Ah, the Bay Area. Land of incredibly smart people and conspicuous idiots, the latter in thankfully low ratios to the former. This is, in part, a warning to the three executives who I listened to or, rather, listened in on a lecture delivered at them, while dining at Isa, a San Francisco restaurant, the other night. Don't listen to the idiot with whom you had dinner.
I've seldom heard a more intellectually bankrupt spiel about the telecom and personal computing industry, especially from someone whom I recognize as having a little market-moving clout.
It wasn't an invasion of privacy. He was shouting and this is exactly the kind of encounter Idiot says: "The good news is that I'm confused. I've been in this business for ten years and Wall Street will be confused, too."entrepreneurs should be warned about. There are no names here. Not so during the dinner conversation I heard.
"I am under NDA, so I am not going to name names," was the first thing I heard him say, his voice carrying across the terrace of Isa's patio. He went on to name names of several companies, claiming that, among other things, Vonage was negotiating to acquire the top spot in the telecom services configuration drop-down menu on Dell PCs.
It was a rather obvious suggestion, at least outwardly, given recent rumors that Google is talking about a $1-billion deal to place its desktop search and "Pack" configuration. However, Vonage only has only about $320 million in cash and expects to raise only $250 million in its upcoming, very dubioous IPO. At its current burn rates, and adding a $500 million marketing expense, the company would burn through the capital raised by the IPO too fast to keep operating without incurring a lot more debt or through an even more unlikely secondary offering.
Keep in mind, however, that most of this probably isn't true. It was the bluster of an idiot who talked loudly in big numbers and gross generalities to impress some guys buying him dinner. The thought that Vonage could afford such a gamble that PC configuration is a key telecom decision-making moment for its market is ludicrous, since it concentrates on serving telephone handset customers much more than PC users. A Dell deal would require a 180-degree turn in Vonage's consumer messaging.
Moreover, the strategy is the AOL customer acquisition gambit of 97 through 2000 and, if Vonage or Google actually do start buying desktop real estate, investors should run for the hills.
"Google had nothing five years ago. Now they can throw more attorneys at this than SBC," bluster-boy said, insinuating some connection between the customer-acquisition strategy of a search developer and a wireline carrier.
The three guys eating with him didn't roll their eyes, apparently taking what they heard in earnest. Either that or they are incredibly polite. The loudmouth didn't ask many questions about their company, which I got the impression was in the VoIP and/or SIP space. He held forth.
"This is reality," our former analyst said. "If these f**kin' guys [Vonage and Google] are right and they have the [Dell] interface, then you better give away the whole f**kin' store to get into the Dell interface."
"I'm not a wine guy," he went on, taking a drink of the fermented red grape juice in front of him. "I'm more of a beer guy." He talked about his New York penthouse. He said that he'd been an analyst longer than Federal Communication Commission Chairman Kevin Martin had paid any mind to telecommuncations. "Don't think Kevin Martin gives a f**k about the FCC or telecom. It's about feeding his family."
Yes, indeed, political operatives are just struggling and ignorant bureaucrats, not guys lining up a lucrative consulting career after government. Martin, who is a young guy, had better start caring about telecom if he doesn't already, because it's going to be his gravy train, but I'd bet hard money he already does.
If this sounds familiar to anyone out there, please, you had dinner with an idiot. Forget what he said.
And it got worse. After the waitress came over and laughed apologetically about the whole scene, the former analyst had the nerve to suggest an IPO strategy based on keeping the shaky nature of the business he was couseling secret.
"The good news is that I'm confused. I've been in this business for ten years and Wall Street will be confused, too."
Practically speaking, the guy was wrong because a company cannot build a sustainable business in the margin between the Street's ignorance and hopeless overspending to build market share.
"Wall Street. Wall Street, this is where I have an edge—Wall Street is confused." I ordered dessert so I could stay a while longer, this being the best comedy I'd heard in a long time.
Then, he dispensed this incalculably valueless business advice, which should have earned him a beating rather than a fine meal (Isa is excellent, try the lobster broth with tiger shrimp and the truffled risotto). It came with gravity, swagger and ignorant volume: "You're going to have to make a choice. This isn't bullshit. It's going to happen. [You'll have to ask yourself]: What is your competitive strength?"
Holy smoke, that's some business insight, real MBA stuff. If buying market share, then losing it because you haven't invested it in a product or service that retains those customers, is a competitive strength, then I'm a monkey's uncle. Hoping to keep investors ignorant of the lousy financial prospects of that strategy, besides being stupid, is fraud. There are people on trial today for the kind of advice this guy was dispensing.
"You've got to come to Vegas," I also heard him say, betraying the underlying belief that business is only a crap shoot. "I'm going to LV this weekend." Good luck with that.
At this point, one of the guys who was buying dinner, who was wearing an impeccable suit that looked more at home at AT&T circa 1994, got up and walked out of the room. Analyst pursued, card in hand. I think the jig was up, but if it wasn't, really, guys, you had dinner with an idiot.