January 2001: San Francisco

Do You Have Trouble Starting or Holding Your Bowel Movements?

ANNUS CALIFORNICUS

The new millenium began, as I was recently reminded by one of my horde of grocer-in-laws, as a fart without pressure. An immense bottle of New Zealand's finest vintage bubbly, shaken by my sturdy hand, delivered not the cork as expected, but a quiet lisping ssssssththhhhhhhhh and the aged stopper in my hand. Dry as a dead dingo's donger.

Grocer-in-law #2, so proudly the recipient of the bottle in reward for selling shed-loads of some jam or other, had displayed it upright in the sun for 8 months in his office, letting every last ounce of joie de champenoise escape in time for for the great dawning of the 21st century. Without the anticipated fountain of champagne-like substances, aspersions were immediately cast upon my manhood and conclusions were drawn as to the 13 year childless state of my union with their sister.

Well, what say you now brothers-in-grocery? We have put our fertile fortune down to the San Franciscan karma generated from living next door to the Immaculate Conception Academy (illustrated below). Makes us wonder what could have happened had we chosen to live in Cow Hollow, Nob Hill or the Tenderloin.

Thus, with miraculous new male-child member of the clan due early May 2001, what other events could possibly have reached 'slightly interesting' in the history file for regurgitation?

Much of the year has of course revolved around being the last gold-miner to the Gabriel's Gulch of dot com California. A mere thirty days had passed before the 40-odd consecutive financial quarters of economic growth experienced in the USA started unravelling. By October the stock market curve resembled the new downhill ski run for the Utah Olympics. We New Zealanders can have that effect on things sometimes.

DOT COM DEATH RATTLE

With alarming speed the game changed from a scramble to build a business using OPM (other people's money) to just a scramble. Bigfast became 'Begfest', as doors closed in every institution in the nation to an ecommerce based startup proudly planning to lose money for at least a year. There were moments when we thought that changing our Powerpoint slides to read:

"Vision Statement: Enabling online paedophilia and becoming global standard for internet child pornography exchange"...

...might actually elicit more returned Venture Capitalist calls than our business to business human resources ecommerce proposition.

It was thus a very grim year in a business sense. Firstly, learning to cope with American markets, where the combined population of New Zealand and Australia live within 2 hours drive of our office - California is the 6th largest economy in the world, soon to overtake the United Kingdom. Secondly, learning that on bad days 2 hours in the car might only get you to the end of the block because the whole nation owns 2 cars - abandoning one on 24th Street outside Martha's coffee shop, and taking the other to work. Finally, living in a country where a layoff of 5,000 people makes the small print column on page 2 of the business section.

When we arrived in San Francisco, the NASDAQ index, which tracks most of the new economy stocks was just over 5000. As I trudged home 2 days ago, it had fallen to 2300. A mere halving would have been nice. I am composing the first draft of this on the first Saturday where I have not gone to work since April 14.

I reflect with irony that the star investment of 2000 was the Savings and Loan sector, the alternative to bank-lenders that in the 1980s flagrantly pumped up property valuations to allow them to have growth numbers in their lending books that would impress even a modern Venture Capitalist. The orchestrated litany of lies that inflated this sector was like a flame to greedy baby boomer moths, and the eventual realisation that lending 150% of a property's value could only lead to tears required the government to bail everyone out.

Ten years later 'dot com' joins the hall of infamy along with S&L and junk bond. I knew it was bad when people started quoting Michael ‘junk bond’ Milliken and bidding to get him on the board of their ecommerce startup. For those of you who have read Po Bronson's excellent 1999 book "The Nudist on the Late Shift", documenting the madness of the new economy in San Francisco, I can assure you that the reality of 2000 makes the more harrowing passages of his prose seem like a holiday at Surfers.

The dot com industry has regrettably descended to the realm of infamy as the human consequences of a 'dot com' burnout became evident in Boston this week. Workplace massacres with AK47 rifles used to be referred to as 'going postal' in reference to workplace shootings that involved disgruntled US Post Office employees. Its now going to be known as 'dotcommicide' I fear. The company concerned develops software for one of our competitors, just to bring it a little closer to home.

Once again the all-time number 1 victim of workplace shootings bought it (as 1 among 7) - the Human Resources Manager. Reminds me to talk to our R&D Manager about developing an online assessment for homicidal maniac proclivities. Whilst there are still HR Managers to sell it to.

NEW ECONOMY OR NEW MATHEMATICS?

The so-called 'New' economy has been so heavily over-promoted relative to its size and impact on the state of this nation. Through various nefarious mechanisms in calculating the Gross Domestic Product of the United States, the contribution of tech stocks and dot coms is vastly over-multiplied. In December everyone 'nouveau' is weeping because 10,000 people were laid off from all the dot coms that failed that month. Well, Maytag and Whirlpool (the washing machine people) laid off 10,000 people in the South before Christmas because white ware demand is down. Keeps it in perspective.

I read during the year that the employee head count of the top 1000 technology, biotech and generally 'new economy' companies (mostly but not exclusively listed on the NASDAQ exchange) is about 1,000,000 people. Wal-mart alone employs 1.1m people. Even with the hype, ecommerce based retail sales amounted to perhaps 4% of the retail sales in the USA this year. And the largest B2B (business to business) you-beauty chemical exchange ecommerce site in the world undertakes how many transactions per day do you think? A thousand? Ten thousand? Ahhhhh .... one on average actually.

Two main factors the economists among you should consider when thinking about the end of the US boom. First, there is still no real evidence of a productivity gain in the USA that can be attributed to computers or the internet. Yes, the USA has enjoyed 9 years of unprecedented quarter on quarter growth in GDP, and yes, at the same time the PCs have become ubiquitous across the economy (>60% of households for a start). But, when the wizards calculate GDP in the USA they use a magic spell called Hedonic pricing.

Hedonic pricing multiplies any actual spending on anything related to technology by a factor of 2-3 to account for the fact that the processor speed on 2000 year Pentiums is on average twice last years - there must be hidden productivity gains from that extra 300 MHz right? Surely? Likewise software with more functions for the same price on the box this year than it did last year. Surely it would be morally wrong to leave some of those gains unvalued?

Thus at the press of the F5 key (refresh), $92b national spending on computers in 2000 became $250b in GDP contribution this year alone. Test the theory - does your 600MHz laptop really double your productivity over your old 300MHz unit?

The other piece of muggle-wizardry is the way they validate working hours. This is not important for the gross GDP number, for if Americans choose to slave away for 2 extra hours a day to make 10% more digi-widgets good on them. It has its limits though, as that well-known Keynesian economist Monty Python so deftly explained (loooxury!). Anyway, each time the statistics are gathered some lucky young graduate in the Department of Commerce draws the straw to phone 1000 companies nationwide and ask them how many hours on average a person on various amounts of money works each week. Imagine it: "the US Department of Commerce, Washington DC here, we'd like to ask you about working hours at your company..." What human resources clerk wouldn't cack themselves on the spot and quote the party line that everyone strictly works 37.5 hours per their contracts? Any other news gets out and the lefty Cuban sympathising pinko democrats might just have a problem with it.

Germany recently used the US method of GDP calculation and discovered it was the strongest economy in the history of the world. Hope it doesn't give them any big ideas - we're probably safe given that the UK and USA have cunningly unloaded Rover and Chrysler onto their ordered world, the best piece of economic warfare since the Trojan Horse (which I add might well have been a more reliable vehicle than a Rover). That ought to slow them down! Hell, even New Zealand would probably be booming using these mathematics.

I am reminded of my favourite statistic for 2000 - that at the current rate of growth of Elvis impersonators, the entire population of the planet will be growing sideburns and wearing glitter suits by 2017. Coming from San Francisco I'm inclined to believe it.

Keeping a sense of humour, albeit gallows in nature, has been easy enough.

MOMENTS OF LIGHT

I recall laughing our arses off at 1am, amidst a sea of discarded Corona bottles and Thai Takeaway in the realisation that our "We Really Need Money Now or We're Going to the Poorhouse" presentation scheduled for Venture Capitalists the next morning now painted a business proposition so impressive and efficient that we didn't actually need to borrow any money.

Some weeks later, we had the second largest American business in history (more humour - it was the largest when I started this story but they seem to have just slightly overstated Q4 sales) on the other end of a web-cast to demonstrate our HR software, when a hungry psychologist put a bagel in the toaster and blew the whole floor's electricity supply. I note with some satisfaction that a few of Cisco's toasters must have also blown their fuses lately and their stock is looking a little underdone.

We even managed to top that episode when another psychologist plugged in his infra-red toad warmer and popped the circuits for a second time. Toad-warmer? Rest assured toads are not harmed in our product development process.

A Texas based assessment competitor provided some mirth mid-year when their clients were finally slapped with a class action suit for using such gems of psychometric questions in a job application as (answer true or false):

• I have had no difficulty in starting or holding my bowel movements
• I am an agent of God
• My mother was a good woman
• I like tall women
• The top of my head sometimes feels tender
• Everything tastes the same
• I very much like hunting
• I am fascinated by fire
• Sometimes in elections I vote for men about whom I know very little

The judge awarded damages of $2 million to unsuccessful job applicants with the Texas based 'Rent a Center' who used the test - they have 2100 stores nationwide and employ tens of thousands of people.

There's some kind of irony tied up in that last statement given the Texan that this nation just voted into office as the United States President. He's exactly the kind of good old boy that would pass the test and five minutes later would be renting you a tv or microwave for six bucks a month. To paraphrase Blackadder: "a man with a brain so small that if a hungry cannibal cracked his head open, there wouldn't be enough to cover a small water biscuit".

Equally, I can't recall an election that generated as much humour as this one - perhaps the internet is finding its true place in the American economy at last? Funniest moment? Probably Clinton advising Bush to "follow his conscience" in the leadership role - it had always worked for him. Add 'conscience' to the list of euphemisms for male organ.

Harpers summarized it perfectly, quoting Earl K. Long: “When I die - if I die - I want to be buried in Louisiana, so I can stay active in politics”.

If you answered 'True' to Rent-a-Center’s first question above, then there is even more mirth to be found on the domestic front - check through the California Yellow Pages for a moment in search of a plumber for example. You will find:

• Discount Rooter
• Economy Rooter
• Mister Rooter
• Rapid Rooter
• Ready Rooter
• Rescue Rooter
• Roto-Rooter
• Super Rooter
• Urgent Rooter

California is a very tree-ful state you see, and the tree roots upset plumbing no end. Of course you knew that. Not before one of the Australians in the office had copied down a lot of 1-800 numbers from passing vans in search of special companionship though.

WHITHER 2001?

Well, the first news is that the sun is setting on our California adventure. That rare combination of money, people, entrepreneurism, education, optimism, energy and success that made Silicon Valley the place to be, is just a lingering odour akin to the SOMA street corner drains above which we work. VC funds are giving unspent money back to investors. A long-standing company like Computer Associates can lose 80% of its market value in an hour on the stock exchange. Nobody knows what the next big thing is - biotech? NO! Comms? NO! Software? NO! Anything? NO! The Valley will return, but not until there has been an almighty Darwinistic shaking out of the remaining weak and aged members of the herds.

So we've concluded that with the ridiculous rents and nightmares attracting staff to work here, it is not the place to grow a company. Greener pastures please. Funnily enough many of the big Trust funds that support the Vulture Capitalists have drawn the same conclusion and are seeking investment in the Eastern USA and Europe. Growth in 2001 is suddenly very important - having somehow survived the nightmare that was 2000, the temptation is to curl up and hide from a year in hell. The right answer is to capitalize on our bank balance and finish off rolling up our acquisitions. Wondering where the rent money for your business is going to come from definitely toughens your survival skills.

Thus we are moving the main operation to Minneapolis, Minnesota in January. The slight climatic differences between the 2 locations have been pointed out a few times - on one day last week it was 50 degrees in San Francisco and minus 50 in Minneapolis. A full 100 degree spread. Get Fargo by the Cohen brothers out on video for a few ideas of the environment. An exploratory trip in December left us wondering what we would do with all the extra money each month - in 5 hours Lesley found 6 houses we could live in - 4 bedrooms beside picturesque lakes with nearby village-type shopping for a thousand dollars a month less than we pay here for a hovel. And all that shovelling of snow off the drive ought to rid me of this paunch.

We also have an opportunity in New York that we are investigating that might require a few people to base there. Here's hoping. I am reminded by the third person in the bed that they would like to know in the next month or so, to sort out their delivery schedule!

So, may we have seen the last of:

• A housing market where you are paying the equivalent of a $500,000 USD mortgage to rent a one bedroom apartment.
• People who advertise on their resume that the care and feeding of 12 zebra finches was a major achievement for them at College.
• IT developers who can't come in today because they had some bad vibes at their ceramics class last night.
• Vulture Capitalists
• Earthquake damaged buildings that cost $80 per square foot to rent; and
• Grande Egg-nog non-fat soy milk black forest frappucino's, Starbucks special seasonal beverage.

But then again, with the incessant Californication of the world I fully expect to retire to Tuscany in 20 years time and find a bouff-head Italian Elvis in the local Trattoria turning out the very same Christmas special coffee-flavoured beverage. Such is life.