Running a Tech Business Today -- Not bad, just different

It's been interesting watching the blogosphere come to terms with the recession/depression over the past week. With typical dot com speed, I've watched people go from denial to anger to bargaining to depression to acceptance, all within the span of a week.

Now that people are coming to grips with the reality of the situation, we can start to analyze it, sift thru the wreckage, and identify opportunities. Denial is counter-productive. Accept that the economic climate is not going to be good for several years regardless of what Tweedle Dee and Tweedle Dum (aka Bernanke and Paulson) do, take note of the new reality we're living in, and move on with our lives.

On that note, I came across this memo from VC John Borthwick of Betaworks to his portfolio companies, and there are some real gems in here that I'd like to comment on.

There will be more emphasis on user value, more ways to make money from that value. We will finally fess up to the fact that many of the ad models of web 2.0 don't yield results, and we will invent ones that do. All around there will be more innovation.

Thank God people are finally waking up to this fact. Advertising revenue models should be of last, desperate resort. As I've been writing about for a while, people will pay real money for real value--plastering advertising all over your product is bottom-feeding The "me-too" bubble is crashing back to earth, but truth never changes and innovation leads to value, and value leads to money--regardless of economic conditions. If people won't pay money for what you're offering you'd better take a step back and re-evaluate some things.

One of the headline shifts that is taking place is that people (partners, investors, the market) are going to shift focus from audience + revenue to just revenue. This happened in the last downturn and a lot of entrepreneurs didn't adapt to the shift till it was too late. Cash is king. Cash gives you flexibility and options. Once you get to break-even the whole world will look different.

The part of this quote that I find particularly salient is the last bit. Cash is king. Cash also keeps you alive, as opposed to credit which will KILL you in a deflationary credit collapse. Whatever you do, do NOT count on credit to survive. (This includes VC credit.) In our current environment your credit can and will be pulled at any time, if you're relying on it to live you're going to cut your head off. But if you have cash today you're sitting pretty, you control your own destiny.

I think this cycle is going to drive another significant shift in how open and interconnected the Web is. This is good news for you, and this is bad news for the Facebooks of the world, who tried to replicate the walled garden strategy of Web 1.0.

I think that this is the single best point John makes in his letter. This is the idea that will define the next boom. Think of all the walled gardens we have currently, especially in the social networking space. Social networking is a utility, a component of an application. These walled gardens are going to be absolutely DESTROYED in the coming years, but this is going to create one hell of an opportunity for startups to come in and do what they did--but do it faster, better, more open, and in a more innovative way. If I could short MySpace and FaceBook I would be shorting them down to near zero

I have my own ideas about opportunities that startups today can exploit, but those will have to wait until I get done with my chores around the house :)

Jason in Real-Time

License

Fun Stuff

Comments