Just what the heck is going on, anyway? Chicken Little or Chicken Noodle Soup? Depression of 08 or a correction on the way back to normal risk-and-reward. The Geek and The Gadfly don’t totally agree, so here’s what each thinks. Like always, we trust and respect our entrepreneurs to figure it out better than we can!

The Geek: It is Armageddon and batten down the hatches!

[Sequoia Partners distributed a tough message to its CEOs earlier this week, essentially calling on them to batten down the hatches for a down cycle that could last for years.] This is an important message as all start up companies must fight their way through some tough economic times ahead. Please read [what Sequoia wrote] and start considering how the world has suddenly changed and how it will affect each of you. The message is: save cash, focus on your core business, build revenues (or get to them quickly) and establish your value proposition now. Don’t waste money on nice to haves or crazy experiments. Discipline your team. Stay lean and tight.

All well and good and I agree: but here’s one lesson I learned during the last bust that Sequoia didn’t talk about. Down cycles are an excellent time to steal market share from your competitors. The trick is to use cost-effective tactics and focus your strategy on stealing market share more than growing the market or establishing new ones. Think about using guerilla tactics. Develop one or two core tactics to go after your competitors and then be aggressive. Don’t expand your staff unnecessarily. If you have to hire, it’s better to hire one killer person than three pretty good people. Make do with what you have but focus them like a laser against competitors. Focus your development efforts on tweaks that matter most to your existing customers; don’t start new initiatives. Focus marketing on relationships, use public relations to position, position, position. Use pricing tactics to lock in long-term commitments; sell what you have now, not futures. CEOs need to invest in meeting with key customers and strategic partners (including your investors) one on one (that means in person and not on the phone or via email) and do it often. Rally your team and get them to understand the gravity of the situation.

The Gadfly: This is a correction and not a sea change.

Everything Gilman cites above is completely valid and I endorse it 100%, but it’s the advice I like to give my CEOs anyway, anytime! The issue here is whether the economy is really suffering or whether the economy is being thrown into turmoil by the excesses of Wall Street and the loss of confidence in our institutions. I think it’s the latter; I tend to line up with Brad Feld and Fred Wilson or Bill Gurley.
A correction is a tough thing to handle in your strategic planning, because it resets all the assumptions you used for how long it takes to close customers or how much costs to acquire them or customers’ relative interest in investing in change (the sine qua non of venture backed companies). But we don’t invest in companies that are providing 10 or 20% incremental improvement for customers; we invest in companies that are providing radical, game-changing products and services. That’s how we make oodles of money, by calling a few of those game changes right. I believe that the value that our companies provide is usually enhanced in tough markets: it’s harder for competitors to raise capital for incremental proposition; when the general economy is bleak, it’s easier to persuade customers to save 50% of their cost or increase their revenue 100% or to stay close to their friends and relatives.

So I haven’t given the entrepreneurs in my portfolio any different advice than I have been all along. Don’t spend a dime you don’t need to. Seek your value as fast and efficiently as possible. Only hire the best people; don’t experiment with people you pay a salary. Find partners and customers who are willing to pay to work with you. Get to revenue as fast as you can.

Personally, I am thanking our lucky stars that the world really does represent a risky place. I am only worried that fear and panic is leading to really bad judgements: I grew up thinking that the government wasn’t supposed to be in the investment business and certainly wasn’t supposed to be a shareholder in profit-making businesses (well, at least ones that are supposed to make a profit). I grew up thinking that some banks were supposed to help you make money and some were supposed to help you store it safely. And I thought taking risks meant that sometimes you had to pay for stupid decisions, whether companies or individuals. What worries me most is that the rest of the world (outside of venture-backed startups) seems to be thinking very differently than I grew up thinking!

People who attended the “D6: All Things Digital” event in May know that I asked Jeff Bezos an impertinent question. Why, I asked, did Amazon insist on using up the primo spot on my landing page to promote Kindle, when I already owned one and Amazon knows that I own one. (For those who haven’t taken the plunge, Amazon actually pre-configures your Kindle with your customer information when they ship it to you. So presumably they know who has one and therefore doesn’t need to be promoted to buy another one.) Bezos’s response was classic: “Because,” he said, “you only have one.”

Bezos sent me an email today, asking me to check out Amazon.com. Lo and behold, the ad for Kindle had been replaced with what you see here. Promotion for Kindle content based on my history of purchases (I’ve bought both Elmore Leonard and Arturo Reverte-Perez titles on my Kindle previously. Plus, of course, an exhortation to buy more Kindles for friends and family.

Now that’s great customer service! And with a sense of humor! :-)

I’ve been a loyal fan of Apple products for close to 30 years; by “fan”, I’m serious: I bought at least one of every major product that Apple ever launched. (I’m on my tenth iPod already). My company, Spectrum Holobyte (already two years old when the Macintosh was launched), was one of the first Macintosh developers. I fondly remember the great support the Apple evangelist team gave to third party developers and how they embraced the creative products that developers were developing for their budding new Macintosh. Who could forget that great 1984 ad where a young athlete throws her hammer through that big Orwellian screen to smash “big brother.” Apple has always represented the freedom from the dominant control by IBM (then) and Microsoft (now). Apple users have always prided themselves in their ability to think differently than Windows users and have believed that Steve Jobs was the savior to an industry who had lost its way.

Unfortunately, Apple is beginning to act more and more like big brother itself.

Like the State in George Orwell’s 1984, Apple is using iTunes as a tool to control their users behavior. As has been widely reported, with its 1.1.1 version of the iPhone software, Apple purposely crippled iPhones that had had third party applications installed or had been modified by their users. Apple claims that they are doing this to protect users from applications that may damage their iPhones or threaten the quality of service. Sounds altruistic, but the truth is that Apple hurt their users more than they protected them.

Apple didn’t just reset users’ phones or paralyze specific third party applications; if the phones had been modified in any way, they proactively and purposely crippled those iPhones by turning them into useless bricks. (If the phones weren’t modified, Apple removed any offending software and returned the iPhone to a default, factory state.) Apple’s policy is that they will not reactivate disabled phones; instead Apple requires the owners to buy whole new phones. They are aggressively punishing not only the developers of these apps but users who thought that they had in fact “purchased” their phones. It looks like the only protection iPhone users need is from Apple itself.

Imagine if GM crippled your car if you modified your car with a third party accessory or if Dell decided to shut down your computer because you used a hard disk that you bought from Fry’s Electronics instead of from Dell. Imagine if Microsoft forced you to use IE and if you used Safari, they would cripple Windows and de-authorize your OS. Imagine if Sony used a DRM that…oh yeah, they did that and look what happened to them.

I have no problem with Apple telling users that third party applications will not be supported and may become incompatible in the future. I don’t have a problem with Apple protecting its users by locking out third party application that are known to cause damage either to the phone or to the network. But bricking users’ iPhones is vicious, unacceptable and should be challenged in the courts.

In 2005, at the Stanford University’s commencement address, Steve Jobs challenged the young graduates. He told them, “don’t be trapped by dogma – which is living with the results of other people’s thinking.” He told them to stay “hungry and stay foolish.”

Apple believes it is at war with those who try to develop native applications and those who are attempting to unlock their phones. This week in the United Kingdom, Jobs said: “It’s a cat-and-mouse game. We try to stay ahead. People will try to break in, and it’s our job to stop them breaking in.” That doesn’t sound hungry to me, but it does sounds awfully foolish. What is it, now, that separates Steve Jobs from the movie-studio and record-label executives who act as though customers are the biggest problem they have?

For years, Steve had told the world of the dangers of leaving the future of computing in the hands of companies like Microsoft. Apple was supposed to dawn a new age of computing and free “the rest of us” from the tyranny of the incumbents. My question is: is Steve acting more like the heroine savior he once aspired to be or more like the tyrant he despised in his famous 1984 ad?