4 Comments

Summary:

A another bubble seems to be brewing and entrepreneurs and investors need to get ready, tread carefully and, most importantly, learn from the lessons of the previous bubble and bust cycle. To help with that, we sat down with five entrepreneurs and investors to hear their tips.

bubble2

Strong company culture can be a life raft in a bust

Who: Jeffrey Housenbold, CEO of Shutterfly

Bubble Cred: Housenbold was formerly COO of finance portal Raging Bull, which was sold to AltaVista in 1999. He also was founder of Accenture’s Media & Entertainment Strategy Group and a VP at eBay.

Interviewed by Katie Fehrenbacher

Lessons Learned:

  • Keep a laser-like focus. When companies fail, it tends to be because they got distracted.
  • Build a better mouse trap. Regardless of whether there is a coming bubble or not, it’s still all about out-innovating the competition.
  • The laws of physics don’t change. A lot of people in the first bubble bought into the hype of how the Internet can have a different business model. The popular mindset was “everything’s different now.” But fundamentally the laws of physics, and markets, don’t change. Don’t buy into the hype.
  • Create a strong company culture. Make sure from the onset that you are creating a strong company culture within your business, as when times get tough, it will be the culture that can help you survive. Identify the torch bearers in the office that will help lead you through.
  • Don’t forget your values. When the world is crumbling around you in a bust, don’t forget to treat people the way you would want to be treated. I had to once lay off the Best Man in my wedding. But you need to treat people well, even when there are tough decisions. There was a lot of bad behavior in the original bubble.
  • Raise money when you can. There’s always that debate, should I raise money now, or keep from being diluted? But I think if you need $10 million, take $18 million or $20 million. The cushion offsets dilution and the worst thing that can happen is to be caught in a death spiral of lack of funding.
  • Hiring is one of the most important pieces of success. Bringing on the best and brightest can increase your odds of success. You should also hire today for what you need three to four years from now.
  • Choosing investors is like a marriage. Your investors need to have a long term outlook; you’re stuck together for at least 5 to 7 years.
  • Act swiftly. To survive in a bubble or to succeed in the startup tech world, you need to make things happen quickly. Founders need to see the opportunity before others, but also move before others.
firstpage of 6
  1. A bubble requires a great deal more than excess enthusiasm for a couple of tech stocks. Especially when they’ve demonstrated some ability to turn a profit on their own.

    You don’t need buzz concepts in the headline to have an interesting discussion.

    Share
  2. The last tech bubble was burst by the Fed by ill-advisedly raising interest rates and causing a recession. The only way interest rates go up soon is if the Fed is crazy. I don’t see a localized bubble as bad. Has a tech bubble ever soft landed on its own without the milieu of rising interest rates or a recession? We’ll soon find out.

    As to raising interest rates to ill-advised levels, the entire last decade gave two examples of how not to do it. Interest rates need to be low because of productivity gains. We have entered a new age of innovation, like the industrial age, this time based on electronic technology. I don’t think the Fed has a handle of how much computers and smart devices/networks are changing the productivity equation for both consumers and businesses.

    Share
  3. LosFelizRider Wednesday, July 13, 2011

    It’s interesting how the interviewees contradict each other on some points. It’s also interesting how some of them made out well by selling during Bubble 1.0.

    And, really, the head of Ask.com talking about focusing on building a great product? Ask.com has sucked ever since IAC acquired it and change it from AskJeeves.

    Share
  4. I disagree. There are profound differences between DotCom 1.0 (2002) and DotCom 2.0 (2011). Most notably the VCs approach to investing now (execution vs. R&D dollars; and it’s this capital investment which largely drives up valuation pre-IPO) and that these newer dotcoms actually generate significant revenue (i.e., Zynga and Groupon). Their ability to drive high margin and good EBITDA will force correction post IPO. Here’s a post I wrote about these core differences:

    http://gigaom.com/2011/07/13/how-to-survive-the-next-bubble/

    Share

Comments have been disabled for this post