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 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 (s ORCL) and Google (s GOOG). 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 (s YHOO)) 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.
Recommended Reading: Harvard Business Review’s Downturn 2008 Survival Guide.
Watch the roundtable: Robert Scoble caught the whole event on tape. Check it out.