The Startup Rush
lucisferre.net
lucisferre.net
You could have said that about the dotcom bubble and be correct at that time. But the gold rush analogy fits very well for that scenario with the benefit of hindsight.
Any scenario including the current startup rush could be made to fit into either one of the options presented.
The reality is: a) currently we are not in an economic slump wrt startup funding b) there will be companies which will make it out of the gold rush looking like visionaries (ala Levis Jeans). c) there will be companies that have attracted significant capital which will go bust.
That is market economics with nothing unusual. The determining factor would be the % of the companies funded which will survive and thrive. I would bet towards a high percentage of busts than winners. And that doesn't make me a genius, i am just stating the obvious.
I'm sure there will be a high percentage of busts, that is for the most part true for any entrepreneurial ventures. I will say though that today's situation isn't the same as the past. During the dot.com days one of the RIM founders stated at a conference I attended, that many companies were being funded almost purely on the number of comp sci. and engineering graduates they had hired.
Sure, it's still a rush. There is more hype than realism in the air, but certainly not nearly as much, and the opportunities are far more tangible this time. Make no mistake, gold rush or land rush, hard work is typically a necessary condition to succeed, but my argument is that success is a realistic achievement, given willingness, talent and drive. No amount of that will manage to squeeze gold from a tapped vein.
I think we're going to be reminded that when factories aren't a significant advantage, you can have a much higher proportion of entrepreneurs and the self-employed and still have everything work well. Mom and pop grocery stores aren't such a huge historical anomaly that we can't do that again -- now that the "grocery" doesn't need the resources of a giant multinational corporation behind it.
Some things will still always be done better by giant multinational corporations, but so far "managing artisans and figuring out what they should make" isn't in that category. And the few multinationals that are any good whatsoever at that are legendary for it (e.g. Disney).
I think we're going to be reminded that small companies are always how good artisans have tended to organize themselves, and architects, civil engineers, lawyers and doctors have always tended to operate independently or in small partnerships.
Programming is headed that way.
The "bubble" refers to asset valuations. Right now, we have social networking companies being valued above companies with large infrastructures (like oil rigs, auto manufacturing operations).
I suspect after the default by Greece and Italy, we will rediscover the value of tangible assets.
The idea that companies are valued above the value of their infrastructure is not new and it has nothing to do with web based phenomena.
Hennessy Cognac (as an example) was valued three of four fold above the actual value of the companies assets and the difference stems from the fact that the logo and the name are some of the highest valued in the world. (This information is about 10 years old - from my Engineering Project and Trademark Management days - but it illustrates a point).
We, as people, will always value intangible assets and we did not need web to do it.
Ultimately, all asset valuations should be in equilibrium with each other. House prices went out of equilibrium with rents, and eventually that corrected (and still has a way to go.) That is an example of a very close equilibrium.
If Hennessy started rivaling Exxon (say) in valuation, I would say that I don't care what kind of brand recognition it has, it is out of equilibrium and is just waiting for some event (like contraction of the money supply) to re-equilibrate.
> which actually states that we are NOT in a bubble.
BTW, I was disagreeing with the article. I would encourage all to make hay while the sun shines, because these valuations are not going to last.
The crux is, I guess, that you are making assumptions (valid at that) based on history, whereas I believe that the start-up rush is unprecedented and cannot be easily compared with anything that has happened so far. The author's analogy of land rush was, in my opinion, close, but the fact is, nobody knows.
Another fact that I would like to address is that just like the oil rig you mentioned has tangible value, (engineering, ore and manufacturing), so does software (engineering, data and massive outreach), so to quote Winston Churchill, "This is not the beginning of the end. It is the end (or not even that) of the beginning."
The new economy is a situation where each new idea creates new opportunities and the only real scarcity is that of attention. Attention is largely an intangible asset, certainly not ownable or protectable and the only real moats you can build with regard to attention are that of network effect.
A 'software startup' is a generally a data mining operation of some form, data (the raw form of information) goes into the sluices, and out comes some post processed data as information that has some value. So perhaps the name, address, and daily rates of every Hotel goes in as data, the sluices take your input on where you are going to be and provides a report of just those hotels and their rates where you are and voila, distilled data as valuable information.
Unlike the goods economy, the ore for our information products can be re-used again and again to make a variety of products. Further all of our ore can be 'stolen' by a competitor and we're still able to make our information products out of it. Thus this new information economy values the richness of the derived information, that richness is defined by relevance, precision, and timeliness.