|2007: The Year of the Big BANG|
Web2.0 all set for another bubble burst as VC histeria increases
In the beginning there was resistance, lots of resistance. Then after a couple of high profile sellouts their was panic, every speculator was going to be rich, quickly followed by the big bang. What a ride.
What caused the last big bang is about to cause the next even the mainstream press can feel it. But this time the big balled investors are a little more cautious than before, yet it seems just as stupid.
I recall one of the first bangers Lastminute.com in a high profile sellout got 850 million UKP, valuing Lastminute on a par with W.H.SMITHs. This was for a little domain name that they picked up for 10 dollars, a couple of PHP coders, and a double page spread in the Daily Mail singing their praises. What a scam.
After that everyone was hooked and they were all going to be rich. Overnight the internet changed from being a bit geeky, very innovative, and strictly non-commercial to one big supermarket with every vender spamming you with their latest rubbish.
Of course it went pop, and when it did it was great. For all the commercial interests that were polluting cyberspace with their get rich quick spam, had had their balls crushed and in the aftermath we were left with a much quieter terrain where the speculators had been burnt and innovation could once again flourish.
Don get me wrong I have nothing against making money but the nature of these speculators have a very negative impact on the general terrain of the internet and heres why.
Firstly the vast majority of the venture capital investment that is injected into startups is used to not only prop up donkeys but more importantly is distorting the general playing field.
This manifests in some very destructive ways. Noticeably, most of the real innovation that is at the core of the new functions that emerge online, is created by small groups of programmers / designers who tackle problems and create ingenues solutions which enrich our everyday lives. These are largely small groups of underfunded (if at all) individuals.
Coupled with this parody is the power of the press, and I'm not talking about the mainstream press I am referring to the new breed of Power-Ranger blogers who just like in the days of the specific industry related 'trade magazines' are the current imbeciles of their time.
So you have a small group of technology related Blogers who have managed to harness a captive audience but who are ignorant to programming, design, and largely technology for that matter but who have found themselves with the 'important' title of chef bloger, and who make it their business to blog about what they consider is newsworthy or important.
Just as with the old trade press journals you are left with a corporatised view on the world where the dinner table talk ranges from who's been fired to who's just managed to get VC to the tune of 568 million.
Clearly this is the scope of the general table chatter and a brief look at Michael Arrington Techcrunch you will see the same old traditional trade journal style of so-called news (hysteria) being covered.
But burred by these trade like journals is the real startup discussion. The real news is not in who's about to loose 586 Million because they have invested it into a pile of donkey #*$! but rather what's happening on the ground.
The innovative ground floor is once again being crushed by an ambitious bunch of ignorant money grabbing speculators who in their hysteria do not know the value of a domain name let alone an online travel agent.
This is not to say that innovation will stop or the current wave of Web2.0 startups won't flourish as some will, but the survivors of the next big bang wont be the those empty black holes who are being jacked up by VC, instead they will be the the low profile (unfunded) innovators who continue at their own pace despite the noise of what's supposed to be hot, in the race to be a me-too copycat company.
[edited by: physics at 5:20 am (utc) on Jan. 4, 2007]
[edit reason] No personal domain drops please, see [webmasterworld.com...] [/edit]
Yep, we jumped into the .COM rush in early 2000. I quit my nice, comfy government contracting job to make a business out of my personal travel site.
At the time we saw all our competitors bringing in hundreds of thousands of VC money, moving into posh offices, and issuing daily press releases about how much money they just received and how they're going to use it to built the best online widget ever produced.
We considered spending the time and effort to go chasing after VC money. Instead, we decided to focus on developing our business and actually make a product/service that would bring in money.
Needless to say, the crash started about that time. All our competitors quickly burned through their money without having anything to bring in income. They went back to their VCs to ask for more money, but by then the VCs had learned their lesson and had stopped throwing out money to vaporware companies. So our competitors moved out of their posh offices, kicked their high priced coders onto the streets and tried to invent themselves on the reputation of their higher priced directors/founders. But still the VCs didn't buy it, so the founders became flounders.
Meanwhile, we continued along, had a product that brought in some revenue, and survived while our competitors dropped like flies. We never had a big budget to start with, so we learned from the begining how to survive with less. No need to cut the CEOs bloated salary because the CEO was already getting paid $0. :)
They're all gone now. Some of them even came to us asking for jobs. :) But we're still plugging away in the black.
LifeInAsia, you bring up a good point. However, aren't some of the biggest successes the result of a solid software product and engineers securing VC funding (Google, for example). It seems to me Google would not have gone very far if it had stayed in a room at Stanford where it was often in danger of being cut off due to complaints from webmasters who couldn't stand that darn bot stealing their content. So I guess what I'm saying is: do you think that just because there are a lot of stupid VC backed companies that means that you shouldn't try to get some VC money? Will the VC money infect you somehow ... are some compaines/people immune? Note that I'm not taking a position either way, just asking ;)
|Jordo needs a drink|
Sell Sell Sell...
What did the smart entrepreneurs do just before the last bust? Where's the peak? Hmmm... YouTube.
"Sell Sell Sell...
What did the smart entrepreneurs do just before the last bust? Where's the peak? Hmmm... YouTube".
That's almost poetry, almost Haiku ;~), Maybe that's what we need here on webmasterworld, a Zen type forum full of wisdom from wise webmaster sages regarding certain issues, say "Ugly sites".
"The weary traveller, however worn by his search for knowledge can only leave by a single door".
|However, aren't some of the biggest successes the result of a solid software product and engineers securing VC funding (Google, for example). |
THe key phrase in your sentence is "solid software product." The main issue of the .COM meltdown was that so many companies got funding without solid products. The other part is that the companies that have been successful after VC funding probably had solid business plans to begin with. They knew exactly what they were going to do with the money and use it to grow the business.
I feel too many of the VC-backed flameouts had plans similar to "Here's my idea. Give me money to hire programmers to implement it. Then the money will fall from the sky!" They failed to prepare the business side of things and plan for delays and setbacks. At the time, pretty much anyone who could spell "IT" was bringing in 6 figures, so the businesses also probably didn't prepare for inflated salaries for not very qualified people (thus leading to delays and setbacks).
Harking back to our own experiences, we had a dedicated core staff who earned very little (comparatively) and worked long hours, including weekends. Other business owners we talked to constantly complained about how much they had to pay for programmers who talked on their cell phones all day and the vacuum effect created with everyone leaving the office precisely at 5:00. But they simply couldn't afford to hire better quality people.
During the point leading up to the .COM meltdown, I think a lot of companies viewed VC money as a source of revenue, not a source of financing. With the expectation of VC money continuing to flow, why bother trying to develop a real revenue stream?
So as long as you look at VC money as a vehicle to take your company to the next level quickly and NOT as just a source of revenue to get you out of the red, then you're headed in the right direction. Otherwise, you're headed down a long, sliiperly slope.
|programmers who talked on their cell phones all day |
You forgot to add "to their brokers". I was there at the crash at the end of the 80s as well and both times I well remember the excitement of those around me as they revelled in their getting richer and richer every day, until ... whoops.
I've always been a cynic and I knew a bit of history, so I didn't join in. What me, smug?
|programmers who talked on their cell phones all day |
You forgot to add "to their brokers".
LOL, this is how I called the top of the 2000 market bubble to the day!
I was working at a company developing Bluetooth technology. I walked down an isle of cubicles - maybe 10 cubicles - and EVERY SCREEN in every cubicle was on a broker's web page. When I saw that, I decided "this is it, the market has topped-out."
Another data point - he company was hiring at a furious pace. There was a kind of lottery to interview people. The employees were hating having to spend so much time interviewing people, so contractors were included in the lottery, as well. A candidate would go through 3 or 4 interviews. At the end of the series of interviews, the employees who had interviewed the candidate would huddle with the hiring manager, and then he would decide whether to make them an offer on the spot. They knew if they left the building, it was very unlikely they'd be avaialable to hire.
Gotcha LifeinAsia, thanks for the insight. So... since you already have a solid product what's stopping you from grabbing some of that VC juice right now ;)
|what's stopping you from grabbing some of that VC juice right now |
To take the business to the next level in a fast growth spurt would require more employees. Which would require a lot more time to manage them or hiring a manager to manage them. All of which would require a big office to house them. Not to mention a lot of equipment (computers, bigger pipe Internet connection, phones) for them to use to do their work. Not to mention overall lowered productivity for everyone as time is spent hiring people, training them, purchasing equipment, settign up the equipment, etc. Not to mention all the time/effort spent chasing after the VC money in the first place to be able to afford it.
Plus once you get the VC money, you are answerable to the people behind the VC money. They want at least quarterly financial reports, if not monthly or weekly status reports, which takes even more time away from doing the business. Oh, and all the extra revenue that you'll be getting from the added expenses? Guess where a big chunk (if not most of it) will be going. Certainly not into your pockets.
No, at this point we prefer the slow growth method to keep things managable. Bigger business means bigger headaches. For some people (and perhaps for us in the future), that's wthe way to go. But not for us at this stage of the business.
As I've said before, VC money isn't a source of revenue. It's not free money- it comes with a price. You are usually exchanging part (much) of your ownership in the business for money that goes into the company (not into your pocket).
[edited by: LifeinAsia at 11:30 pm (utc) on Jan. 5, 2007]