The start-up bubble

http://cognitivenerve.com/2012/09/02/the-start-up-bubble/

by telson • 14 years ago

28 23 14 years ago

PaulHoule2• 14 years ago

It's what it is. Yet, I often feel that criticisms of the startup wave are often a few years out of phase.

At least once a week on HN we get a rehash of the meme that "startups" are too focused on advertising and social media. But if you look at the companies YCombinator has been funding lately, you'll see the dominant theme is people building subscription services that cost $X a month.

I have to admit that I already find that tiresome, and maybe someday the haters will catch up and write linkbait about how that kind of business is BS.

I can also say that a 'startup' can denote a wide range of companies.

There are the guys who want you do a PhD thesis worth of research in two months. Maybe I could do that if I lived like Howard Hughes and ate piracetam tabs out of a huge bowl, but these guys don't even have cash to buy the data they need or the EC2 time, so tough luck. At least they're doing their startup on stolen time from their day jobs so the lack of cash doesn't mean they starve, it just means their business goes nowhere.

Then there are some "startups" that are over-funded. A few years ago I was mystified at how Colours took $50 million to build a crappy photo sharing app. Then I learned, the hard way, exactly how this happens...

JonLim• 14 years ago

Curious: is there anything fundamentally wrong with subscription services that cost $X a month?

It seems that it is a more sustainable business model (rather than relying on advertising and social media) because they're providing a service or product that has actual value to users, enough to have them open their wallets to the companies.

Unless there's something I am missing here?

PaulHoule2• 14 years ago

It's not a bad idea, it's just there are an awful lot of them and the average one is just average.

jval• 14 years ago

Lame. Apparently we have been in a bubble since 2007, depending on who you speak to. I recall in a famous YouTube clip circulating at the time that people thought it was ludicrous that Facebook was valued at $16Bn.

Of course people are going to overvalue companies. There are cycles in every industry, where people speculate and get burnt. Does anyone remember the Finance industry in 2007? How that is evidence against startups is beyond me. When the tech bubble fizzles it is going to take down established companies with it, as well as their employees' stock options.

At the end of the day the choice between working in a startup and an established company should be about the quality of the people you work with, not the number of employees.

If you have crap co-workers, it's not a sign that startups generally are bad, but rather a sign that your startup in particular is bad.

randomdata• 14 years ago

Apparently we have been in a bubble since 2007

Some Google searches show the talk of the bubble going as far back as 2005, if not even late 2004. I wonder what it takes for a bubble to become normal business?

yiannisbab• 14 years ago

A bubble never really becomes "normal business" and it never will without specific tools that can support it, tools only available to governments (eg. the China bubble).

An honest prediction on when this bubble will burst, would be at the end of the current financial crisis. This is because for now, investors treat take as a safe retreat for their capital, along with German and U.S bonds, gold and over-priced art.

When faith is restored and capital starts flowing towards other industries in equal quantities, this tech bubble will deflate (not burst).

Actually, start ups are more of a new sort of monetary inflation within a certain industry rather than a bubble, now that I come to think of it.

simantel• 14 years ago

Here's the video you were referencing, circa late 2007: http://www.youtube.com/watch?v=I6IQ_FOCE6I

asanwal• 14 years ago

I completely understand that it is fashionable to predict startup bubbles (people have been doing it every year in this current cycle since 2008), but the arguments in this post are flimsy and essentially boil down to "it's a bubble cuz it feels like one to me."

There will always be crappy companies being built and 3rd tier investors throwing money at them, but I've yet to hear a solid data-driven case for why this is a bubble. Sure - consumer web, ad-supported may not be a great place to be, but that's a very narrow view of tech as it ignores SaaS, b2b, enterprise focused companies.

001sky• 14 years ago

I've yet to hear a solid data-driven case for why this is a bubble

-- Is it even possible. What would this look like?

tweiss• 14 years ago

His LinkedIn states that he graduated last year and worked for a startup for a grand total of 3 months... nothing against the author, but he seems to be too young and inexperienced to fully understand the big picture of something as complex as boom & bust cycles in the startup ecosystem. I certainly don't understand them. Too bad that his startup-experience seems to have been a bad one. For some(most?) people a big company is just a better fit. Life is too short to be wasting it on something you're not passionate about.

telson3• 14 years ago

What you say is true, and I may generalise more than I should, however I don't think you need a phd in astrophysics to see that this is a bubble. Or that's what I think it is, will see, I hope I'm wrong because many of my friends depend on the start-up ecosystem.

mattmanser• 14 years ago

Yeah, but you're too young to understand the first one. I only caught whiffs of the tail end of it. Read some of the stories, some of the stuff they were trying to do was nuts.

The massive difference in this one is there really is a load of money to be made. Everyone is now online all the time. Back in 1999 there were bugger all people online and you wouldn't put your credit card details in for love nor money. Business wouldn't buy critical tools online. A lot of the industrial tools are moving cloud based rather than the old server install method. It's expensive to have your own IT team for a couple of massively overpowered servers that still seem to go down every day.

And a lot of consumer faced products are making massive sums just because of the sheer scale of the marketplace now. Google is profitable and there really was a time when it wasn't, Facebook is profitable. Match.com, craigs list. You've got businesses like netflix and spotify. People buy digital goods online. There's a lot more opportunity out there.

Some industries have gone crazy in that they're not charging, the one I look at and shake my head at is the diet industry, what on earth brilliant tools like myfitnesspal and their ilk are doing I do not know, that seems like a sad race to the bottom in an industry traditionally worth hundreds of millions, if not billions. And others, like the newspapers, seem to be regaining their senses and are now charging (personal opinion, let's not derail the point :).

Your field, big data really is meaningful and it really is worth a lot of money to the right people. You'll usually get opportunities in the right startup to advance your learning far beyond what you'll ever achieve at most big companies.

There are exceptions to every rule, but big business often gets bogged down by conservatism and politics.

But in the end, do what makes you happy and find the culture that does. And there are plenty of great jobs out there with a CV like yours.

I partially agree there is a bubble, but only in certain startup sectors.

solchea• 14 years ago

I don't disagree with the author on any of his points. But it's much easier to predict the future by drawing similarities with a sequence of events from the past which seem applicable and relevant. What makes the future interesting and exciting is that it hasn't happened, and if you truly knew what was going to happen, that means you have a unique opportunity to try to change it and avoid the mistakes of the past.

munin• 14 years ago

>To be clear: many people in start-ups may be wonderful developers and programming gurus, however many of them are missing the fundamental theoretical basis that will take an algorithm to the next level of innovation.

so, I've worked for both big companies, small companies, and startups, and I guess what I'm missing is, what does your headcount have to be for you to have this "fundamental theoretical basis"? When you hire your 50th person, do Smart People knock on your door one morning and give you a book titled "How To Think"? Or is it the 500th person? The 5,000th?

tzaman• 14 years ago

This post misses one important point: Startups are playgrounds.

You don't need to be the next Facebook or Twitter. You don't even need to be profitable (although we all aim for it). What you need is a team that can execute. Even if it turns out the idea was lame and the startup fails, the team learns a lot. Then they can apply that knowledge at new startups or regular jobs they may take.

And from investors' point of view, most of them have plenty of money - they don't do it just because they want more (if at all), they want to share their expertise, get to know talented people and fill their schedules with activities they enjoy.

I can't imagine, if there would be no investments at all. The investors would be just fine, but the money wouldn't flow. Because of that, there would be too much risk involved and nobody would devote their lives to great ideas. Long term consequences for the whole industry would be bad.

ucee054• 14 years ago

I haven't personally been in the Valley recently, but...

"Startup" in the old Silicon Valley used to mean companies with serious technology like Amiga or Apple or Illustra. The staff used to be PhDs and sometimes professors from Stanford & Berkeley EECS. "Startup" did not used to mean "3 marketing dweebs and a website".

Valley interviews used to be "Super Saturday" 6-hour exams with theory questions for junior positions. Startups had more rigorous requirements than big companies; BigCos would at least look at entry-level resumes, Startups not so much.

I have trouble believing London's Shoreditch is any kind of "Silicon Valley".

telson3• 14 years ago

I can't agree more.

diminish• 14 years ago

When technologies move from specialist areas to broad consumer usage, a more diverse (and less specialist) thinking also comes along, so people like zuckerberg, instead of data mining specialists with phd are ruling the techno start-up scenes, or stated otherwise, people who learn php and mysql, and not necessarily people with phd in cs rule this world. Moreover, to traverse all the possible space of innovation possible, more human effort, more dreamers are rushing into the field. finally, most are failing; this is normal in any problem solving when people simply traverse the possibility space with overlapping innovations.

A bubble is better identified in retrospect and a bubble predicator may be, the abundance of prophets such as this blog. Finally a bubble is good, and it simply justifies the fertile ground a certain technology provides. In this case web and mobile technologies have left no area of life untouched, and the bubbles are the golden medals they all carry going forward; showing their success and of course limitations.

gersh• 14 years ago

I think real Silicon Valley start-ups are generally serious organizations with very rigorous hiring requirements. There have been more and more second-tier city "Silicon Valley" startups, but many are not really comparable to typical Silicon Valley startups.

I think there is probably more a bubble in New York and London than Palo Alto. Inexperienced investors can give anyone some money, but that doesn't mean they will succeed.

tomasien• 14 years ago

Evernote makes good money. I know a lot of people believe there is a bubble, but this is a terribly thought out piece.

rbreve• 14 years ago

Evernote has 1 million users paying for the service http://techcrunch.com/2012/06/19/evernote-by-the-numbers-34m...

The start-up bubble

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