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January 28, 2006

Disagreement over bust within Blogspotting

Stephen Baker

Heather posted her concerns that a me-too frothiness in the blog-podcasting-vblogging-social network world could lead to a bust. The numbers practically ensure that most of these startups will fail to become self-sustaining businesses.

But will that be a bust? Only if failures lead to a collapse whose effects ripple through a larger part of the economy. Some VC and angel funders will get burned. But that's a given in their business. Plenty of wanna video kings and social-networkers will resume work as waiters or head to B-school (many of them continuing to blog after hours). But even if they quit, they won't be laying off lots of engineers, or cancelling big hardware contracts. Big companies like News Corp that are paying top dollar for social networks could have some unpleasantness on their balance sheets... So their shares drop a few dollars.

Heather says that if many of these startups go under, the investment community could get spooked. But I think there's enough experimentation going on that even if 100 fail, we'll see the promise from the handful that succeeds. (Then the me-toos will go following them...) She has a point about open-source media. Following the failure of Bayosphere, it might be hard to get funding for a big, ambitious project. But smaller scale news blogs like Baristanet are faring fine. And newspapers themselves, in their struggle to survive, will be experimenting madly. And I don't think the idealistic backers of open-source journalism, people like Craig Newmark and Pierre Omidyar, are likely to be discouraged by a few stumbles.

Long story short: I don't see the coming danger. Am I missing something?

12:03 PM

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Tracked on February 1, 2006 09:53 AM

I'm with you, Stephen. How can there be a bust when the only folks who have money on the table are VCs and investors who have bid-up Google? The dot.com but came after dozens (hundreds?) of companies with no revenues (much, less, profits) were able avail themselves of public funding. The classic "widows and children" were investing in dot.com gimmicks. Today, there are few startups in the "2.0" space that will ever see and IPO -- and it won't be until they have been profitable for years. VCs will lose money and make money -- but that is not exactly something any of us should care about.

Posted by: Rex at January 28, 2006 02:16 PM

I tend to agree with you Stephen. In the real world, if a coffee shop closes on 3rd street there's another just around the corner. Sure some will lose their investment but it's not the big bucks like during the last boom.

Posted by: PXLated at January 28, 2006 02:16 PM

Stephen

In my opinion, you essentially agree with Heather, despite the title of your blog.

Choice of wording seems to be the only difference. The word causing this ripple: "bust." "Bust," "burst," collaspe, etc. all intrinsically mean failure.

(Perhaps because I'm not hip to official Wall Street jagon I'm missing something ... ?)

Stephen, you wrote "But will that be a bust? Only if failures lead to a collapse whose effects ripple through a larger part of the economy."

Thats integral. But you know significant preparations are being made by players of the game to cushion any possible loss.

Posted by: D. Harry at January 29, 2006 01:51 AM

D. Harry, Heather and I agree that there will be lots of Web 2.0 failures. But I'm predicting that it won't feel like a bust, because lots of successful startups will keep up the momentum. I think that's where we differ.

Posted by: steve baker at January 29, 2006 07:53 AM

Stephen, I agree. IMO all of this is too new, untapped, and exciting, even, for it to not gain momemtum. And, I agree, any bust we may sustain won't feel anything like the first. Why? See my second sentence here. Plus, obviously, a lot was learned from the first bubble bust.

Posted by: D. Harry at January 29, 2006 10:43 AM

Stephen

It all depends how we define boom and bust -- the last boom and bust should hardly be the benchmark for all of technology successes & failures.

Regardless, while there will be several start-up demises, it may not be at the level of carnage during the early part of the decade. Plus, I think companies like Google (MSFT too now) have demonstrated clear revenue & business models, where none existed.

Posted by: Srini Raghavan at January 29, 2006 03:10 PM

Stephen,

One of the last signs of reaching a market top situation is, when VC firms hire a journalist to help them with investments, a bubble could be about to pop.

Bubbles are a fact of market economics, but ,they can have their positive aspects — if managers understand and avoid the pitfalls. Six years after the popping of the dot.com bubble, a dark shadow still remains over businesses and the economy in general :

Entrepreneurship is not for everyone, it is most suited for a bunch of leaders who take the action in their hands, who have the vision, the dream and the will to get things started.

If a vision statement is to paint a vivid picture of how the future will look like, and impel for action, then the leader ,and others in management positions, must communicate it broadly, consistently, and continuously, until it becomes an integral part of the organization's culture and values . It takes every public and corporate opportunity, in speeches, management meetings, articles, and interviews, presentations, press releases to publicize this core message.

If a start up is talking about Innovation , then this company should not be just thinking about new products or services, they are important but the vital aspect is to start looking at innovation as the awareness that a business model can have in it different variables ,and they all need to be constantly revisited and challenged. A company that is not dealing with new business concepts or looking for new business opportunities is probably planning only short term . And planning only short term is planning to fail in the longer term.

Posted by: Henrique Plöger Abreu at January 31, 2006 07:58 AM

Henrique

Exactly how integral - REALLY - is growth to, say, a small family business that has proven it's a steady earner, with decent revenues. Also the business is far from global but is reputable-enough(I know, very ambiguous) and supply a consumer product that probably will always be around. Henrique, would you assume that such a company is "planning only short term [and] is planning to fail in the longer term."

Sure the company will adapt, rewrite the script when necessary. That's mandatory. But should such a company have to strive for "new business concepts" and "new business opportunities" to be and remain truly successful. Are you saying that a proven formula must always be tampered with?

Posted by: D. Harry at January 31, 2006 01:22 PM

Harry,

First of All , thank you very much for Your comments on my thoughts, I was thinking about what happened to a major part of the so called dot.com start – ups, six years ago. You are absolutely true that there are a huge numbers of smaller families companies that have been successful throughout the Years,( according to the slogan : never change a winning team or a proven formula ) with the same business concept and the same strategy / products / services , but that is a fact because they ( mostly ) do not operate in the global economy , and found themselves operating in market niches, these companies benefited from a business environment where they did not got caught by major change turbulences, but fact is that our world is changing rapidly ( it is not just 9/11, oil prices skyrocketing, viral threats ,The corporate scandals at WorldCom, Enron, Andersen , Parmalat , the impact of new technologies, different economic cycles ) , if we look at mainstream businesses like: the commercial aviation, banking , retail, telecommunication , Lodging, Foodservice, I think that you do not need to be a wizard to predict that players operating in those markets will have to change, because while companies tied to the past struggle to cut costs ( downsizing etc. ), Slim , flexible and innovative companies experiment with new forms of leadership, R&D, business processes, strategic relationships, and innovation processes. These organizations look for ways to create value regardless of traditional industry boundaries. They combine creativity, responsiveness, motivation, discipline, and execution. They continuously learn, and learn how to learn better and anchor these winning qualities in their organizations culture.

Building a deep capacity for strategy innovation requires a company to engage its employees with new passions, as well as new skills and competencies. It requires transparent new financial measures that keep those companies focused on creating new wealth. It requires a relentless search for new business concepts. It requires a break with old business concepts. It requires a restless attack on anything that inhibits innovation. The new "outer " major reality will, sooner or later, have an impact on every traditional small, successful family business, and, if we paint this scenario can we assure that not every company should take a close look at their current strategies and at least, brainstorm about what their current business, markets are, and try to predict what their customer needs will look like in the next few years?

Yes, I think, that in the future, and in order to survive, all actual proven formulas will have to be reviewed and updated and, if needed changed to fit in a new business environment.

Posted by: Henrique Plöger Abreu at February 1, 2006 06:35 AM


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