Wednesday, October 15, 2008

Recession and The Valley

Are you a programmer who recently moved to Silicon Valley? Are you nervous about what things will be like now that the greater economy has gone pear shape? Then listed to this old man tell you all about his experiences in the last recession in the Valley.

I moved to the Bay Area in 2000, right as the last great recession was getting started. Like this recession, it was happening in an election year and it really hurt the incumbent party. I started off working at a very small start-up in San Francisco called InternetElements. They had a cool idea. Allow any bank or even large organization provide the tools to their members to buy and sell stocks. Remember that back then the stock market was really hot, much more so than it has gotten in the last few years. New companies sprung up all the time and went IPO. Everybody bought into the IPO and made crazy money. It was great.

Anyways, once the stock market started tanking and IPOs disappeared, nobody had much stomach for InternetElements' idea. I was employee #4 there. Our CEO basically told us that we had cash in the bank to make payroll up until a certain date. This was about a month before that date. There were talks going on to get us either some more money or do a merger with another company that had more money, but neither of those worked out.

I started looking for a new job. This was fall of 2000, so things weren't too bad just yet. I didn't have much experience, but I had a degree from a (among the tech world) well known school. So that opened doors for me. I found a new job two weeks before the old one was set to die, and started at the new one on the Monday after InteretElements stopped promising to make payroll. The two founders of the company continued on trying to salvage their company, but there were no hard feelings at all.

My next company was called RMX. I would work there for the next two years. It was also a start-up, but was sort of a spin-off from Chevron. I was there throughout the recession. When I first started, we were expanding pretty quickly. They had hired a lot of consultants to build the initial site and needed to replace them with full-time employees. There was also a grand vision of a big company with an large and intricate org chart.

That vision died pretty quick. Soon the hiring stopped, and then some layoffs started. Tech companies everywhere were struggling. We knew there would be no additional rounds of funding. So we had to become profitable to sustain ourselves. Our management were great. They explained everything in detail at all times. We met as a company every Friday morning. Management talked about how much money we had in the bank, what our burn rate was, and what kind of sales prospects we had.

We worked really hard at RMX. We closed deals with new customers. We drastically cut costs by replacing licensed software with either open-source or in-house built software. By the spring of 2002 we were profitable with about $4M in the bank still. Everybody felt pretty good about themselves. We had survived the recession, even when it got amplified by the aftermath of 9/11. Or so we thought...

In May of 2002, our board of directors voted to shut us down. The reasoning? Even though we were profitable, the recession had changed the landscape they thought. Our ceiling was much lower, even though our risk was also now very low. We weren't a worth investment, so decided to liquidate us.

Half of the company was laid off within a week of that. The other half was kept around. We had customers and contracts with those customers that required us to help them transition to not using our service. Basically each customer got a copy of our code so they could run our service for themselves, on their own hardware. So all of the engineering folks were needed for the transition, but obviously sales and marketing folks were not.

Everybody laid off got one month's pay as severance. Everybody who was not laid off and staid until the end got one month's pay severance, and got a bonus for staying to the end. I was one of those folks. It was a pretty good deal in some ways. I had a job, while it was understood that I would look for a new job. However it was pretty depressing. Half the folks in the company were gone, including a lot of friends. Everybody still working knew their own end was in sight. The closer it got, the more stress people felt.

I wound up staying until the very end. We had a big party on the last day. It was nice, but it was pretty upsetting for me. After two years with a start-up, I had a lot of emotional investment. I was too shook up by it to even say proper good-byes to everyone.

The next week I went on unemployment! I had COBRA papers ready to file when my health insurance ran out. And I did a lot of job hunting. I felt a lot of desperation to find a new job and took the first offer that came my way. That was a mistake in hindsight. I wound up only going one week without a job.

The new job was a contract and it was doing code in C#. I was intrigued about learning a new language, as I had only done Java, Perl, and a little C++ previously. I was a total gun-for-hire at this job, and I was not used to that. I had been an integral part of a start-up for the three years prior to that, and I did not adjust well. Luckily after four months, I found a job at Yet Another Startup: KeepMedia, now MyWire.

The worst of the recession was over in 2003, but things were not peachy. I started working at KeepMedia in February and we launched that summer. It was a great company, and I was back in the kind of role I liked. Things did not take off like we wanted. I think that had more to do with the business plan then the economy, but who knows. We never had any layoffs or anything like that there. But we did everything on the cheap, and I do mean cheap. Our biggest expense was an Oracle database. We were scared to put people's credit card numbers in a MySQL database.

Anyways, that was an interesting experience too. It was a stat-up that started in a recession. What was a little different about KeepMedia is that we were funded by a single person, Louis Borders. We did not have a certain amount of money in the bank and there were no plans to seek VC funding. That would have been tough to get anyways at that time. But there was still huge emphasis on saving money at all costs. We were very creative at doing that. I learned a lot of valuable lessons by having such constraints placed on the systems I built.

I wasn't at KeepMedia very long. That's a long story in itself, and I hated to leave. However, by the time I left, the recession was officially over in The Valley. Let me summarize some lesson that I learned back then:

1.) Start-ups are still start-ups. They are no better or worse just because there is a recession going on.
2.) However, if you are at a start-up, it becomes even more important to know what the heck is going on.
3.) You should still be picky about your job. Don't let the recession force you into a job you hate. Now the recession can force you into that situation, i.e. you are running out of money, etc. But don't put yourself into that situation artificially.
4.) If you do find yourself in a bad position, don't be afraid to make a change.

That covers the professional side of things for me. When it comes to personal things, honestly the last recession did not affect me negatively. Rent prices dropped a lot during that recession, mostly because they were way too high before it. I never took a pay cut and I never had any money in the stock market other than my 401K. So in many ways my buying power actually increased during the recession. Now if I had been unemployed for a long stretch... well obviously that would have been a lot different.

Will this recession be even worse? I actually don't think it will be worse for The Valley, just because the last one was so bad. This one looks like it will be worse for the country at large, and maybe it will last longer. The last recession was four years solid in The Valley, though maybe less elsewhere.

No comments: