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Yup, we’re in a market downturn. What to do? What to do?
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I hope you have enjoyed the last few years in our industry because the next few years, well they are probably going fucking suck. Ok, perhaps that’s being dramatic but it’s pretty clear now this current market downturn will not be like the others. I mean, I’m no economist but the people who play economists on TV and in the news keep telling me this. And while I’m not an economist, I know much of the market, at least the venture capital market, is driven mainly by one thing, no I’m not talking about wearing Patagonia vests to expensive dinners, although that’s undoubtedly an important part of VC life, but no, VCs are mainly driven and invest with confidence and because of confidence. And right now, confidence is at pretty much at all-time lows.
But wow did we get there? Well, my personal opinion is the writing was on the walls for a long time. We have simply ignored the signs around us but can you blame us? We have after all been in a bit of fog for at least the last 2 years with everyone going on. But the bigger program is really that gone are the days of creating market-marking businesses such as Airbnb, Tesla, and Uber, and instead, we have been reduced to creating and funding lesser derivatives of yesterday’s innovations. I mean how many different enterprise HR SaaS tools can the market absorb before someone, some brave soul shouts ENOUGH! Of course when valuations are only going up up up, and the M&A market was as hot as it was no one is going to stop to say anything, instead it’s much easier to just point at the various charts going up and to the right.
So ya, I hate to say it but innovation in our industry seemed to have actually died a few years ago, and yet we kept chugging along. The covid slow down was perhaps a chance to reboot and build anew, but instead, most people just sat at home and either traded or build completely useless crypto things. This is basically what 99% of web3 is now becoming. Completely useless things that bring no actual value to, well, anyone. Is most cases it seems that these are just weapionzed ponzi schemes and that’s being nice. For the other non Ponzi scheme innovations, they are , As the saying goes, “art for artists”, or more simply said, extreme navel-gazing tech. It’s a bit unfortunate to see so many smart people building so many dumb things, but I also don’t blame them. As previously mentioned, there was simply no innovation left to be found in web2, so they all hopped on to the next big trend.
That all being said, and you know let’s stop this negative spiral of a rant to say that this downturn was probably needed and dare I say, overdue. That’s really the natural cycle of our industry. It booms, and busts, and booms again and you guessed it, busts once more. This is actually my 3rd bust in the tech industry with the first going all the way back to 2000 and 2001. I was still pretty young and naive so my understanding of what was happening then was pretty limited. What I do recall was a super overheated public market and of course the events of 911. Things were already bad in 2000 and by 2001 and once those buildings fell, so did the hopes and again that pesky confidence in our industry. I remember thinking, “Well, this sucks, I’m just getting started!” but I knew what had begun was just that, the beginning. The internet had already changed our lives, and still, we all knew it was just the genesis of what actually possible. So I kept tolling away, learning to build websites and set up networks or servers, and before I knew it was making more money than all my friends and generally having a great time. Back then, if you knew anything about computers or networks, you never had to really worry about work regardless of the economic situation around you.
Fast forward to 2008 and the walls came down yet once again. I had by then significantly leveled up my skills and made the move from traditional IT into the wonderful world of startups. I was no longer on my knees running network lines and instead on my knees (figuratively) for the venture capitalists trying to create value at a few different startups. Again I thought, “Crap! I was just starting to make some waves here and get ready to do my own startup.” There was much talk about the quote “sky is falling” at this time but I don’t recall the downtown lasting very long, or impacting our industry that much. If you look at charts for investments and valautions at the time you do see a small dip, but it’s more of divot, with both cranking up and to right again soon after. For me personally the job opportunities only kept getting better and before knew it I had raised 3 million dollars for my own startup. So while there has been a lot of talk about “the best companies are built in a down market” with reference to startups like Airbnb and Dropbox at the time I don’t see 2008 as a hugely down market. More of a correction really, mainly because we were building wayyyyy too many useless web 2.0 social media startups. Any business with decent unit economics or real tech innovation did alright. *Cough cough* sound familiar web3 people? Watch out for that…
Alright now I’ve really just done some personal ranting without providing much help or advice for the many founders out there who are no doubt a little worried. I feel like there is already so much quote unquote thought leadership from VCs on twitter about this so let me try to say something they are not saying.
To start with and to my first time founders with a business that has been sputtering along for the last few years. If you haven’t found a least a little product market fit *and* some revenue growth by now, I don’t think you have any chance of doing so in the shorterm. That means it might be time to just stop and quit. Yes, I know this is counter to most things you hear where everyone tells you to “never give up”. However, things are a bit different right now, so let’s think differently. Before you perhaps had access to at least some capital, and you also had consumer and business spending confidence at super high levels. That made it easier for you test things out, get pilots, and just enough capital to keep the lights on. Going forward I don’t think you’ll have any of that and it wont be for a year or two, or maybe three until you get some of these things back. So the road ahead, which is normally tough and fraught with challenges, is going to be grueling to say the least. So ask yourself if you’re up for that and if not let me say it is Ok to throw in the towel. Again VCs never say this because they only care about generating their returns, even if that’s the expense of the founders. And I’m sure they will disagree with this statement but I hear what they say behind closed doors. It’s certainly less rosey than what they tweet. Hashtag winky face emoji
For the businesses that do having something going on and a bit of momentum there is probably little to say that hasn’t already been said. I would just double down on the statements of quote “hunker down” and make the tough cuts now. In my last startup this was a critical mistake I made. I kept holding out that more capital was on thr way, or that my unit economics would make a sudden leap forward, so I didnt cut my burn until it was wayyyy too late. This C was a fatal mistake in my case. It’s hard to cut costs and it’s even harder to fire people, especially c
those who have supported you so well. But as we say, or at least I say a lot, it’s nothing personal, just business. I would wrap up this thought to recommend you really think deeply about power law, or the 80/20 rule. Aka, only 20% of what you do matters; now the tough part for you, figuring out what that 20% is and doing *a lot* more of it.
Best of luck with that, and I hope to see you on the other side of this market downturn. Sometime in 2025…