A Growth Story

Yesterday I saw (and twittered) a comScore report on online spending this holiday season. So far this holiday season (comScore calls Nov & Dec the holiday shopping season), $8.2bn has been spent online which is down 4% versus the same time period last year. The report goes on to say:

comScore’s forecast is that holiday online retail spending for the November – December
period will be flat versus year ago, significantly lower than last year’s
growth rate of 19 percent and below the retail e-commerce growth rate of 9
percent that has been observed for 2008 year-to-date.

That got me thinking. Flat year over year growth is pretty bad news for an industry that has been growing at 20% per year. But at least it’s not negative. Flat is the new up 20% I guess.

But on a more serious note, I’ve been meaning to post some data that I am privy to by virtue of our role as board members on a bunch of privately held companies. Not all of our companies are generating revenue but quite a few are at this point and the numbers we are seeing out of them are actually pretty promising.

I am not going to cite any confidential information and I am not going to identify any companies by name in this post. But I’ll give you all some anecdotal evidence that things may not be as bad as everyone thinks.

We have two companies in our portfolio that are setting record revenues every day or two. We have a company that is having it’s best booking quarter ever. We have an advertising based company that is having its best ad sales season ever. We are also seeing search advertising holding up remarkably well in the face of this downturn.

The fact is that we are not really seeing any signs of major meltdown in any of our portfolio companies yet. Its important to recognize we are only a month or two into this mess and that we won’t see the real impact of the downturn until we hit 2009 spending budgets.

It’s also important to note that these are all small companies by any measure and they are selling new things in new ways. They are probably less economically sensitive than big established companies. It’s hard to imagine companies like Cisco and IBM being as immune to the downturn as small startups.

But amidst all the doom and gloom, I want to be sure to point out that disaster hasn’t struck everywhere just yet. If comScore is right that e-commerce this holiday season will be flat, that’s not a total disaster either. With the best tech/online/e-commerce stocks trading at values that expect declining profits and cash flow year over year, I think it’s worth noting that this could turn out differently than conventional wisdom. In fact, it always does.

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Comments (Archived):

  1. lazerow

    Great post Fred. We’re seeing the same thing at Buddy Media. 2 months of record bookings from new and repeat customers as clients shift large budgets into social media and performance marketing (we’re both!). Companies that provide real value and measurable success in the online ad market will survive and thrive. 99% of the other companies won’t. Unfortunately for our industry, your portfolio is not indicative of most companies! Though I imagine some are stronger than others, as a whole they represent the cream of the crop. Hope you and the family have a great holiday. Talk soon.

    1. fredwilson

      That’s so great to hear about buddy media mike. What do you think about 2009 budgets? That’s the shoe I am waiting to see drop

      1. lazerow

        Initial commitments from current clients are promising. We now have the data to show app-vertising is one of the most effective ways to market in the social nets, which helps. Time will tell but so far things are holding up for Q1.

  2. Steven Kane

    As John McCain said, and as President Obama has inferred, and will undoubtedly say and say again, the fundamentals of the American economy are strong.I know, I just blew my chances of ever being elected President, but it was worth it.I hope the Obama administration can speedily inject enough liquidity, and make some swift regulatory changes (e.g. mark to market and short selling rules), to jumptstart normal high level lending practices. Unemployment will hopefully peak at 8-9% in mid 2009 — a horrible number but NOT a “depression”. Markets will stabilize and even start to make some tiny gains by year end. The media will stop yelling fire in a crowded theater (amazing how the same newscast can both moan about consumer spending evaporating and also admonisgh consumers to cut up credit cards and snot spend.) Meanwhile, the Obama administration will have collared Congress into half decent behavior (e.g. NO PORK) and together the whitehouse and congress will start a smart, thoughtful longterm strategic capital improvements plan (e.g. infrastructure and targeted technology encouragement like alternative energy and stem cell research). By end of 2010 we will be well out of the woods and we will begin a longh slow but strong deep and self-reinforcing (not self-destructing like the last few years) expansion and boom.Ya heard it here first.Happy Thanksgiving!

    1. fredwilson

      from your mouth to god’s ears!happy thanksgiving to you too Steve

    2. fredwilson

      SteveI will run as your VP if you ever get the nomination from the far center party!

  3. kCallahan

    Likewise — we’re an early stage company / startup (2yrs) and we’re actually seeing a great Q in terms of revenue — and not just from our advertising stream. With advertising, agencies are looking for more creative options with smaller budgets and that’s great for the niche — you just have to be ready to present them with the opportunity. Granted I agree that it is early in the game but I think companies that are well positioned (and smart about cashflow) will be fine.

  4. pleppik

    Just to add another data point….at my company, we’re looking at 2009 revenue to double from 2008, and 2008 up about 25% from 2007. Just as with your portfolio companies, we’re a small company selling new services in new ways, so we don’t have broad economic exposure. One or two good wins can really make our whole year.On the other hand, we’re not calling on our prospects at financial services companies these days (except to send a “you still there?” e-mail when we see news of yet another massive round of layoffs).My observation is that the primary damage is in finance and those sectors which sell big-ticket items which must be financed (houses, cars, plasma TV’s). Everyone else is seeing secondary damage, meaning flat to a couple points down instead of up. As with other downturns, anyone who can demonstrate immediate ROI is in relatively good shape.

  5. MartinEdic

    We’re growing at a rapid pace with a subscription based B-B service in spite of the economy. I think the key is that your start-up has to be in a new space rather than an iteration of an existing space. Incremental improvement on an existing technology is not a growth model during times like this. You have to innovate.Though this seems obvious I’d say that 90% of the start-ups featured on Techcrunch or Venture Beat are iterative improvements on someone else’s innovation, a la all the companies piggybacking on Twitter. And most of them have a vague revenue model (or none at all). These are the ones that won’t make it.

  6. andyswan

    In the marketplace of ideas and dollars, it is always worth noting the outcome that the fewest number of people are prepared for.In this case, it would be that the bailout “works”….government debt ends up far lower than anticipated (although still very high), and remaining banks (the WINNERS) get very aggressive in lending and taking market share.This could spur the economy in a BIG BIG way in 2009, much sooner than most predict and much steeper. If we can get Obama to cut cap gains taxes, we’ll REALLY be cranking (and we’ll allow for his hit-job on the uber-productive in return).

    1. howard lindzon

      right on andy. gutsy trade but possible. lots of financial companies at all-time highs.

    2. Steven Kane

      amen, brother andy.

  7. leigh

    While i was hiding in university during the last recession, I worked at a company called Telepersonals (today called Lavalife) which had a huge growth period during that economic slowdown. And it wasn’t in spite of the recession, it was likely in part BECAUSE OF the recession. People when depressed, apparently like to connect with other people.No doubt during this economic downturn, many businesses will fail but there will be some that will thrive. The key will be to tap into human truths regarding what people will need (i.e. comfort, security, hope) to figure out what products and services will start to fulfill those needs….

  8. Darren Herman

    Great post Fred, as it’s excellent to see inside (in aggregate) of private companies – an area that everyone isn’t privvy to.What we are going to see here is the “weeding out” or darwinian nature of the advertising world – where many weak companies are not going to survive. At USV and in Mike Lazerow’s posting of Buddy Media, you’ve got a portfolio that has a strong value proposition to advertisers and have hand selected them… so they should do well. What we are going to see in terms of overall hurt are the “me-too” players and the folks who get involved in the middle of a transaction.From an agency person perspective, advertising dollars are down but depends on who your client is and what category vertical they exist within. Some verticals are hurting much more than others.Happy early turkey day – think there are any channels to watch how to cook a turkey on boxee?D

    1. fredwilson

      I’ll be back to you on the boxee turkey question Darren

  9. rkorba

    an anecdote, as well – worked at AMZN back in the stone, er… pre-dot-bomb… age. We used to count orders. Not trucks, billions, or orders per second. Orders. Ponder growth… well posted, sir.

  10. Ben

    I’m not in ecommerce but I’m having a hard time seeing the doom and gloom too.The business I manage (part of Corp) is up substantially with pent up demand to which I don’t have enough help to deliver against. It’s crazy.I certainly hear about it but so far, and I have everything I on my body crossed, haven’t been effected by the global melt down.I’m going to lite a candle now.Happy t-day.

  11. Mark MacLeod

    Thanks for sharing this Fred. I do think you hit the nail on the head though: the companies you are referring to here are not the ones feeling the most pain. Anyone selling big tickets items to the enterprise customer is feeling the pain. Similarly, any established B2C company that is selling to mainstream and not just early adopters will be hurting.

  12. Darryl Collins

    Perhaps they’re reading “How to Lie with Statistics” – great book on how to twist statistical facts to suit your argument. Should be one every sceptics bookshelf!http://www.amazon.com/How-L