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

Ramblings

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.

Filed Under: bubbles