New Rules for the New Internet Bubble

3/18/11Follow @sgblank

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customers in massive numbers. (Think Facebook, Zynga, Twitter, LinkedIn, Groupon, etc.) But like all bubbles, these initial IPO’s will attract companies with less stellar financials, the quality IPO pipeline will diminish rapidly, and the bubble will pop. At the same time, acquisition opportunities will expand as large existing companies, unable to keep up with the pace of innovation in these emerging Internet markets, will “innovate” by buying startups. Finally, new forms of liquidity are emerging such as private-market stock exchanges for buying and selling illiquid assets (i.e. SecondMarket, SharesPost, etc.)

Tools in the New Bubble

Today’s startups have all the tools needed for a short development cycle and rapid customer adoption – agile and customer development plus business model design.

The Four Steps to the Epiphany, business model generation and the lean startup movement have become the playbook for startups. The payoff: in this bubble, a startup can actively “engineer for an acquisition.” Here’s how:

Order of Battle

Each market has a finite number of acquirers, and a finite number of deal makers, each looking to fill specific product/market holes. So determining who specifically to target and talk to is not an incalculable problem. For a specific startup this list is probably a few hundred names.

Wide Adoption

Startups that win in the bubble will be those that get wide adoption (using freemium, viral growth, low costs, etc) and massive distribution (i.e. Facebook, Android/Apple App store.) They will focus on getting massive user bases first, and let the revenue follow later.

Visibility

During the the lean startup era, the advice was clear; focus on building the company and avoid hype. Now that advice has changed. Like every bubble this is a game of musical chairs. While you still need irrational focus on customers for your product, you and your company now need to be everywhere and look larger than life. Show and talk at conferences, be on lots of blogs, use social networks and build a brand. In the new bubble PR may be your new best friend, so invest in it.

Lessons Learned

  • We’re in a new wave of startup investing – it’s the beginning of another bubble
  • Rules for liquidity for startups and investors are different in bubbles
  • Pay attenton to what those rules are and how to play by them
  • Unlike the last bubble this one is not about selling “vision” or concepts.
  • You have to deliver. That requires building a company using agile and customer development
  • Startups that master speed, tempo and Pivot cycle time will win

(If you can’t see the slide presentation above, click here.)

Steve Blank is the co-author of The Startup Owner's Manual and author of the Four Steps to the Epiphany, which details his Customer Development process for minimizing risk and optimizing chances for startup success. A retired serial entrepreneur, Steve teaches at Stanford University Engineering School and at U.C. Berkeley's Haas Business School. He blogs at www.steveblank.com. Follow @sgblank

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