September 4th 2008 marked Google’s tenth birthday. That means that during 2000 and 2001, when all the air was being let out of the dot-com bubble, Google was in its infancy. That was a good idea that survived the bleakest time for high tech companies. On the flip side, Facebook has not even reached its fifth birthday, but as a company it is worth well more than four billion dollars. Great ideas can scale and become big businesses very quickly. And incredible organizations like Six Apart, Plaxo, and Ning were all started before the Web 2.0 boom. What does this say about the nature of technological development and its relationship to the economy? That technological developments breed innovation, and that innovation can produce economic benefits with demonstrable impacts on the bottom line. No one knows what the next Google will be, but if it is not being built now, then someone will probably start working on it in the near future. Don’t stop working on side projects and ideas that interest you, because those ideas not only might turn into brilliant products or services but also might turn into the economic catalyst that spurs our economy onward.
When someone like Ron Conway says not to leave your day job, serious people listen. But, here I need to say that I respectfully disagree with Ron. Times are tough, but it is important to not stop coming up with new and innovative solutions to people’s problems. It is the people who are tinkering in their garage or coding in their dorm room, people who are really trying to do something new, that will hopefully spur the next boom. Given the current economic environment, continued technological innovation is one of the things that is likely to turn the economy around and help restore confidence in the health of the world wide economic engine. Logistically that is easier said than done, given that VC funding, essential for many startups, will not come if VC funds do not see IPOs occurring because the IPO market is all but non-existent and corporate buyers cannot go to credit markets in order to fund acquisitions. But, please do not stop tinkering and coming up with new ideas.
Of course this places the technology community in quite a tricky situation. How can startups grow, something essential to returning the US economy to a normal business cycle, if banks, VCs funds, PE interests and others, are unable to provide that funding? Unfortunately, I do not have an answer to such a tough question. Obviously angels will be doing the brunt of the investing, and that is a good thing. Angels can wait longer for a liquidity event, and also have an higher tolerance for failure, whether because the company and/or ideas was bad, or because of the macro-economic environment. Similarly incubators and seed funding sources, such as Y Combinator and TechStars will play an even larger role, as other funding sources dry up. Business plan competitions and good old-fashioned bootstrapping, also become much more attractive, as are asking family and friends.
Thankfully the costs associated with starting a company have gone down, with open source and webware software, along with ever cheaper and more powerful hardware. Pay roll will still be hard to make, but the more money you can spend on head count and the less you can spend on everything else the longer you can keep your organization going. Getting lean is one of the best ways to stay afloat during a bad economy.
One thing that is really excites me about the moment is seeing all innovation that is coming. If advertising dollars dry up, and there is some early suggestion that they might, then you will see startups experiment with new revenue streams. Some of them will fail, but some of them will work, and when the start-up community finds those that do work, start-ups will evolve to incorporate these new revenue models. Recall that it took Google a relatively long time to figure out how to make money from search ads. As funding because tighter and tighter, it means that the rate of technological innovation will likely speed up, out of necessity to find new ways to make internet companies profitable quickly. And, just as people say it will be hard to get VC funding, the large VCs will have money to invest. For those gems, funding will still be available, as it was in 2000 and 2001. It will just be much harder to get that money.
So to all those start-ups out there, know that we are in a rough patch as is the global economy. But it is the tech sector that can keep the global economy moving, even as other traditionally bellwether sectors fall by the way side. And it is at moments like this that the next Facebooks, Myspaces, and Googles are being born. So please keep working. Lets just hope that new giants can grow quickly enough and sturdy enough to restore confidence not only in the high tech space, but also in the global economy’s ability to withstand such strong disruptions such as the one we currently face. Google and Facebook show that it can be done.