So how are tech start-ups going to get through this current squall? First it helps to have some historical perspective. Everyone's weighing in, but perhaps the best rundown of how the industry arrived at this point was authored recently by Bill Gurley of Benchmark Capital:
From a high level, this downturn is different from the Internet bubble of 1999. First, the last downturn started in our backyard. We were the speculators; this time it is someone else. This means that the "crash on the beach" wont be nearly as severe. In the Internet crash, many times the customer was actually another VC‐backed company and as such, there was a strong negative spiral. That said, while this downturn might be shallower than last, it could last longer in terms of absolute time. The American consumer is super-leveraged which wasn't true before the 1930s or the 1970s. The overall economy will have trouble gaining momentum with this debt anchor, and my best guess is the contraction is not finished yet. As such, it might take a long, long time before we see glory days again.
Like every major shift in the environment, this one will offer opportunities as well as risks. JP Morgan was able to buy two great assets as substantial discounts with government assurances, precisely because they played the game frugally while others were more risk seeking. The real key is to have a keen understanding of the game on the field and to be the one that adjusts swiftly, rather than the one that moves after it's become blatantly obvious to everyone else it's time to move. Many companies that thrived post 2001‐2003 were simply "Last Man Standing" in their industry. It doesn't sound all that glamorous, but it was the exact right strategy to deploy at the time.
(You can read the rest of his memo here.)
In the meantime, there's no denying that hard times have arrived. This week saw layoffs at several high-profile tech start-ups, including Tesla Motors, Zillow, Adbrite, and Zivity, among others. I can't find anybody who believes that it's going to stop there.
Until recently, tech start-ups had successfully navigated through the shoals. It's just that the storm now hitting the rest of the economy is starting to gust through the Web 2.0 world as well. But as Gurley correctly notes, this is the time to hunker down. Experience counts for something--and that's something the survivors of the dot-com crash have in spades. Recall that when the Internet bubble burst, the average tech start-up was ill-prepared to deal with the bust. But anyone who survived that near-death encounter ought to know what to do now that the clouds again are gathering.
Earlier, I had a chance to sit down with Webware Editor in Chief Rafe Needleman, who covers the world of Web 2.0 start-ups as closely as anyone in the technology reporting realm. Check out the video we did together on the CNET News Daily Debrief.