15 Comments

Summary:

Earlier today, I attended the “How to manage your startup in a downturn” roundtable, organized by Matt Marshall, where seasoned venture capitalists and entrepreneurs dispensed advice on how to navigate the current downturn and be prepared for the worst. Like most of these conversations, someone on […]

2505321929_74196ea806_mEarlier today, I attended the “How to manage your startup in a downturn” roundtable, organized by Matt Marshall, where seasoned venture capitalists and entrepreneurs dispensed advice on how to navigate the current downturn and be prepared for the worst.

Like most of these conversations, someone on the panel brought up the fact that downturns often inspire extreme innovation and lead to creation of great companies. To expound their point, these people point to the likes of Oracle and Google. While Oracle’s story is true, Google’s story is nothing more than a modern-day fable.

The company was started in 1998 (according to its own version of history) — long after the Black October of 1997. In 1999, it raised a copious amount of money — $25 million — that prompted Kleiner Perkins Caufield & Byers (KPCB) to admit that it had seldom paid so much money for so little in a company.

Whatever the valuation, Google’s funding came in an environment that was far from being a downturn. To me that environment was more a bubble than a downturn. And as for their much vaunted monetization strategy — ad words — that idea came long before the last downturn (which started sometime in March 2001.)

Bill Gross, the creator of Idealab, in 1998 had started GoTo.com, a search engine that auctioned results to the highest bidder. That idea became Overture in 2001 and was a massive hit. (Overture was acquired by Yahoo) Google copied it in and released a better version in 2002 and that become their own private mint. That happened for two reasons — it was the right product at the right time, and Yahoo messed up, as my pal Fred Vogelstein highlights in this Wired article.

And in case you are looking for some real stories about companies that were born in the downturn, try looking up the stories of Clif Bar, Honest Tea, K12 and dozens more. Just not Google!

Recommended Reading: Harvard Business Review’s Downturn 2008 Survival Guide.

Watch the roundtable: Robert Scoble caught the whole event on tape. Check it out.

Photo Courtesy of Joi Ito via Flickr.

  1. The dotcom crash started in March 2000, not 2001. AdWords was started three months later, in June 2000, and launched three months after that. So while you are right that Google didn’t actually start in a downturn, it did achieve profitability during a downturn.

    Share
  2. Extreme innovations have not much to do with downturns. Most of the time it is need based. In silicon valley, most of the companies are just to expensive .. I have seen so many startup having 10-15 million dollar pumped in .. All they develop is widgets for facebook or some small game for i-phone. I don’t think startup needs so much money to innovate whether in good time or bad time. I really endorse view of Paul Graham who stress on keeping operating cost as low as possible.

    Share
  3. @Ron

    You can nitpick on the details but it is clear that the myth of google being this great thing that started in a downturn is just that — a myth. the idea of adwords well, i don’t have the precise date on when it became live, but the idea wasn’t “downturn” inspired. It just happened to coincide with the bad times and it was the only ad-model people were willing to experiment with.

    Share
  4. [...] Just Saying: Google Didn’t Start In a Downturn – GigaOM. [...]

    Share
  5. Om,

    Good point about Googke, but Oracle was founded in 1977, between recessions. While it’s true the economy was far from terrific and the sock market was going sideways in 1977, that’s not the same as saying it was founded in a downturn. A list of recessions can be found here:

    http://en.wikipedia.org/wiki/List_of_recessions

    I mention this because it came up in a recent thread here ( http://gigaom.com/2008/09/30/how-wall-street-can-hurt-silicon-valley/#comment-902306 ). Some tech giants were founded in recessions and downturns, but just as many weren’t.

    More important, the ones that were had their starts at the end of recessions or depressions. Many economists are expecting this downturn to last several years, so if you follow this logic – and I don’t think you should – one should wait three or four years to found a start-up.

    Kevin

    Share
  6. erp, sorry. _Google_ not Googke. More coffee, please.

    Share
  7. ipod (2001) / itunes (2001) / itunes store (2003)

    Share
  8. The write-up is quite logical and real in the backdrop of facts presented by you. While the Oracle success story certainly seems to be of the “genre” that you want to highlight and the Google success story may not be actually that of a startup getting success in downturn.

    Share
  9. [...] like to point to Google as a company that started in the downturn and went on to stunning success. GigaOm shreds that “modern day [...]

    Share
  10. [...] antes de que se conviertan en leyendas urbanas, y Om Malik lo hace en esta entrada: “Just saying: Google didn’t start in a downturn“. Y es que efectivamente, muchas personas, queriendo apoyar la imagen de que las crisis [...]

    Share

Comments have been disabled for this post