Reading Andrew Chen’s Which Startup Collapse Will End the Web 2.0 Era, I could not help but think about how in the dot com boom, financiers and entrepreneurs rushed to take an idea from a powerpoint presentation to an IPO in a ridiculously quick time span, which explains why all of the high profile dot coms bombed.
This time around (web 2.0), it wasn’t all that different. The only difference, really, was that instead of drowning a napkin with capital and hoping that money could make up for time, we thought that free software and cheap hardware could make up for time, and money.
Time and money have always been inter-related, hence the time value of money concept.
Now that we’re clearly in a recession, deflationary period, or outright depression, you have to wonder: can you actually win by scaling quickly, or are you in fact better off managing the clock and winning by attrition?
Last week, I read that Mania TV was on the auction block looking to sell for cheap. Mania TV was one of the first companies that I came across back in 2004/05 that made me think: oh, look, online video content can work. However, I thought Mania TV suffered from a multiple personality, where they went from wanting to emulate MTV, to dabbling in Hollywood too much, then to becoming Yet Another UGC Site, to then morphing into an Aggregator, only to return to their original content creation roots. It’s a shame. I really hope they survive and thrive.
But in that process, they plowed through $24M in funding, making it nearly impossible to provide a realistic exit for investors, and in turn, in this economy, rendering them unable to raise an additional penny. I hope they survive, but I am not sure they will. However, even the most recognizable Web 2.0 brands have in fact raised boatloads, be it Digg, Slide, or many others that come to mind.
As such, if we are to learn from history then, the way to build a company is not to drown an idea with capital and try to make up for the time it takes to go through the motions and learn what works in an industry, at a given time, for a given company, but to actually grow up in a natural, healthy way.
Getting back to Allen Chen’s article about the companies that might indeed crash and burn and end the Web 2.0 era, look out for the following characteristics that he lists:
- Started in 2004-2007, and
- Self-described as Web 2.0 startups
- Have grown to lots of headcount, let’s say >40 people, which can burn through a $5M Series A in under a year
- Substantial traffic, let’s say >5 million uniques per month, which drives up the cost structure
- Ad-based business models, which rely on big sales teams calling up agencies (whose pockets are now reduced, if not closed)
- Low-context advertising inventory, with low CPM in sectors like communication and entertainment
- Mature internet sectors, where the upside is now established, and acquirers are less likely to pay up as a result
- Not a leader in their category, where they may be #5 or higher, and investors may be unlikely to keep supporting their growth
- Media content hosting, where they allow users to upload, host, and stream content without charging a dime, which also drives down the cost structure
Read the whole piece here. Sometimes you win by having vision, ambition, execution… other times, it’s luck… and timing!
Learn to manage the clock. Winning by attrition is winning nonetheless.
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