Value
I'm having trouble figuring out just why anyone would ever want to provide Wall St. quarterly guidance. I don't see any upside in it. I think folks will be much better off just providing guidance for the year and never saying anything other than "we believe our annual targets are accurate". Every CEO should take Bill Belichick conference call lessons.
The street is going to punish you for hitting your number, for missing your number, for saying a number, or even implying a number, so why bother? You can't control valuations, you can only control what model, or bucket, you are jammed into. Once you are in that bucket, you can never get out, so chose carefully. Why is LSI still valued as a chip only company? Why are chip companies valued lower than donut makers? Who knows? Times change. All I know is that it doesn't matter if a company is well run or not, if the market is growing or shrinking, or if the competition is winning or losing – valuations don't have anything to do with that. Valuations of companies with 20 year histories of success can be crushed in 90 days. That's just dumb.
IBM paid $330 million or so for XIV – who makes scale-out clustered block storage. They have $11 in revenue and 40 customers. IBM is betting that the technology is what the world needs in the next era, and that in their hands they can exploit the opportunity. Isilon has a zillion customers, is the originator of scale-out NAS systems, is running at $100 million in revenue, has to be close to 10,000 nodes shipped, and has $85 million in cash, but according to Wall St. they are only worth $322 million. 9 months ago they were worth a trillion. I don't get it.
VMware did $412 million last year, beat earnings expectations, grew 80% and lost 23% of its value today (only $10 billion dollars, it's not like it was a big number or anything). Why? Apparently the street expected top line revenues – one of the dumbest things you can measure in the real world – of $417 million. So for missing the top line by 1% they got slaughtered, even though they made more money – and beat the bottom line. I give up.
Here's my advice – screw 'em. Run your business. Make money. Operating with the intention of making Wall St. happy is a losing proposition. It's like being married to Sybil – she might be happy now but can easily stab you in the throat an hour later. I know it's easier said than done, especially with the pressure of all the VC's desperate to regain some semblance of a portfolio after all the ridiculous mistakes they made over the last 7 years, but hold them off.
The model for success is:
- Say nothing.
- If you feel compelled to say anything, only talk about how you play in the next next thing. You aren't a storage company, you are the dynamic receptacle for web 2.0. You aren't a server company; you are the fluid processing elements that scale to the demands of web 2.0. You aren't a networking company; you are providing the communications interconnect for the social networking infrastructure of the web 2.0 world. Then shut up.
- When you feel as though you should answer a question, think to yourself – what would Bill say?
Q: Bill, can you explain why there are 2 open parking spots in your customer support center?
A: The numbers speak for themselves.
Q: Bill, you have grown revenue, market share, and margins over the last 87 quarters, how long can we expect this continue?
A: Our competition is extremely well managed. They come to play every day. They are tough. Guys like Tucci, Warmenhoven, Chambers, they are good. They dominate. Chuck, the manager at the Waltham Domino's could be the best we've gone up against.
Q: Bill, what are you going to do with your excess cash?
A: We are very pleased with the numbers, and continue to try to put the best people in the field who give us the best opportunity to win.
Q: Bill, how much did IBM's foray into your market slow sales this quarter?
A: The best you can do is to prepare for every possible contingency and make sure your people stack up as well as can be. Hopefully we continue to make big plays when it counts, especially in the fourth quarter. They are a good team, and I expect a good game. Hopefully we continue to do the things we need to do to come out on top.
Q: But Bill, you just announced record earnings, record revenue, and a record contract. You must be happy moving into the New Year.
A: We are just trying to do the best we can with the people we have. One or two breaks and the Domino's might have slowed us down.
Great post, Steve.
"Anyone want to talk about the Chargers?"
Posted by: Nick Mehta | January 28, 2008 at 11:36 PM