.KEYWORD ppeditorial0401
.FLYINGHEAD FROM THE EDITOR-IN-CHIEF
.TITLE The April Fool’s article that never was
.DEPT
.SUMMARY To many, the sudden turn-around in the economy may sound like an enormous April Fool’s Day joke on all of us. Unfortunately, it’s no laughing matter. That’s why, in this month’s editorial, Editor-in-Chief David Gewirtz is putting aside his planned discussion of the fictional DVD Springboard module to talk about the weightier issues of what’s going on at Palm, what’s going on in the economy, and how we’re going to move forward as a populace.
.AUTHOR David Gewirtz
I find April Fool’s Day to be unbearably tempting. Well, it’s not exactly unbearable for me. But I’m told by my editors that the effort required to keep me from writing bogus news stories or publishing bogus articles gets pretty darn unbearable. Even so, once in a while I manage to find a way to sneak something in that tickles, at the very least, my own funny bone.
Such was going to be the case with this article. In fact, I’d gone to some rather considerable lengths to give credence to my scheme. My plan was to write about a slick new prototype Springboard module. This one would play DVDs by spinning them in a slotted unit that attached to the back of the Visor, as shown in Figure A.
.FIGPAIR A The handheld DVD module is playing Bedazzled, a movie only Hugh Grant could love.
As you can see, in my deviousness, I even used Photoshop to create a pretty credible image that would have supported my story. I had planned to go on with my review of the unit, talking about the resolution of the screen, pixelization, and even how comfortable it was to hold the Visor while the DVD was spinning at high speed.
But this year’s April Fool’s article is not to be. Less than a week after Palm announced that it will lay off 250 employees and contractors (actually, a relatively small percentage), it’s not fair for me to devote my editorial to silly topics like DVD-playing Visors.
Instead, we need to clarify some issues about what’s going on at Palm, talk about what’s going on in the economy, and make some decisions about how we’re going to move forward as a populace.
.H1 What’s going on at Palm
First, let’s talk specifically about Palm’s announcement. On March 27, Palm reported revenue of $470.8 million for its third quarter of fiscal 2001, ended March 2, 2001, up 73 percent from the $272.3 million generated in the third quarter of fiscal 2000. In other words, Palm has made 73 percent more this year, in these last three months, than it made in the same three months last year. That doesn’t suck.
In addition, shipments of Palm handhelds during the third quarter rose 112 percent over the same period a year ago, to 2.1 million handhelds. This brings the total number of handheld devices shipped by Palm, to date, to nearly 13 million. In other words, in the last three months, they sold more than twice as many devices as they sold during the same three months a year ago.
So, why the layoffs? And why all the doom and gloom about Palm’s productivity? What’s actually going on?
What’s going on is that Palm is now predicting their fiscal fourth quarter will have revenues of $300 to $315 million, which is somewhat less than last year’s fiscal fourth quarter revenues of $350 million. First off, let’s explain that companies often operate on fiscal years, which is literally the financial year. While you and I know the year begins in January, companies often decide to begin their accounting (or fiscal) years on some other month. Palm’s fiscal fourth quarter ends in June, so they begin their fiscal year in July.
Basically, the company is predicting that due to "effects of the deteriorating macro economic environment," they’re going to sell fewer devices and make less money during the upcoming quarter. Given that they’ve also announced a new series of products (the Palm m500 and Palm m505) which aren’t yet shipping, there’s some expectation of a ramp-up time for production of the new models.
Because of all this, Palm has issued this statement:
.QUOTE Palm is adjusting its business model and focusing on balance-sheet management to ensure it emerges a stronger company when economic conditions improve. The company plans to reduce its work force by approximately 250 employees and contract workers. In addition, the company is postponing construction of its new corporate headquarters in San Jose, Calif., which was scheduled to begin this month, and is re-evaluating its real estate needs and strategy with the goal of reducing or eliminating cash requirements associated with real estate.
Overall, it sounds like a pretty sound business decision. That’s not to say it’s ever good to see layoffs. When I wrote my book, The Flexible Enterprise, back in 1994 (right after the last Bush recession), I came out pretty strongly against layoffs. I still believe layoffs are unfortunate and that companies would often do much better to reorient employees to other tasks.
I often compare running a company to captaining a ship at sea. One thing I’ve learned above all others is that the ship must come first. If the ship sinks, everyone sinks. Keeping the ship in good health comes before any of the crew or passengers.
We know a whole lot of people over at Palm, and we have become quite fond of them. I’m certainly hoping that none of these incredibly cool people disappear. But while I’m not a proponent of layoffs, it does seem as though Palm’s management is making prudent business decisions, carefully plotting the course that will keep the ship sailing in the right direction.
Before I go on, I’d like to pass on my best wishes to both those employees staying at Palm, Inc., and those who will be looking for new employment.
.H1 What’s going on with the economy
And now, let’s go on to this economy thing. The economy is a fickle, fickle beast. It’ll turn on you in an instant, but usually not without a little prodding.
There’s no question our economy has taken its share of lumps in the past few months, and we’ve definitely been prodding it into turning on us. First, of course, there was the dot-com debacle. Tons of people were investing huge amounts of money in businesses with no business being in business. You know most of the stories. The thing is, investors were blinded by greed. Back in the eighties, when I worked at an early venture-funded startup, you were expected to build a nice $50 or $100 million company with a $5 or $10 million investment. If you could really make a business case that you’d actually get to 50 mil or so, and if you had the right management team, you could get the cash to start your company. And many did.
.CALLOUT They didn’t listen to that little voice in their head that said, ‘Hey, are you a moron, or what?’
But in the dot-com boom, unless you could show that you’d make billions back (literally, billions) with that same $5 million (or less), you weren’t even worth considering. The thing is, very few companies are going to make it to the billion-dollar club in two years on a $5 million investment. Certainly not Pets.com, Swoon.com, MotherNature.com, Furniture.com, Eve.com, Living.com, Boo.com, or Value America.
There was a chance that there’d be another Netscape. Just a chance. When there’s a chance to turn yourself into a billionaire, and you can actually make yourself and all your friends believe it, you’re going to try. For heaven’s sake, it’s a billion big ones, man!
But it didn’t add up. I think, honestly, that many of these sorry investors really knew, deep down in their hearts, that it didn’t add up. But they wanted that really huge brass ring so damned bad that they didn’t listen to that little voice in their heads that said, "Hey, are you a moron, or what?"
We even felt it here at ZATZ. There’s never been a question in my mind that a magazine publishing company could succeed online. There’s never been a question that we could become a nice $50 million company. But when our investment advisors told us we’d never see funding unless we could show we’d be worth a billion (why do I keep hearing Austin Powers’ Doctor Evil saying "ONE BILLION DOLLARS?"), we tried to figure out how that’d be possible.
I never could get my arms around that one. First, of course, we committed the cardinal sin of Internet companies: we were (and are) profitable. We started with money from our own pockets. We pay rent, payroll, etc. out of the money we make, and we’re always sure to spend less than we make. This was horrifying to the dot-com investors.
Remember back just a year, when the main strategy for the dot-coms was GBF (Get Big Fast)? It didn’t matter if you ever sold anything at all, just get big. Keep spending, because as long as you keep adding eyeballs, you’ll keep getting a flow of investment money. It didn’t matter that you couldn’t support yourself for a single day on your own power, it didn’t matter that you hired people you could never pay on your own, and it didn’t matter that you’d buy goods and services you couldn’t afford unless the investment cash kept streaming in. GBF.
Until the day that the investment money stopped coming in.
Oops.
See, in a real company, if you get a slowdown in business, you slow down your spending or adjust your investment. You’ve still got some kind of income stream. But many of these fabulous dot-coms had no income stream. Except, of course, for eToys, which had an income stream of a few hundred million dollars and was still too stupid to be able to figure out how to keep the doors open.
Some days, it seemed like everyone was drinking the Kool-Aid.
We, like Palm, sell stuff. Granted, our primary business is selling ads on an Internet site. But we didn’t spend any more than we made, and we hadn’t accepted any investment capital, so nothing dried up. And we sell ads to real companies that make real products, rather than to other dot-coms trying to increase their own traffic. Palm, likewise, makes real products.
I can still vividly remember the day when we decided to just stop talking to the investors. There was this guy who was widely regarded as a genius by all he worked with. He was bright, but his real genius came from the fact that he talked very, very fast and never met a buzzword he didn’t like. Nonetheless, he was our investment banker guy–at least until we fired him.
He was absolutely convinced we’d make a great, fundable Internet company. All we had to do was go into e-commerce and become a mall.
"But, we’re a magazine publisher," we said.
"That’s OK," he said. "If you become a mall, you’ll be an e-commerce company."
"But, we’re a magazine publisher," we said. "We don’t know anything about running a mall or an e-commerce company."
"That’s OK," he said. "We’ll bring in another management team."
"But if you bring in another management team and you turn our wonderful magazine publishing business into a mall, what’s our part in it," we asked?
"Oh, probably not much," he said.
Thanks loads. We decided to pass on that wonderful opportunity. About two weeks later Pets.com tanked. So much for e-commerce.
Mr. Wizard came back to us again, and this was the conversation that ended our foray into moron-investor land.
"I have this great idea," he said.
"Uh oh," we said.
"No, seriously, it’s a great idea," said our genius. "I think you should publish books."
"Well, ebooks are an interesting business," we said.
"No, I don’t mean ebooks," he responded. "I mean real, printed books. See, you print these books, and here’s where it gets exciting. You put Web addresses in the books. Right inside, you stick lots of links to sites on the Web. Isn’t that amazing?"
"Uh huh," we said.
It was then that we formally notified him we were no longer in need of his services.
But, you see, that was the mind of the investor at that time. It wasn’t that these guys were fundamentally stupid or fundamentally greedy. It’s just that no one had ever seen the opportunity to make that much money that quickly, and so everyone tried it. They tried anything that seemed, at that particular moment, to be the formula for success. It’s just that most failed.
I know this is a long editorial, but this is important stuff. Give me another few minutes of your time, and I’ll let you go.
One problem with our economy right now is that, as we’ve seen in the dot-bomb boom, greed isn’t always good. According to The Industry Standard (which, with a 62% drop in ad revenue from dot-coms, may well have been its own worst enemy) there have been 76,529 Internet industry layoffs as of March 29, 2001. Given the average burdened salary of $100,000 (and that’s actually pretty conservative), and hoping I’ve gotten my math right, we’re talking about $76 billion or so that’s not flowing in the economy.
Add to that all those investors who bought hundreds of shares of stock that are now worth, if they’re lucky, a couple of bucks a share, and there’s a lot less flow in the economy.
And again, add to all that our favorite dynamic duo in Washington, along with the general angst that our recent election caused, and you’ve got the makings of a mess. Remember, these are the folks that told California, home of our largest single economy, that the state was on its own when it came to dealing with the crippling power shortages it was facing. There’s something just plain wacky about two big-oil guys telling people in the high-tech capital of the world that they, literally, won’t be able to fuel their growth.
Finally, add to that a generally unpleasant and overlong snowy season in the Northeast, and you’ve got the winter of our discontent.
But is it a recession? Are we doomed? Are we going to repeat ol’ pappa George Bush’s dog days?
Frankly, I don’t think we’re doomed. I think it’s possible to pull out of this general economic malaise. I think we can do it soon. I think we have to. One of the sad truths about a recession is that you don’t get a recession unless everybody plays along and buys into the fear.
.H1 Moving forward as a populace
What’s cool about our current condition is that the cure is, as the Eagles say in their great song of the same name, "Get over it."
There are a couple of simple things we all need to do to get over it. First, we’ve got to stop this doom and gloom shit. I’m sorry about using the bad words here, but I’m going to be emphatic for a minute. There’s just no reason for BusinessWeek, to print in 128 point type, "How BAD will it get?" on the cover of their magazine. There’s just no good reason the Industry Standard has to devote prime real estate on its home page to a "Layoff Tracker" and a "Flop Tracker."
We may be in a slow period, but screaming about it is only going to make it worse.
Second, chill out on the layoffs. There’s no question it’s a good idea to look at how you run your company and what your people do. But when you see companies like Disney laying off 4,000 workers in a shot, Nortel Networks laying off 15,000 people, and Procter & Gable laying off 9,600 people, you’ve got to ask, "What are they thinking?"
Was anyone actually paying attention when these people were hired?
Third, be aware that for much of the country, this has been a completely zany winter season. We had the nutty election fiasco, we had the fake storm of the century fiasco, and we had the dot-com fiasco. The good news is that our economy is structurally sound. We’re just having a bad hair winter.
Get over it. Stop whining. When it finally gets warm and nice outside, go to the beach. Trust me, everything will look a lot better when we all stop crying wolf and we’re able to see a blue sky.
Before I close, I’m going to make two final comments. As I said, back in 1994 I wrote a wonderful book on reinventing your company in tough times. It’s called The Flexible Enterprise: How to reinvent your company, unlock your strengths, and prosper in a changing world. It’s still available from Amazon, and if you want to get your own business back on track, you should read it. It’s way past my royalty earn out, so I’m not going to see a cent if you buy the thing. It’s just good, and it’ll help. So get it.
Second, I learned my lesson back in 1991. You can only cut so far. Eventually, there’s nothing left to cut, and you’re still not out of the woods. I had a friend who lost his job. He was freaked out about money, so he insisted on keeping all his lights in his house off except one. His house was dark and dismal. He was so depressed, he couldn’t motivate himself to go out on job interviews.
Of course, he was depressed. He spent his entire time home alone in a house with one 25-watt bulb. When I visited him, I made him clean up and turn on some lights. Amazingly, the depression lifted, and he felt up to going on job interviews.
Cutting doesn’t really work. It screws with morale, making your own employees second-guess your motives. It also reduces the critical resources you need to move your business forward. So, if you have any influence on spending, I recommend you use the money you have as fuel to power out of whatever situation you’re in.
That’s what I’m doing. I’ve just increased my staff by 50%. Of course, ZATZ is profitable and has a real business strategy. If you’re not profitable, or if you don’t have a solid strategy, you now know what you should be doing first.
Good luck! See you next month!
.BEGIN_SIDEBAR
.H1 Product availability and resources
For The Flexible Enterprise: How to reinvent your company, unlock your strengths, and prosper in a changing world, visit http://www.amazon.com/exec/obidos/ASIN/047107246X/.
For more information about Palm computers, visit http://www.palm.com.
.H1 Bulk reprints
Bulk reprints of this article (in quantities of 100 or more) are available for a fee from Reprint Services, a ZATZ business partner. Contact them at reprints@zatz.com or by calling 1-800-217-7874.
.END_SIDEBAR
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