In a strong wind, even turkeys can fly

One of the wisest people I worked with in my career was Ameet Shah. Ameet always had the quietly reflective view of “why things were” that always came from a unique angle that I hadn’t considered.

He taught me, amongst other things, the benefit of “top down thinking” that changed the way I analyzed markets, companies and people. He taught me to ask questions in meetings rather than only talking and the benefits of not always trying to be the smartest guy in the room.

But his favorite line was, “Can you please slow down and explain this again? I’m only a 386 processor.”

We worked together at Andersen Consulting between 1996-99 when the markets were booming. I had joined AC in 1991 as a programmer when it was a relatively small practice focused on building corporate IT systems for Fortune 500 companies and there were a handful of companies that offered the same service. By 1999 we had grown into the largest independent consulting firm in the world.

By 1999 it seemed like everybody was growing, though. Increasingly it became difficult to tell any system integration company apart and there was a whole new breed of competitors in the market helping companies build Internet businesses. There were the existing large consulting firms like IBM, CSC, Cap Gemini, PwC and Deloitte Consulting as well as the upstarts like Scient, Viant, Razorfish, Diamond Consulting and a host of others.

The market seemed crowded and our leadership position that had been built over many years seemed to not matter any more. Everybody was doing marketing blitzes, over-paying to steal the best staff, pimping out urban offices to the nines, and hiring in a frenzy. Everybody was raising a ton of money.

Ameet said to me, “See, Mark, in a booming market you can never tell the winners from the losers. In a booming market buyers aren’t very discerning and companies that have weaknesses can mask them. I’ve seen this a few times before. Andersen Consulting always gains market share in down markets. That’s where the companies who are just good at marketing tend to crumble. In a booming market you can’t tell the difference.”

That had never occurred to me.

In other words, in a strong market even turkeys can fly.

It’s hard to see this clearly when there are strong winds and when you can easily get swept up. Ameet was right. I left Andersen Consulting in 1999 at the height of the market. Andersen had lost its long-time CEO, George Shaheen, was hemorrhaging staff and wasn’t exactly known as being an Internet pioneer. Ameet said, “Don’t worry, we’ll be fine, just wait for the next downturn.”

Within a year, by late 2000 / early 2001 consulting firms were firing people en masse. Most of the Internet startup consulting firms went bankrupt. Andersen Consulting won an international artibitration case against its sister company Arthur Andersen and rebranded themselves as Accenture. Arthur Andersen was embroiled in the Enron scandal and forced out of business.

On July 27th, 2001 Accenture IPO’s and many of the partners grew fabulously wealthy. During the down market they were able to double down on recruiting, sales, outsourcing, new market entries and marketing (yes, with Tiger ads). Accenture opened massive operations in India & China and continued its industry dominance. Since that date the S&P 500 is up 2.45% while Accenture stock is up 206% with revenue of $23 billion and a market cap of $32 billion.

The things that always differentiated Accenture? Investment in training, adherence to process, global knowledge sharing systems, quality control/partner reviews and campus recruitment programs that attracted the right talent.

And coming to the end of 2010 I feel a sense of reminiscence of some of the trends from a decade ago. There seem to be a lot of market entrants in every category where it becomes hard to differentiate them all from each other. It’s clear that the exuberance has returned to hiring, paying large compensation, poaching staff with big payouts and large fund raising events at lofty prices.

The size of magazines seems to be expanding, marketing seems to be up and the number of tech announcements per day is dizzying. Who can keep up with all this stuff?

In a strong wind, even turkeys can fly.

When the tech market is done over heating, or over hyping or whatever is going on right now, there will be a select few companies who have built differentiated products, hired talented teams, raised sufficient capital, established good operational processes and have strategic insight into where their market is heading. These companies will grab massive market share as others fall behind. Many “me, too” companies will perish.

It’s why as an investor I look for talented teams with long-term vision, a unique point-of-view, differentiated IP and a desire to build something enduring. Often when I meet them the idea seems at odds with what others are doing and as long as it’s the right team with a well-thought-through plan I kinda like that. Only when their market becomes “hot” do they seem prescient and by then they have a significant lead.

Zynga wasn’t founded because they read about similar successes on TechCrunch, they built early and pioneered. FourSquare isn’t a “me, too” location-based recommendation service – it led in the category with check-ins and badges. It’s not surprising both have pulled ahead in their respective markets. I was reminded of all this this when I read a blog post by one of my favorite thinkers on the VC market, Bryce Roberts, who talked about “unfundable companies.”

“Reality is, at the seed stage, most rocketships look more like the cardboard variety you’d make as a kid than something NASA developed. Pour rocketfuel into your cardboard creation and you’re more likely to see it go up in flames than into orbit…

… I fear that, in this market, people are pouring rocketfuel into cardboard cutouts and no one is telling them. I strongly believe living through “unfundable” periods is important for long term success.

Consider it a badge of honor that most people think your idea won’t work. I’m certain that if you look at every single one of the entrepreneurs who’ve gone on to build big, enduring businesses they were unfundable once too.”

I love that. Bryce is a bit like the entrepreneurs I search for. He’s got a strong point-of-view on how OATV wants to invest, is willing to be proudly different from the rest and is sticking to his plan despite the bull market that has been especially strong in his part of the market: early-stage investing. I suspect when the wind calms down Bryce will be well positioned.

My advice to entrepreneurs is to have a sense of purpose and stick to that regardless of what you’re reading in TechCrunch or Business Insider. Avoid the latest fads, trends or PR announcements. Don’t be psyched out by your competitors big financing round, latest product release or business development deal. If you know what your customers need, deliver against that promise and provide a product or services that has economic value you’ll do well. Double-down on great people, process & IP.

And only one day when the wind calms down can we invoke my favorite Warren Buffet quote of all time:

“It’s only when the tide goes out that you learn who’s been swimming naked.”

*** Appendix for the overly anal: Yes, I know that some turkeys CAN actually fly. The wild turkey variety. But even they can’t fly very high or very fast. A turkey is only a metaphor. There, I saved you some typing in the comments section.

Mark Suster joined GRP Partners in 2007 as a General Partner after selling his company to Salesforce.com. He focuses on early-stage technology companies. He blogs at Bothsidesofthetable.com.