Crying Towels: Silicon Valley’s Next Big Investment Op.

Nothing focuses the mind more than either the lure of riches or, the loss of them. And there has been no other group caught up more in the lure for riches than: the disruption class.

Disrupting is what it’s been all about over these last few years. However, there’s another disruption on the technological horizon heading right towards Silicon Valley itself, and that brewing storm is – disruption of the disrupt-ers.

The once emblematic IPO cash-out that lured many is beginning to morph into the loss of IPO dreams that resemble wash-out with every passing earnings cycle. For a glimpse into the event horizon that is the future. All one needs to do is look no further than what myself and a few others have dubbed the “canary in a coal mine” of all that’s Silicon Valley: Twitter™.

Nothing against Twitter per sé. What I take issue with is its valuation vs its ability to produce net profits. And that goes not just for Twitter, but everything “social” in general.

I’ve stated from the get-go Twitter is a great, innovative platform. But worth Billions, upon Billions of dollars? Sorry, far from it. One of my assertions has always been; would you pay for it if they charged you? What if charging you meant you could type more than 140 characters? Would that be enough to entice? Usually the answer from my own unscientific (as well as gut) research came back with a resounding no. And here lies the problem that’s symptomatic of many others that will once again come to light and be amplified this earnings cycle. More so than the last in my opinion.

Twitter is (again, in my opinion) a real-time microcosm of what’s about to hit the whole Valley. i.e., A real shite storm, and here’s my reasoning…

There are two issues that are very different for both a company as well as the narrative of a whole industry supported by the wings of such a “canary.” And both of these go a little more than unrealized by those not familiar with them. For it hits right at the heart of how a meme or, a presumptive “It’s different here” attitude takes hold when true business principles, disciplines and more get lost on those desperate to not see their world view crushed. But business in its purest form has a way of doing just that – crushing naive or wishful assumptions.

First I must draw attention to the fact Twitter as well as many around Silicon Valley celebrated the news that Jack Dorsey was to be named as the new CEO. Personally I have no axe to grind with Mr. Dorsey. He seems like a brilliant innovator with great vision. What I do take issue here is; not only is he now CEO at Twitter, but also, at Square™. Another, at face value, brilliant start-up with great further potential. Which is also where lies the problem. Mr. Dorsey is now slave to two masters – and when it comes to business, especially at the levels and headwinds facing the whole disrupting based technology driven platforms – it’s credulous to think one can do both.

I say this because I know first hand just what it takes to be a CEO, for I’ve been one. The other is, I earned my reputation as a turnaround executive because I’ve personally done it more than once, at differing companies, and at sizable valuation levels so it’s not as if I don’t know what I’m talking about.

The only reason any company with potential for either real growth, let alone possible explosive styled growth (which in the Valley is the only metric that still matters) would pick (if not outright beg) an executive that can only devote 50% of their resources to run a once high-flying song bird which desperately needs direction – reeks desperation.

No one else in all the world let alone Silicon Valley was up to the task? A multi-BILLION dollar publicly traded enterprise on the forefront of all that Silicon Valley represents can’t attract any other CEO talent who could devote 100% of their abilities? This makes absolutely no sense what so ever unless: the board, as well as many investors are panic-stricken on just how bad things are behind the scenes and figured; the best they could do was to bring (or convince) a person such as Mr. Dorsey back on as CEO, spin the narrative as much as humanly possible, and pray Wall Street buys it. Literally.

Second: How does Square do the same to that circle where it itself is getting ready to IPO? I can not imagine for the life of me any serious business person, of any stature, that would postulate it would be a good idea to let its CEO devote 50% of their resources away from their now chosen organization at such a critical juncture. Not only that – to then reach back and devote the remaining 50% and try to mend the broken wings on a clearly fumbling entity. Unless – the decisions were all driven by intermingled investors between the two. In other words: This is all about saving stock (or IPO) values or, cashing out valuations. Not about saving or revitalizing a company. Or, for that matter – what Square will or might be after its IPO debut. Something here just isn’t right.

Mr. Dorsey might be a genius and some have used the “Jobs” reference. However, I will stress from a business standpoint – no board worth its weight garnered by true business acumen would even allow Jobs himself to run as CEO two companies at the same time. Period.

The only one’s that would suggest such a plausibility would be on the “investor” side. Again, it’s all opinion and conjecture on my part, but it comes from business experience – not some theoretical book or exercise. I believe it’s the investor class in Silicon Valley that’s showing signs of being completely paranoid and about to go spastic with the possibilities portending them losing their enormous paper wealth created only via “free money” pushed via QE.

Once QE ended, everything changed for Silicon Valley yet, they refused to see it being blinded by “it’s different this time” thinking and belief. Again, I believe Twitter is that microcosm that needs to be watched far more closely for insights into all that’s Silicon Valley than many now are contemplating.

So far Twitter’s share price can’t seem to get back off the ground unless there’s some rumor about either it being a take-over target or, something else. And with that comes something else that shows just how much things are no longer “different this time.” i.e., Lower valuations for longer in public companies mean only one thing: who’s getting fired or laid off first? And that’s what seems to have happened to social media’s best representation of a “canary.”

This is the type of stuff only heard in tales of yesteryear. (I.e., the last dot-com crash) I mean, technological (i.e., coders) staff being let go? The very people responsible for the product and all its innovation, not to say; for the innovation that will be needed to turn around such an entity? Those are the people to go first? 8% of its workforce? You hear announcements like this from legacy companies not – “the hottest space in all of Silicon Valley.”

And this brings on a whole host of other meme shattering, break out the “crying towels” type arguments. For if it can happen there – guess where else it’s going to begin happening? Is ________________ next? Just fill in your current favorite high-flying Non-GAAP social darling on that line – for it’s going to happen at all of them very soon in my opinion. Much sooner than many now even think or ever thought possible.

“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.

There’s nothing wrong with lumping it out with the hope of future pay offs. I did similar things when I was young. It’s a risk reward thing and I champion those willing to take the chance.

However, you know what changes everything? When the meme of “Gonna stay here till I cash-in and then I’ll buy me a McMansion!” turns into the underlying realization that quite possibly – you’re going to end up living in a shipping container! Possibly forever if things don’t change.

Suddenly Mom and Dad’s basement looks like paradise, and the thought of leaving “The Valley” becomes more, and more front of mind with every passing IPO failure or failure to launch. Don’t let this point be lost on you. For it’s a tell-tale sign things are changing deep within when it can be noticed shipping container apartments or, communal type living begins to lose its appeal among this set. For when reality bites – it bites hard.

Now might be the perfect time to take a position in any solid company with the ability to manufacture quality “crying towels” and get them quickly to market. After all: Unicorn tears we’ve all been told are far different from most others. And sales of a good quality product might be more in demand than anyone ever though possible very soon.

© 2015 Mark St.Cyr