Letter #110: Mark Stevens (2003)
Founder of S-Cubed and Managing Partner at Sequoia | What will be the most pressing business issues confronting TMT companies in the next 12 months?
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Today’s letter is an article written by Mark Stevens in 2003. In it, he explores what business issues TMT companies will face in the following 12 months, touching on the drop in corporate IT spending, the internet bubble, taking longer term views, the shift of manufacturing electronic hardware devices to Asia, competition, markets, investing, and more.
Mark Stevens is the Managing Partner of S-Cubed Capital, a special limited partner at Sequoia Capital, and an investor and executive board member of the Golden State Warriors. Prior to S-Cubed, Mark was a Managing Partner at Sequoia, where he was involved with the firm’s investments in Yahoo!, Google, and YouTube. He personally led the firm’s investment into Nvidia (where he currently sits on the board), Commquest (acq. by IBM), Stratum One (acq. by Cisco), Terayon Communications (acq. by IBM), among many others. Mark started his career at Intel, where he served across a number of technical sales roles (similar to fellow venture capitalist John Doerr, although a decade later). Prior to that, he had worked at the Hughes Aircraft company as an engineer writing code and debugging software while attending USC, and his first actual job was at Jack in the Box.
Despite his success, Mark never forgot his roots—he and his sister were adopted by an army vet who repaired TVs as a side gig and a secretary he met while doing a house call, neither of whom had college degrees. Mark attended USC thanks to a number of scholarships and grants, and worked his way through college. In fact, he took a pay cut from his college job at Hughes when he joined Intel as a full-time employee. Today, he’s a billionaire who owns part of a sports team and sits on the Board of Trustees at USC, which he has donated more than $100M to. He also signed The Giving Pledge, and supports many of the organizations that have helped him and causes that he cares about. (I’ve never interacted with Mark, but I’ve recently learned we seem to overlap in a number of disparate communities/organizations and care about similar causes, so apart from being giving, I’m pretty confident in saying he has good taste too 😂.)
I hope you enjoy this letter as much as I do! There are a lot of lessons to be learned from the parallels to, and divergences from, today.
Relevant Resources:
Letter
The biggest issue confronting technology companies is the drop in corporate IT spending. The companies that supply IT and electronic products for the consumer segment are relatively healthy, but the companies that sell into corporate IT and operations departments have watched their sales fall off considerably over the last three years. That includes software and telecommunications suppliers, the chip companies that supply to the systems manufacturers, and the IT service companies.
You can blame the post-bubble environment. We had perfect weather from the late 90's to the first quarter of 2000, followed by the perfect storm of the last 2 1/2 years. A lot of enterprise IT equipment and software was purchased in the late 90's without much forethought. Some of the purchases were Y2K upgrades, but many investments were motivated by a rush to become an e-business. Many corporations weren't ready to adopt the technology. That means a lot of software and hardware just sat around. Then came 9/11 and a weakened world economy, which added salt to the wound. This situation can turn around with a re-born faith among corporations that investing in IT technology will improve productivity, increase sales and reduce costs. Internet-based technologies have made companies more efficient. Many developments in the wireless world are extending corporate networks. Companies have to believe that technologies like these will yield a substantial return on investment.
Looking out beyond the next 12 months, we'll see more technological developments that help boost corporate spending. These include seamless supply chain systems that allow companies to track operations from the customer front end to the basic suppliers on the back end. These capabilities were promised by ERP and CRM systems in the late 90's. A second wave of software will deliver on those promises because they'll be built from the ground up for the Internet, and will be easily scalable as an organization's suppliers and customers grow. We'll also see continued advancements in wireless devices that will give mobile workers access to the same data that is available to workers inside the corporate walls. A third promising area of development is making Internet protocol (IP) for data, voice and multimedia run seamlessly on an IP network.
While we're waiting for corporate IT dollars to flow again, the U.S. technology community faces another challenge: The ongoing shift of electronic device hardware manufacturing to overseas facilities, especially in Asia. Does it mean that only the design work will be done in the United States and all manufacturing will be sent overseas? Will Asians learn to design PCs, PDAs and laptops themselves, leaving American-based companies with new competitive worries?
A young electronics company can become a very Asian-centric company very quickly, so you have to plan for that as an investor and entrepreneur. Companies have to think about the implications of overseas manufacturing earlier in their life cycle than companies did five to 10 years ago. They have to determine where their products will be built. They have to set up distribution channels in Asia sooner than they would have in prior years because countries like India and China, with their huge populations, represent large end-user markets over the next decade for products like phones and computers. Also, in places like Mainland China, where the state controls a lot of the commerce, U.S. companies have to learn how to tap into the market without running afoul of the authorities.
While it's a difficult time on several fronts, there is also plenty of good news. For one thing, quality companies still have access to venture capital. In fact, those that are getting financed stand a better chance of thriving now that the Internet noise has died down.
Wrap-up
If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kevg1412 or my email at kevin@12mv2.com.
If you're a fan of business or technology in general, please check out some of my other projects!
Speedwell Research — Comprehensive research on great public companies including Copart, Constellation Software, Floor & Decor, Meta, RH, interesting new frameworks like the Consumer’s Hierarchy of Preferences (Part 1, Part 2, Part 3), and much more.
Cloud Valley — Easy to read, in-depth biographies that explore the defining moments, investments, and life decisions of investing, business, and tech legends like Dan Loeb, Bob Iger, Steve Jurvetson, and Cyan Banister.
DJY Research — Comprehensive research on publicly-traded Asian companies like Alibaba, Tencent, Nintendo, Sea Limited (FREE SAMPLE), Coupang (FREE SAMPLE), and more.
Compilations — “A national treasure — for every country.”
Memos — A selection of some of my favorite investor memos.
Bookshelves — Your favorite investors’/operators’ favorite books.