Deja vu: things that matter (again)
Those who went through the dot com bomb and subsequent “Internet nuclear winter”might be getting a feeling of deja vu right about now, from the latest hand wringing over how startups will fare and how the financial markets might affect the high tech business. It seems — at least based some of the folks I have contact with– the emotional swing has gone from “startups-Web2.0-socialnetworking-tech is all cool-and-peachy and we-rule-the-world” to “death, doom, and destruction! Oh my!” It’s not pretty, but it sure feels like we’ve been through this before. It’s not that folks haven’t been saying things have been feeling a bit bubbly for the last year or so, but there’s a whole generation of entrepreneurs and others in the high tech industry who didn’t go through the dot com bust and haven’t at all been concerned about how the overall economy affects technology (until now).
So, given that folks are trying to figure out where things are, I thought I’d post a quick list of things that matter (again) — a few things I think people have been forgetting given the exuberance of the high tech startup market in recent years.
1. Business model–and revenues–count. It’s recently been an environment where all of the focus has been on building up web traffic and web popularity — akin to the Dot Com years–where how and where you make money didn’t matter, just how popular you could make your web site. With a probable pullback in venture funding, and much more wary potential buyers for your company, actually making money from your Internet venture is important, simply from a survival standpoint. Acquirers are going to be looking for companies which can make money–good or bad economy–and looking less for cool and cutting edge. If you don’t have a business model, and a way to make revenues–you may be in trouble.
2. It’s dollars per-unique-visitor, not total-unique-visitors. We’ve all seen the PowerPoint slides with “we’ve got X bazillon unique visitors” showing the stats from Alexa, Compete.com, etc. for every pre-revenue Internet social networking video sharing widget software firm out there. The traffic stats are going through the roof! They’re growing visitors by the thousands! Uh, but they don’t actually make any money. The better number is how much money do you make per unique visitor? Or, if you indeed are getting more and more popular (that’s good) how is that making you more and more money? There’s plenty of “one hit wonder” sort of websites who suddenly see a spike in traffic, but unless that converts into something concrete–it’s just that, a spike in traffic.
3. It’s building a business that counts, not flipping your company. Yes, we all want to build a business, flip it to Google/Microsoft/Yahoo/whoever, and retire to Hawaii. But, the odds of that happening are frightfully small — just look at the list of Google’s acquisitions and benchmark that against the thousands of companies who wish they were acquired. Were you one of the (only) three companies Google acquired this year? Probably not. Is Google/Microsoft/etc. looking to buy companies obviously designed as a flip? Probably not. What’s important is building a real business–with real customers, building real value. Sure, you may get bought (and if you have a real business, you are more likely than others to see that opportunity)–but the important thing is to deliver value to your customers.
4. Being profitable is better than being popular. Most of the dot com survivors, who did so well in the nuclear winter, were very focused on being profitable and making money. For the most part, they were not the folks with the infinitely cool sock puppet commercials, trendy Superbowl advertising, celebrity-studded company launches at the Playboy mansion, or nifty free T-shirt giveaways. The ones who survived were the ones who built very profitable businesses, who were able to make money without spending every dollar on marketing, and who focused on building their businesses, not popularity.
5. Finally, efficiency and execution are critical. In an easy-money, easy-credit environment, efficiency and ability to execute were less critical. Need to accelerate things? Pour some money on it. Trying to get more market share? Spend a bunch on advertising and marketing. Need more developers? Just spend a chunk of money and hire some. In an environment where capital is harder to find, efficiency in operations and ability to execute with a tight team is what gets you to the finish line. Your company’s ability to develop your products, deliver services to customers, and build your business efficiently can make the difference between making it–or not. As many a dot-com survivor will tell you–when capital is hard to come by, it’s a game of attrition and survival, not buying market share.
Of course, this is all my personal opinions on things that mattered during the dot com bust, and may not apply to today’s environment. Maybe a bailout will miraculously revive the market and send high tech soaring to new heights. But, I get the awfully familiar feeling that the world we as knew it, again, has shifted below our feet, and where we were 777 Dow points ago is not where we are today.
