I’ve recently been serving as a judge for the Technology Council of Southern California’s 2007 Technology Industry Awards, and there’s an interesting phenomenon I’ve been hearing from many of the companies we have been talking to as part of the judging process.
Many of the finalists for the award went through the Dot Com “nuclear winter”, where investments and interest in technology companies disappeared. They either weren’t able to get venture capital funding, saw dramatic drop off in business, had to make drastic cuts in their staff, and otherwise had to go into “survival mode”.
However, despite the horrible business conditions, they survived, and not only that–are now thriving. Most of the companies I’ve spoken to (both as part of the judging process) and through my regular interviews with companies, have been doing extraordinarily well–having turned now into $100M+ (or larger) companies despite taking little capital. I think, instead of being bad for business, the “nuclear winter” ended up creating some fairly extraordinary companies.
Why is this? My theory is:
1) Only the strongest survived. The crippling economic conditions that followed the Dot Com Boom/Bust only allowed the best companies/teams/businesses to survive. Pretty much only the companies that figured out a real business (and made some real money) made it through.
2) Less competition from other startups. The fact that venture capitalists were not eager to invest in new firms, were focused only on keeping their companies alive, prevented a rush of competitors into the same market (You’ll recall when everyone was eagerly funding pet food stores on the Internet). That made it much easier to establish a dominant position in their field.
3) Forced focus. Lack of capital and poor economic conditions really forced these companies to focus. Often, in an environment where money (and business) is easy companies will dabble in a lot of areas, try this or try that, but fail to focus on their real business. When you’ve got to make the next payroll it really forces you to focus on finding the right business model and markets, or you will disappear.
4) Reduced employee churn. In a poor economy, people pretty much hang onto their jobs. And they work pretty hard to make sure they keep them. That’s quite different from the go-go Internet years where the average tenure of a new employee was beginning to drop below 3 months–hardly beneficial to building a successful business.
5) Hunger. In lean times, it forces companies to be “hungry”–which is, you only spend money on what you have to, you learn to “get by” without making huge investments, you spend your dollars only on things that you think can help your business and not on perks, foosball tables, or Aeron chairs. That tends to drive smarter business decisions, even though you might not be able to invest in everything you like.
Anyway, those are some of my thoughts on why there are some very, very strong business that came out of the dot com crash — I’d love to hear other opinions.
