Zoho bitterness at the credit crunch...and a solution

Zoho bitterness at the credit crunch...and a solution

Summary: I have a lot of sympathy for Sridhar Vembu. CEO of AdventNet, the parent company behind Zoho.

TOPICS: Banking

I have a lot of sympathy for Sridhar Vembu. CEO of AdventNet, the parent company behind Zoho. His last two posts reflect much of the fear and frustration behind what I am hearing in the startup world. But amid the gloom, Sridhar offers a glimmer of hope. A few snippets. From We're all Japanese now:

...don’t confuse libertarian economics with the “free market capitalism” claptrap coming out of the Wall Street financial complex; when Wall Street gunslingers touted the miracles of “capitalism”, what they really meant was their government-conferred right to borrow easy money from the Federal Reserve, leverage themselves up 20 to 1,  even 40 to 1 while speculating with that easy money, paying themselves tens of billions collectively in bonuses, finally inflicting hundreds of billions, soon to reach trillions, of losses on the taxpayer when those speculations predictably failed . The Wall Street version of financial capitalism has about as much to do with real savings and investment led capitalist wealth creation as alchemy has to do with with chemistry. The alchemy analogy is particularly appropriate: much of the Wall Street “business model” was really transmuting pools of highly risky, toxic mortgages into nearly risk-free “golden” securities.

That's one of the best summations I've read about the mess that is Wall Street today.  About the only thing it misses is the extent to which Wall Street financial engineers managed to swell their pockets by manipulating the tax system. But that's for another blog and another day. As I've said elsewhere, even relatively simple control questions could have surfaced the problem. But they didn't. This is the myopia that develops when money seems to be pouring from the skies. We eventually become blinded by the golden glow of a seemingly never ending stream of funds.

Roll back one post to Sridhar's Surviving the financial crisis:

It seems clear that we are heading into another nuclear winter, this time led by housing and financials. It is going to impact the tech industry, but this time as suppliers not as direct bubble-blowers.  Companies that have a strong balance sheet (we prefer zero debt), and the ability to adapt and flex will survive the wreckage. Customers are hurting, so attractive pricing is a must - there is going to be price deflation in tech. These are the rules we live by at AdventNet & Zoho.

Over the weekend, Jason Calacanis caused something of a stir with his long email newsletter that was posted to Silicon Alley Insider, only to be torn down later (and at Techcrunch) Calacanis predicts that 50-80% of startups will fail in the coming 18 months and that the 'depression' will last years. To his credit Jason offers a menu of sound advice - everything from belt tightening to hiring the best and generating revenue.

It is this last part that is a worry. Many of the startups we've seen in the last 18 months have been headed down the ad supported route. I've never believed that's sustainable except for the very largest sites. The money simply isn't there to go around.

By definition, that means very few survivors, huge cash burn for those that are building mind share but ultimately a two finger salute to the 'build it first, figure out business model later' brigade of VC buccaneers. If you have any doubt then check what the market thinks about Google's near term prospects. (Hint: it's trading at a 52 week low and as I write this, is off some 5.6% from the previous close.)

What about enterprise startups? Zoho is the poster child for bootstrapping, taking on the big boys and still managing to do well. Zoho has the benefit of having lived through a past storm, learning from the lessons such experiences deliver. The same goes for Jason Calacanis (and you wonder why he raised all that money?)

Survival will mean a sharpening of the price pencil. Services that today seem modest at $20per month compared to on-premise pricing will come under pressure. If Zoho can do it, so can you.

Topic: Banking

Dennis Howlett

About Dennis Howlett

Dennis Howlett is a 40 year veteran in enterprise IT, working with companies large and small across many industries. He endeavors to inform buyers in a no-nonsense manner and spares no vendor that comes under his microscope.

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  • Missing Facts...

    You're missing several key facts about our current mess...

    1) The banks were forced into making high risk loans by our delightful government. Based on a study (later determined to be flawed) showing bias in lending, the Clinton administration passed laws requiring banks to make sub-prime loans. The loanee's ability to pay on the loan was NOT allowed to be a consideration on making the loan.

    2) Combine this with massive corruption at Fannie Mae and Freddie Mac in the early part of this decade and you have a recipe for disaster.

    But - the current disaster could have been largely avoided: a bill was introduced in Congress in 2005 to provide regulatory oversight to FM & FM. Thank the Democrat controlled congress for shooting that one down. Oh, and btw, one of the senators who introduced the bill that could have stopped this mess? One Mr. John McCain...

    The fault for our current mess does not lie solely with "Wall Street Greed". While there's certainly no shortage of greed on Wall Street, the Clinton Administration and our current Democrat controlled congress were, and are, significant players in the making of this mess.

    For more information, check out Bloomberg, and Investors Business Daily.

    Steve G.
    • Trust me

      In my 'day job' I spend a great deal of time analyzing accounting issues. It's my stock in trade. I'm well acquainted with the legal background to this debacle and can certainly 'get' that as a root cause catalyzer. But no-one 'forced' the banks to do anything they didn't want to. At the time it all made perfect sense except for the very obvious flaw that markets are NEVER on a constant upwards trajectory. Fannie and Freddie may have been shoddily run but does that account for ALL the problems we're seeing? I doubt it. There are a lot of players implicated here and the fat lady hasn't even entered stage left. This post was merely taking one person's view as a backdrop to a position with which I openly sympathize. That's the nature of a blog.
  • pathetic

    I was pointing out that the situation was untenable and would inevitably come to this years ago. Nobody listened. The fact is a fiat (unbacked) debt-based "currency" is intentionally bound to implode after a time. It's how the private federal reserve banksters obtain tangible assets, through inevitable foreclosures.

    I sure hope everyone knows the federal reserve is NOT part of the government, but is a mostly foreign-owned private entity...

    Anyway, the answer is for the treasury to issue non-debt and interest bearing "United States Notes." JFK tried, and the first act of Johnson as president was to reverse this... the private federal reserve has more power than you think. Congress works for them, and if you want to be president you do what they want.

    But this was the last straw, why JFK was offed:


    Read what it says over Jefferson's head...

    Insult to injury, well, murder really, is only dead presidents can be put on our "currency," 1964 out comes the JFK half dollar. Like spitting on his corpse.

    Abolish the fed and everything fixes itself.
  • as are you...

    All 50 attorneys general (states, obviously) tried to put an end to this. Bushco pulled an unprecedented move, a very questionable use of an arcane regulation to block the states from protecting their people.

    Party doesn't matter.


    And would that be "Mr. Keating 5" John McCain?

    The "savings and loan scandal," the "dot com bubble" and now this. Government and business are complicit in all these planned robberies. Your wallet (or maybe house) is the target.

    Only when the people wake up from the false left-right paradigm, and realize the "two parties" are really one and the same coin, will this cycle of rip-off (especially robbing you of rights) come to an end.

    BTW McCain first got elected using information given him about a huge rip-off effecting veterans. He promised to "clean it up." Vets were randomly being told to their faces benefits were denied, but in fact they were approved but the money was being diverted to lawyers pulling the scam. Once elected he did nothing about it. Some $380,000 a week was being stolen while vets with medical needs rotted. Still going on decades later, to my knowledge.

    If you see them on TV, they are as crooked as John Gotti, worse, actually. Obama is no different. You can't run for office here unless you are approved by the global elite bankster mob. Arnie seen hobnobbing on the Rothschild family estate in England... a couple months later he's the governator. Same old story.

    Don't count on any "change" from your mainstream politicians.