Did the Wall St. Journal attend a presentation I gave last month to the Toronto Venture Group? You’d swear someone was copiously taking notes given a story it had yesterday on how many Web start-ups have adopted a low-cost, no-frills business philosophy – as opposed to the high-flying, high-spending environment during the dot-com boom.
For me, the WSJ story strikes a chord given I co-founded a start-up during the boom (Blanketware Corp.), and now live and breath the new new way of doing business at b5media. We’re a company without a traditional office (we’ve been operating out of CEO Jeremy Wright’s basement and a converted garage in the back of my house so far). When it comes to doing business Skype and Hotwire are key strategic tools, and until winter finally arrived last week, I was happy to ride my bike to meetings if it meant saving the $10 or $15 on parking.
One quote that stood out in the WSJ story came from Sequoia Capital’s Roelof Botha, who said “Any crash this time won’t be as precipitous as in 2000. Because start-ups aren’t going through cash at such a blistering pace, that gives companies more time to figure out what works in their business.”
While you could argue there may not be a dramatic financial crash, I do believe 2007 could a start-up fall out as many “projects” started in 2005 and 2006 exhaust their initial angel/friends/family/founder financing, and are unable to raise more money because their business models aren’t solid enough. For more thoughts on the WSJ, check out Digital Alchemy, USA Today’s Kevin Maney and PodTech’s John Furrier, who rightly makes the point that the focus for start-ups shouldn’t be on being thrifty but, rather, generating revenue.
Technorati Tags: b5media, Venture Capital, Web 2.0
3 Comments
I think that its just part of the new way of doing business in today economy. People are more cautious and the Internet and its start-ups have lost that late 90’s sparkle. Companies owe it to their investors and their employees to make money. This way everybody wins.
You’re right…and it’s just the right way to do business by focusing on what’s important and what gives you ROI.
It’s not only about generating revenue and managing burn – but also about raising the “right” amount of venture capital at the appropriate times in the business’s life cycle. “Right” is tough to define but it has to be enough so that the company has enough time, payrol, capital, etc to create value (which should translate into an increase in share price) but not so much that existing shareholders & owners were unnecessarily diluted. The lead company in the article has raised $9M and is spending $200K per month – and if that spend-rate holds the company would have 45 months of runway which is way too much. So either the management took in too much money and accepted unnecessary dilution or the VCs gave an unnecessarily high valuation in order to be able to jam in an excessive amount of money (and continue to draw management fees for “managing” the money).