Paul Saffo’s recommendation to companies conserving cash: don’t confuse the short-term financial crisis with long-term trends.

Question: What should companies be doing to preserve cash in this economic environment?

Paul Saffo: The most important thing that a company can do in the midst of this economic turmoil is to not lose sight of the long-term perspective. Don’t confuse the short-term crises with the long-term trends. Amidst all of these short-term change are some fundamental structural transformations happening in the economy, and the best way to stay in business is to not allow the short-term distractions to cause you to ignore what is happening in the long term.

Question: How do companies see the long term amidst short-term distractions?

Paul Saffo: There’s a lot of focus on preserving cash and hunkering down at the moment. Sequoia Capital famously sent out a PowerPoint in the fall of 2008 to its company. It basically said, “Look, preserve your bodily fluids. Cash is king. Don’t look to us for help if you get into trouble.”

And of course that’s the main theme. But also I think it’s a very good idea to have a strong contrarian instinct. It’s not just conserving cash at this moment but this maybe the moment in which it is especially valuable to strategically spend some of the cash you’re hoarding in order to set up for what the next order is to come along. So, saving cash is something that is answered in the specific, not in the general, but do not focus exclusively on saving cash, this maybe the right time to spend cash wisely.

Conducted on: June 18, 2009.