While there are some who still cling to hope (and there are still some in outright denial), it’s clear that most of the people involved with the world of internet startups have accepted the reality of the global economic “downturn” and understand that its impact on the industry will probably run deep and it will probably be prolonged.
After all, we’re dealing with a possible meltdown of the entire financial systems around the globe (and we’re anywhere near out of the woods yet).
So what does it all mean for internet entrepreneurs? What is going to happen?
While we haven’t yet reached capitulation in the stock markets around the world, there are some who believe that we’re almost at a “bottom.” I’m not prepared to make that call and quite frankly, this has little do with the doom and gloom many in Silicon Valley are preparing for.
The reason? Stock market “crashes” are typically leading indicators for the economy at large. Even if the markets hit bottom this week, it’s unlikely that “business as usual” will resume because
a bottom does not a recession prevent.
Thus, it is safe to say that things are going to get a whole lot tougher for many entrepreneurs and startups.
This time around, Silicon Valley wasn’t the cause of the bubble that has everyone scared but make no doubt about it – Silicon Valley was in its own bubble (again).
Hype trumped revenue. “Critical mass” trumped profitability. “Viral growth” trumped sustainable growth.
One need look no further than the insane valuations given to “hot” startups like Facebook, Digg, Ning and Meebo to see Irrational Exuberance 2.0. And one need look no further than the plethora of angel and VC-funded “me three” startups to see Capital Glut 2.0.
Now that the future looks particularly hazy for overhyped startups without viable revenue models and VCs are being forced to rethink their values (as they always do after a bubble), it’s time to face the facts.
Unsustainable startups will go under. There will be layoffs. Funding will be harder to raise. M&A activity will be a lot more conservative. For most startups, the term IPO will come to mean “Impossible Public Offering.” And fair-weather entrepreneurs who think the startup lifestyle is just one big partywill be forced to look for fun and games elsewhere.
This may sound like bad news but it really isn’t because there is a silver lining.
In the fallout that is beginning, the wheat will be separated from the chaff. The fittest will survive. True entrepreneurs will continue to develop innovative solutions to painful problems.
Think of this as a cleansing. I for one am a fan of regular bathing and hopefully the world of startups will get a good scrubbing this time around so that all that’s left will be squeaky clean.
Even though it may not be a pleasant place right now for many, the world is not ending. The days of cashflow-negative $15 billion startups are, however.
If you work for a company that’s profitable, you have as good a shot as anyone at keeping your job. If you run a company that sells products or services that individuals and businesses actually pay for, you have as good a shot as any company at staying in business.
The panic that is making its way through the tech blogosphere is driven by fact that many people haven’t been working for and building these types of companies. And to be sure, these people have good reason to be worried.