I originally thought.
Right.
I guess I just have faith. I have a lot of blind faith that it will work out.
