August 30, 2009

6) Cisco

cisco 1

危 wēi  danger

Cisco’s position looks precarious – its core products,  mainly network gear,  have been commoditized by copycat products.  This and its inability to maintain growth rates (a classic problem for larger companies) have contributed to its market capitalization dropping from a high of $550bn in 2000 to $125bn today.

机 jī opportunity

Cisco’s Chairman & CEO,  John Chambers, recognises that the changing market environment could unlock opportunity too. His firm is presently branching out by exploring 30 ‘market adjacencies’ in which it might hold some competitive advantage.  These include cloud computing, routers in space and virtual healthcare.  Impressively, Cisco prototyped this approach in the past with its move into ‘advanced technologies’ – this group now accounts for 25% of Cisco’s revenues.

How about…

  • Taking time out to explore ‘market adjacencies’
  • Building a portfolio of new offers (the balance of which should be informed by the need to diversify)
August 27, 2009

4) Y Combinator

y combinator

危 wēi  danger

Investor psychology swings from euphoria to depression and we’re in the middle of a pretty dark depression.  Private equity firms and hedge funds are closing their doors for good and the VC industry is in a period of ‘retrenchment’ (read: terror).

机 jī opportunity

Y Combinator, a VC firm recently set up by Silicon Valley veterans Ben Horowitz and Paul Graham, have a different take.  They have bullish plans to ‘take advantage of the recession’, choosing to invest in 60 start-ups this year versus 40 last.  Their view is that ‘while existing companies contract, the next generation will expand’.  After all, Apple and Microsoft were founded in the last deep depression, the mid-70’s.

This approach makes sense, Y Combinator are about developing solid technology businesses (ready for the next upturn), they should face less competition and in many ways the opportunity cost of their cash will have dropped (given lower interest rates or returns of other investment types).

How about…

  • Investing in new businesses in downturns with the aim of capitalizing on an upturn
  • Remembering to factor in opportunity cost when making investment decisions – if there are fewer investment possibilities the required return should drop
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