Business bubbles, history & startups

Here’s a list of business bubbles you may / may not have heard of:

 

Tulip bubble – 1630’s tulip’s sold for more than houses!

South Sea Bubble – 1720

Bull market of 1920’s – resulted in the great depression

Japanese asset price bubble – Commercial real estate selling for US$1.5m per square meter!

Real estate bubble every 10 years or so… You’ve just lived through one!

Tech wreck (dot com)– Companies with negative cash flow valued over 1 billion!

Sub prime / hedge fund bubble 2008 – We’re yet to see all of this…

Green Marketing bubble ? – This one’s coming watch out!

 

Many business bubbles are focused in new industries where startups are abound.

 

Here’s when to get nervous. When you hear the words ’it’s different this time’, or people are overly focused on industry growth and the so called – revolution.

 

Here’s when there is no need to get nervous. When your business model based on basic business fundamentals like cashflow and growth in your net cash position. Startups take heed.

 

For 1000’s of years business and industries never grown much over 10% p.a. once compounded. Yes, there’ll be exceptions like Microsoft in the early 1980’s. But generally speaking when things are predicted to grow at rates above 20%, and valuations are more than 20 time earnings….get suspicious, very suspicious.

Perspective – internet boom 2.0 ?

There’s been a lot of talk lately about an ensuing second internet boom. With the billion dollar sales of many web 2.0 companies it’s easy to see why:

 

facebook-logo.jpg                          $15.1 billion

 

skype_logo1.png                                   $2.6 billion

  

feedburner_logo.jpg                            $100 million

  

aquantive-logo.gif                         $6 billion

 

doubleclick_logo.jpg                       $3.1 billion

 

youtube-logo.jpg                                $1.7 billion

 

digg-logo.gif                                     $60 million

Among others…

To give a little perspective the Nasdaq composite index peaked in the year 2000 at 5132 points. Yesterday it closed at 2320, just under 8 years later.

If you invested $10,000 at the peak, today it would be worth $4521. Still a very bearish 55% capital loss.

  

Sure we’d have to question some of the valuations, but the market hasn’t started to value ‘ideas’ at over a billion – yet.

  

Start up lesson – your company is worth what someone is prepared to pay for it.

Quote – Ben Rowe

I asked marketing polymath Ben Rowe his thoughts on Facebook in 2008 and if it is going to grow or decline…

Response

“Facebook is so 2007…. it’s just p2p spam. I reckon facebook is going to die a fairly fast death this year.”

Sure the jury is still out, but it wouldn’t be the first time Ben’s predicted the future of a brand or launch. It does seem that there was something very wrong when Zuckerberg referred to his ‘army of viral marketers’ he forgot one thing…. viral marketing is always done by people, not companies. Abuse them and lose them.

The gaping void view in December was this

gaping-void-zuckerberg.jpg

I still think facebook is a great platform (especially the app’s component) which needs to take a few steps back before everyone disappears. It will be interesting to see how this one plays out.

Tech bubble v2.0

I recently blogged about the unrealistic valuation of Facebook, seems there’s many who agree with startupblog. Sure web 2.0 is heating up, but as usual they’ll be stayers and those who disappear. The only thing that changes…. This is a really clever and fun parady.

[youtube=http://www.youtube.com/watch?v=KtdV3z9eCm8]

If we want to be here in the long run here’s some simple advice:

Offer a service people need, ensure it has a built in way to make you money, not an exit plan which sells eyeballs – these only work for a few ‘wordbeaters’ (like facebook & youtube).