We need to talk about startups.
We have fun again and again as if 1999 were outside.
“Dude, Kevin Sistrom ★ really screwed up when he sold Instagram for a billion.” I was at the airport, awaiting departure home from San Francisco. The guy next to loudly told his friend, and he nodded. In technology, an amazing thing happened: a billion dollars no longer seems like big money! A few years ago, the news that a startup sold for $ 25 million would have forced us all to lift our jaws from the floor. Today, no one blinks and an eye, there is no question about billions.
Perhaps a billion is a new million. In the end, the world is changing faster. The Internet and mobile devices have firmly taken their positions, and, apparently, a new era of exponential growth has arrived. Every day, businessmen overthrow kharki-taxi drivers and hotel magnates, costing hardly more than smartphones and healthy contempt for the foundations. In this insane new world, it seems, anyone can already create a billion-dollar start-up, be it Uber for house cleaning or AirBnB to house dogs.
And it is not surprising if all this seems familiar to you. In 1999, on top of the dot-com bubble, IPOs and billions of dollars in takeovers took place every week. Often, it was about startups with illusory business models based on “eye movement tracking” or “stickiness”. We will always remember how, in the most stupid way, Yahoo bought Geocities for $ 3.57 billion , and Broadcast.com for $ 5.7 billion . There was also a WebVan food delivery start-up: with only $ 5 million in revenue and a negative margin, they went public and reached $ 8 billion in capitalization . (Translator’s note: according to Wikipedia’s link, in November 1999 WebVan’s income was $ 400,000, the accumulated minus exceeded $ 50 million, and the market valuation reached $ 4.8 billion) Two years later they bent and declared bankruptcy .
')
This time it's a little different. Most of the companies have at least some income. Some are even a bit profitable. Units tend to IPO, preferring to stay private longer. But many signs indicate that we are once again starting a party in the spirit of the good old 1999. Perhaps we are not quite at the party itself, or it is a little different from the previous ones, but something is clearly brewing. As Mark Twain said: “history does not repeat, but rhymes”.
Do not misunderstand me, I love startups and technologies, a lot of wonderful things happen there, regardless of what was said above. Signs of life gives artificial intelligence. Hand submit to self-driving cars. Drones will soon deliver us toothpaste. There is no doubt that an incredible amount of innovation is being born right now.
It would be wrong to say that everything that startups work on is useless. But the financial situation suggests that a correction should be expected. I'm trying to say that with innovations, everything is fine, but company valuations are completely unstable, and many investors, founders, hundreds and thousands of their employees will get a heavy blow in the coming years.
But who knows, all of a sudden history will not repeat itself, and exponential technological growth will allow us to break through. Perhaps Uber is worth its $ 500 billion. Maybe I will look at this post with disdain after five years. Yes, I'm just wearing swimming trunks here ...
So, you are concerned that your startup may be at risk. Do not panic. There are companies that can talk about how they survived the last bubble. Here are a few steps to prepare for the storm:
All this is mostly common sense and the basics of business. But it always amazed me how few people in the technology world pay attention to it. The last seven years have been favorable for startups - a continuous holiday! It is easy to succumb to the charm of thinking about the next round of investment, profitable takeover, or IPO - as if everything is close by. But it is more valuable to practice thinking about what will happen if the music suddenly ends.
You should follow my twitter ∎
About the author: Andrew Wilkinson (Andrew Wilkinson) - the founder of MetaLab and Flow . Publisher Designer News
KDPV: Michael Marcovici [ CC BY 3.0 ], via Wikimedia Commons
“Dude, Kevin Sistrom ★ really screwed up when he sold Instagram for a billion.” I was at the airport, awaiting departure home from San Francisco. The guy next to loudly told his friend, and he nodded. In technology, an amazing thing happened: a billion dollars no longer seems like big money! A few years ago, the news that a startup sold for $ 25 million would have forced us all to lift our jaws from the floor. Today, no one blinks and an eye, there is no question about billions.
Perhaps a billion is a new million. In the end, the world is changing faster. The Internet and mobile devices have firmly taken their positions, and, apparently, a new era of exponential growth has arrived. Every day, businessmen overthrow kharki-taxi drivers and hotel magnates, costing hardly more than smartphones and healthy contempt for the foundations. In this insane new world, it seems, anyone can already create a billion-dollar start-up, be it Uber for house cleaning or AirBnB to house dogs.
And it is not surprising if all this seems familiar to you. In 1999, on top of the dot-com bubble, IPOs and billions of dollars in takeovers took place every week. Often, it was about startups with illusory business models based on “eye movement tracking” or “stickiness”. We will always remember how, in the most stupid way, Yahoo bought Geocities for $ 3.57 billion , and Broadcast.com for $ 5.7 billion . There was also a WebVan food delivery start-up: with only $ 5 million in revenue and a negative margin, they went public and reached $ 8 billion in capitalization . (Translator’s note: according to Wikipedia’s link, in November 1999 WebVan’s income was $ 400,000, the accumulated minus exceeded $ 50 million, and the market valuation reached $ 4.8 billion) Two years later they bent and declared bankruptcy .
')
This time it's a little different. Most of the companies have at least some income. Some are even a bit profitable. Units tend to IPO, preferring to stay private longer. But many signs indicate that we are once again starting a party in the spirit of the good old 1999. Perhaps we are not quite at the party itself, or it is a little different from the previous ones, but something is clearly brewing. As Mark Twain said: “history does not repeat, but rhymes”.
Collection of fun facts
- The share of new advertisers in the Super Bowl translation ★ this year has become the highest since the dot-com, and many of them are startups based on new technologies. Remember this ★ :
- 114 startups are valued above $ 1 billion by venture capitalists at the moment. A year ago there were 40 of them. And again, among them, low-margin food delivery , as well as companies whose income is formed by other start-ups .
(This chart is actually somewhat outdated: the column of 2015 should be 44 points higher!) - Last year alone, Forbes added 23 newly baked techno-billionaires to its wealthy rating.
- Rents in San Francisco have long gone beyond reasonable . A mediocre odnushka will cost more than $ 3,000 per month (this is the bottom bracket), rising by 15% over the past year.
- The average programmer's income reaches $ 130,000 per year in San Francisco, and this is without options and bonuses. But these are small people compared to those who have their own agents .
- High flight investors such as Bill Gerley ★ and Marc Andriessen ★ (both of them had a ride on the dotcom wave) believe that start-ups burn money too quickly, and their estimates are too high , we should worry :
“Both the Silicon Valley as a whole, and the venture capital investor community, and start-ups take unreasonably high risks. Unprecedented since the 99th. In some cases, not so stupid, and sometimes much more stupid than in the 99th. No one is afraid, everyone is thirsty for profit, but suddenly it will all end. ”
- The stock market is significantly overheated according to all reasonable metrics . The CAPE ★ (Shiller P / E) coefficient reached 27 , exceeding the levels of 1929 and 2007, but not yet reached only 1999. Once again: the companies rush headlong to the public market without even showing profit . In 1999, 80% of the companies entering the market were unprofitable. Last year, their share reached 72%, rising from 46% in 2012, which does not bode well for a return on investment in the future.
- Instead of entering the public market — which implies rigor in audit and management — many companies attract huge amounts of private investment based on dubious calculations. At the same time, many companies that have become publicly proudly announce their own profitability, while not showing profits according to GAAP ★ accounting standards. Moreover, they put on the price / earnings ratios and the sales multiplier, “pumping” the estimates of private investors.
- Every day hundreds of startups are launched. There are so many of them that startups are gaining popularity to track startups. Recently, one of these services, ProductHunt, received an investment valued at $ 22 million. The income of many of these startups is entirely composed only of the funds of other startups.
Do not misunderstand me, I love startups and technologies, a lot of wonderful things happen there, regardless of what was said above. Signs of life gives artificial intelligence. Hand submit to self-driving cars. Drones will soon deliver us toothpaste. There is no doubt that an incredible amount of innovation is being born right now.
It would be wrong to say that everything that startups work on is useless. But the financial situation suggests that a correction should be expected. I'm trying to say that with innovations, everything is fine, but company valuations are completely unstable, and many investors, founders, hundreds and thousands of their employees will get a heavy blow in the coming years.
But who knows, all of a sudden history will not repeat itself, and exponential technological growth will allow us to break through. Perhaps Uber is worth its $ 500 billion. Maybe I will look at this post with disdain after five years. Yes, I'm just wearing swimming trunks here ...
"You will find out who swims naked, only when the wave subsides"- Warren Buffett
Appendix: Defense Instructions
So, you are concerned that your startup may be at risk. Do not panic. There are companies that can talk about how they survived the last bubble. Here are a few steps to prepare for the storm:
- Diversify customer base
If your revenues mainly come from venture startups, direct your sales team (or adjust the strategy) to companies that are in later stages that already exist long enough and have a resource for survival. - Growth at a reasonable price (GARP ★ )
There are many business models in which you don’t need to be a genius to continue to pour profits into the funnel of customer acquisition and sales growth. For example, if the customer value (LTV ★ ) exceeds the cost of its attraction (CAC ★ ). Compete with competitors, but leave the opportunity to press the brakes on time and not fly out of the red line. Fred Wilson ★ recently wrote an excellent post in which he shared an expense formula: annual sales growth plus profitability of sales ★ should exceed forty percent. Somewhere here lies the line between spending cuts and business liquidation. - Avoid fixed costs
Employees can be reduced, but your super-office for $ 100,000 per month (including sports and game rooms, a cafeteria with a chef) is rented under a tough 5-year contract and is not going anywhere. Every dollar of fixed costs pulls you to the ground, depriving you of flexibility during a crisis. A reasonable balance should be found between the space to attract and grow new employees, and between what is really necessary for business. - Cash first
If you live with the confidence that, as the need arises, you can always attract another round of investments, then you should develop a backup plan. Model the situation: what will happen to your company if you fail to find the money? A healthy balance and low costs are a guarantee that a company will survive a storm when competitors are out of money, and if they are eliminated, you will buy technology for real cents, if you wish. Bank balance is a moat around the fortress that protects you from the Mongol invasion.
All this is mostly common sense and the basics of business. But it always amazed me how few people in the technology world pay attention to it. The last seven years have been favorable for startups - a continuous holiday! It is easy to succumb to the charm of thinking about the next round of investment, profitable takeover, or IPO - as if everything is close by. But it is more valuable to practice thinking about what will happen if the music suddenly ends.
You should follow my twitter ∎
About the author: Andrew Wilkinson (Andrew Wilkinson) - the founder of MetaLab and Flow . Publisher Designer News
KDPV: Michael Marcovici [ CC BY 3.0 ], via Wikimedia Commons
Source: https://habr.com/ru/post/292350/
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