For anyone not familiar with the term “DEFCON 1” it’s a military term used to identify the most sever military condition in the U.S. The degrees of severity range from “5” being the least severe or, at general peaceful conditions, and “1” representing the threat of imminent nuclear war. As I look out and extrapolate many of the warning signs that have been showing their hands over 2015 when it comes to everything “Silicon Valley.” I can’t help but use this military descriptor as an overlay of what’s taking place there currently. For I truly believe as I’ve written and spoken over these last 5 years – things are really about to hit the fan.
Over the last 5 years in “The Valley” (meaning everything representing tech and disrupting) there has been no other land of opportunity that lived, created, self defined, along with redefined its business metrics than the tech world. Unicorns, Non-GAAP, IPO’s, and more were the terms bandied or used to encapsulate what it was to be a “disrupter.”
Start a company (or idea) and make the rounds to get funded first – net profits are a trivial after thought. And for some they were an outright theory altogether. Then if you’re successful (i.e., you haven’t burned through all your start-up cash) turn your sagging or profitless business into a “We’re killing it!” fairy tale using Non-GAAP accounting. Once steps one and two are complete – IPO, cash out, and buy an island, yacht, McMansion, and more with the proceeds. Boom – done – next!!!
Yes the example is over-simplistic – but it’s not far off the mark. This has pretty much been the meme and/or state of business prevalent within the Valley for quite some time. However, as I’ve stated during all of that time; without the intervention of the Fed’s QE (quantitative easing) free money enabling risk taking to supersede business fundamentals to fund and fuel speculative investments in ways that mirror the dot-com days: there would be no “Valley” as it currently stands.
The amount of wasteful over investment on companies and ideas that should have never seen the light of a ledger book, let alone day, has been astounding. Billions upon Billions upon Billions (I could go on a billion more times) of $Dollars thrown at companies like it were water has been literally breathtaking. Need I remind you of WhatsApp™?
The only thing that challenged this sensation was the jaw-dropping rationales by nearly everyone involved in how, or why, it all made sense. And I mean everyone from the founders, investors, right down to the financial media et al. To say they’ve all been drinking the Kool-Aid® is being kind. Let me put a few things down for some context.
Uber™ for all intents and purposes; is an app that let’s you hail a cab. Current valuation? $50+ BILLION dollars looking to finance another round bringing it up to over $60 BILLION. The reaction, analysis and commentary? “Absolutely! Sounds logical and reasonable. After all They’re killing it!” Fair enough. I’ll just ask you this:
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