Getting Back to Business Fundamentals

The economic news over the last few weeks has, obviously, been fairly grim, and after an initial shrug by Silicon Valley, over the last week or so it seems that everyone in the valley has started to realize that this really will, in fact, affect them, that VC and angel funding will dry up, that advertising spending will likely decline, and that in general everyone had better actually focus on business fundamentals and actual cash flow again.  The Sequoia Capital presentation was the most well-reported example, but in general it seems like everyone is starting to get it.

Working at a company that was founded at the end of 2001 (and being here since mid-2002 myself), my perspective is naturally a bit different.  Guidewire started out with the intention of building a solid, sustainable business that involved selling valuable, mission-critical software to an underserved market.  In any rational universe, it shouldn’t really require a massive economic calamity to get people running back to trying to actually build software and provide services that are good enough that people are willing to pay actual money for them.  But for the last few decades, at least, Silicon Valley hasn’t really qualified as a rational place. 

In a way, the hype machine/echo chamber around here has, for the last several years, gone back to rewarding/emphasizing very similar tactics to what happened during the first internet bubble, with the exceptions that this time everyone’s goal was to get acquired instead of to IPO (since everyone could plainly see the IPO pipeline for software companies has been non-existent for several years now) and people tended to take less VC funding and be correspondingly less agressive (thanks to some serious advances in commodity hardware and hosting that made it much cheaper to start something).  The focus was essentially still on making a big splash, and getting as many users as possible before really worrying about a business plan or cash flow, with the hope of selling the company off and leaving the dirty businesses of creating a revenue stream and growing/maintaining the product to someone else.

If there’s any silver lining to this whole catastrophe as far as the Valley is concerned, it’s that times like this always force people to go back to fundamentals, which results in stronger companies that develop real value instead of massively-hyped, overvalued startups that are just trying to piggy-back on whatever’s currently trendy (“Look, it’s a web 2.0 social networking mashup microblogging site for people who wear sandals!”).

Really building a business for the long haul is hard, and there are plenty of challenges you encounter as you transition from 10 employees to 50 employees to 500 employees, or from one product to three products, or from one released version to 50, or as you move into your sixth or seventh year of working on the same codebase and have to struggle with all the decisions you made years ago when you had no real idea where things were going.  And of course, actually building something that people need, want, and are willing to pay for is the core challenge that drives everything else.  Grinding through those issues might not be as glamorous as the initial work is, but they’re still hard, difficult problems that are worth solving and that are critical to the survival of the business.  While I can’t compare it to the satisfaction of some sort of buyout (never having been there myself), I can say that seeing something be sustained and grow over that period of time provides an entirely different kind of gratification than just getting the first version out does.

Times like this really separate the wheat from the chaff, as it were, so it’ll be interesting to see who manages to survive and actually generate revenue.  And in a lot of ways it’s a good time to start a company, if you can swing it, since the talent pool is generally better than it is when times are better, and there’s less pressure to do things that damage the long-term health of your business in order to grow more quickly than is prudent.  It’s certainly a good time to be working at a company that builds real products that sell for real money, and I’m proud to be working at a company that has been in it for the long haul since day 1.  Did I mention that we’re hiring?

4 Comments on “Getting Back to Business Fundamentals”

  1. Ben says:

    Hear, hear. Can’t stand the hype-mongers. Looking forward to another culling…

  2. Alex Naddaff says:

    Thanks for writing this. It is great to think back over our short history and remember the many good and bad decisions as we looked to keep our promises to each other and to the customers that trusted us. Guidewire has certainly been the most gratifying job in my career. And I worked with some great companies including MBNA, JP Morgan, and The Hartford.


  3. Marcus says:

    Beautifully put, Alan. Just as it’s hard to plow money into a stock market that has fallen precipitously (though that is precisely what you should do), it is counterintuitive to recognize that a depressed business climate is the best time to innovate and get things right. I’m particularly excited about the opportunity for Guidewire to recruit talented people with the right values and a long-term orientation.

  4. […] One of the first employees of my company has a much more original and intelligent perspective on what the recession means for Silicon Valley. […]

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