Saturday, July 18, 2009

Centrally Planned Entrepreneurship, More Anecdotal Deflation

On Thursday, I gave a pitch for my startup (Chrometa, auto time capture) at a business innovation showcase here in Sacramento.

A traditional business plan pitch is fairly formulaic - you talk about the pain point you're addressing, your solution, your market, why your team can get it done, etc. Big focus on the market in something like this - how big is it, how can you reach and sell to it.

What really struck and nauseated me on Thursday were the number of companies that talked about their alignment with current government initiatives. At least half. One presentation even had a head shot and quote from Obama about his push for green energy or some crap like that.

I'm not knocking the entrepreneurs...they can run their companies how they choose. What bothers me is the free market taking a back seat to centrally planned government initiatives.

Why not build a product that people or businesses want and sell it to them? That is SO 20th century. This day in age, you pick out an important federal initiative - green, clean, healthcare, etc - and step on up to the trough of stimulus hand outs.

Dear reader, this is not healthy economic behavior. This, I'd imagine, is how you'd run a startup in the old Soviet Union.

This is not the first time, of course, that I've noticed this pandering going on in startup circles - which are traditionally more or less bastions of pure capitalism - but this is the most extreme I've seen it to date. Seems like everyone wants to get their hands on stimulus funds or grants.

When in Rome, I guess...or maybe when in Moscow.

Bulls who are waiting for small businesses to innovate and lead us out of the recession may be waiting longer than usual. There's a lot of effort being wasted in chasing these centrally planned initiatives.


Is This Blog the Ultimate Contrarian Indicator?

To say that I was wiping the egg off my face this week after this bearish post from last Sunday would be an understatement. Lately I have been forecasting less often, as I try to weigh different positions, and ultimately use the charts to see if they support a hypothesis. Perhaps you should take my forecasts and start trading against them!

For what it's worth, I do remain bearish on nearly everything in the medium term here. We still have not seen commodities decouple from stocks and currencies - hence if you believe the market is ultimately heading lower, than caution should also be exercised when looking at these other markets as well.

Uncorrelated markets suddenly traded in perfect harmony when the Great Deleveraging hit - and if we see another bout of it, I can't see a reason why anything will be spared, at least in the short term.

Yes, people will still need to eat, and we'll keep an eye on the food complex in particular - but caution is still the order of the day for me.


More Anecdotal Deflation

Our office in downtown Sacramento gives us a bird's eye view of the continuing unfolding
disaster here in the People's Republic of California. It is fascinating, amusing, and sad, all at the same time.

While intriguing to see a socialist experiment blow up right before my very eyes, with helpless government officials continuing to turn a bad situation worse, there are real people and businesses affected, which is not so cool...at least in the short term.

The state recently added a 3rd furlough day - so state workers now have been handed a forced 15% pay cut, in return for 3 Fridays off a month. Most would not make that trade if given the choice themselves.

The effects on the city economy are very real. Shop owners and employees I've spoken with on "Furlough Fridays" are bummed out - the coffee shop guy next door to my office described yesterday morning as "very slow". My favorite tea shop in town has also experienced a notable drop off on Fridays - half of their customers are state workers, the owner told me.

This is deflation, no doubt about it. Wages are cut. Businesses are hit. They keep prices steady or lower then to lure in bargain shoppers, who have less money to spend.

In a case like the one I'm seeing unwind right before my eyes, the inflation scenario sounds like an academic exercise.

While the state goverment has its hands tied, because it cannot print money, the Federal government is the only entity that could reverse this trend. I suppose if they printed money, restored workers full pay, and made up the different with the newly minted currency, that would eventually be inflationary.

That's the only way I can see the Fed getting this new money into the system. Banks will not lend it, and that doesn't seem likely to change anytime soon. Only public works projects that are paid with newly minted money seem like the only option.

Still, can they print it fast enough to stave off the credit deflation we're seeing left and right? I'm starting to think not.


Quick Reader Survey - Please Share Your Thoughs!

I tossed together a quick 3-question reader survey, and I'd appreciate it if you could take a minute or two to share your thoughts and suggestions with me using the survey link here.

It's always great to connect with you, and your feedback and input help me figure out where to focus my energies...namely on stuff you like, and stuff you'd like to see more of.



Positions Update

Still scared...


Current Account Value: $27,511.18

Cashed out: $20,000.00
Total value: $47,511.18
Weekly return: 0%
2009 YTD return: -45.8% :(

Prior year's results: --> Don't try this at home...this is what is known as wreckless trading
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

4 comments:

Daniel said...

I'm not so sure aligning with government initiatives is such a bad tactic. Overused maybe, definitely over-quoted, but not a negative. Numerous firms I've personally worked with started life as government contractors, eventually spinning out very successful commercialization plans.

I'm interested to hear your thoughts on scaling tactics you might find useful in this economic environment.

Thanks!

Daniel
Leading Entrepreneurship

Brett Owens said...

That's fair, maybe not a bad tactic...just one that makes my inner libertarian wanna puke :)

Re: scaling - thoughts on achieving scale?

We're adhering to the adage that no startup ever went out of business by scaling too slowly...but many have by scaling too fast :) Feel free to ping me direct for side convo.

Eric said...

I really enjoyed this article.

Having gone to a VC conference the past couple of years it was absolutely fascinating seeing the talk going from "we'll figure out how to make money later" "worrying about revenue and profitability is for suckers" and "Google/Microsoft/Yahoo will buy us" and generally the idea that capitalism will take care of everything to depending on government handouts/tax breaks etc. (as well as the bitching that the government is not handing out enough money to their various causes) to keep the company floated and profitable (Shockingly enough government breaks and handouts were built into the model assumptions) in addition to VC financing.

From a VC standpoint this seems to introduce even more risk as the sustainability of the company is built upon political agenda in addition to the riskiness that an entrepreneur can pull off building a company.

I can see the argument of being a government contractor where the company provides a service or product to the government as a paying customer, but, like I said above, the entitlement to and dependency on government handouts to the point of including them in financial models slightly shocked me.

Brett Owens said...

Thanks Eric - great observations, and excellent point re: there being more risk for VC's. I think you're right on the mark there - it's tough enough to figure out a new market, but at least it acts rationally - the gov't, you are at the beck and whim of their focus.

Also one of my favorite new phrases is from the EWI guys, that government is "the ultimate herd." In other words, you can bet that by the time they are focusing on a trend, that trend has already played out.

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