How I Learned To Stop Worrying About Bubbles And Build A Sustainable Company

from the it's-all-relative dept

It seems that everyone wants to be the person who calls the next bursting bubble, as we’re suddenly seeing a… well… “bubble” in articles and blog posts worrying about whether or not we’re in a new dot com bubble that’s bound to burst at some point soon. The latest such discussion seems to be focused around a NY Times article on the frothiness of Silicon Valley these days, leading various commentators to agree or disagree with the idea that we’re in a bubble and/or that the inevitable bursting of the bubble is about to happen. Instead of weighing in on one side or the other, I’d like to argue that it doesn’t (and shouldn’t) matter to most entrepreneurs. What happens may change your strategy, but it isn’t necessarily a bad thing.

I have a presentation that I’ve done a few times at various events in Silicon Valley (and which I’ll be doing again in a few months in Scotland) which is really focused on the history behind Techdirt and the changes we’ve made over time to our strategy, plan and business model. The point of the presentation is to make some suggestions in how to build a sustainable company that doesn’t go out of business at the slightest hint of a downturn — and I spend a fair amount of time talking about “bubbles” and why they shouldn’t matter to most entrepreneurs. That’s because everything has a relative price — and when some things get more “expensive” (or scarce), other things tend to get “cheap” (or abundant). The trick is simply recognizing what’s cheap at what point and what’s expensive. Then focus on buying what’s cheap and avoiding what’s expensive. So, for example, after the dot com bubble burst, it was certainly true that money in terms of venture capital dollars became “expensive.” That is, it was relatively harder to get. It was scarce — and even if you could get it, it was often at great cost.

If you grew up in the dot com bubble, where success seemed to be judged on how much money you had raised, then of course this would seem to be awful. But, if you looked around, you realized that plenty of other stuff had become “cheap” or abundantly available. Technology, for example, was getting cheaper all the time. Remember all those stories about how cheap it was to startup a company these days? That isn’t because of any magical change in the world. It was because companies who discovered that VC money was “expensive” were realizing they could be more creative and do other things. Another important thing that happened after the bubble burst is that good employees became “cheap.” I don’t mean that they could necessarily be employed for low wages (though that was true in some cases), but they were suddenly much more available. There were lots of fantastic people who were out of work or unhappy in dead end jobs. If you had a good idea, it was a lot easier to hire good people. Marketing was also quite cheap, because there was a lot less noise to compete with.

These days, things are a little different. Hiring good people is getting increasingly difficult. They’re scarce — and, thus, expensive. Marketing is a lot trickier, as you need to stand out from all that noise. But, the point is that everything is relative again. So, it shouldn’t be any surprise at all to see that lots of money is flowing from VCs again. As things like people and marketing get more expensive, it only makes sense that the investment money gets “cheaper.” It really just becomes a big pendulum. So, if you’re working on a startup and are worried about the possibility of a bursting bubble, at least recognize that it only impacts one resource that you’re looking for, and many of the others are likely to get cheaper as well, meaning that if the bubble bursts, you probably won’t need as much VC money anyway. So, stop worrying about the bubble, and learn to buy into what’s abundant and avoid what’s scarce.

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Comments on “How I Learned To Stop Worrying About Bubbles And Build A Sustainable Company”

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Anonymous Coward says:

Good people are scarce and too expensive

Sounds like the market doing its pricing thing.

Or can it be that you just don’t want to pay market price for a US citizen? (like so many US companies)

Are you going to take your own advice and import foreigners, now that you convinced yourself that you can’t find Americans that are good enough?

Larry says:

What BS??

Jeez you guys…do you even have jobs?

Recently, I have been fixing several PC and A/V problems for friends and family. Its not what I do for a living, just something I’m interested in (hence, good at). People try to “pay” me for this, but I turn it down. I tell them they can’t afford to pay me, so don’t try.

I (and probably you) could be the best taco bell manager on the planet. Great, but what does that pay?? Taco Bell can’t afford me and neither can the geek squad or any other of those companies.

I don’t think Mike could pay me enough to work for him right now (not that I’m qualified) but should a market downturn (or a bubble if you prefer) caused me to lose my current job, I’d say that I would be looking seriously at a job I consider myself over qualified for today.

Mike has a valid point (and always has) with this line of thinking about most things. I myself don’t necessarily agree that it can (or should) be applied quite as liberally as he does, but that nether negates his point or strengthens your (if you would bother to make an effort to do so).

Chris Maresca (user link) says:

We've followed pretty much the same trajectory

as TechDirt. We started in August 2001 and only took some seed investment. It’s very possible to build viable company bubble or no bubble. It just take perseverance and a lot of personal sacrifice. A lot of good support from friends and family also helps.

Now that we’re successful, everyone asks how we did it and wants to join the company….


RandomThoughts (user link) says:

Easy to say, could be somewhat hard to live through though. I believe that success in business has as much to do with being in the right place at the right time (or luck) than anything else. Sure, you have to be prepared, qualified, talented and motivated (thats just the price of entry) but great strategies fail and firms with no strategy can hit it big by just being there.

Perseverence, that is what I think eventually wins the day. Depending on what happens during a bubble, I don’t think there is any company out there that can guarentee itself long term survival. In terms of risk, you don’t know what you don’t know. You can transfer it, you can mitigate it and you can insure it, but you can’t eliminate it.

Its the same with pandemic planning. All of the models take the pandemic to a certain level and then the planning stops, because if the damage reaches a certain point, you just can’t operate anymore.

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