Tips to prepare yourself for Bust 2.0
April 2nd, 2007 (9:00am) Mike Gunderloy 23 Comments
An interesting graphic reprinted over at The Next Net shows the results of applying a somewhat novel method of valuing Web 2.0 startups. By correlating the few known IPO and acquisition numbers with Alexa traffic rankings, the CEO of eSnips came up with a chart that ranks sites according to their theoretical worth. According to her rankings, Wikipedia, MySpace, YouTube, Orkut, and Blogger are all worth upwind of a billion dollars, and another seven sites top the $500 million figure.
Let’s pause for a moment. If you buy that premise, you’re putting an $8.5 billon price tag on a dozen Web 2.0 sites. That’s around the market value of Pepsi Bottling, number 192 on last year’s Fortune 500 list. I don’t know about you, but equating a batch of cool social web sites with a company that delivers 200 million servings of soda pop every day seems just a bit out of whack.
Nobody likes to use the B word, of course, but “bubble” is turning up in more and more discussions of Web 2.0 these days. If your own web workerhood is characterized by a business plan of “let’s get a bunch of page views, and then someone big will buy us out,” this might be a smart time to do some planning against the disaster that we all hope won’t strike again. As a veteran of the dot-com crash of 2000, here’s my short list of things to think about:
- Put emergency living money in a savings account (or equivalent safe place) and don’t touch it. Three months’ living expenses is the traditional recommendation, or six months’ if you have kids or rely on a single income. Remember, if you lose your job because of a downturn, everyone else will be hunting too and it will be a lot harder to get a new job than it is now.
- Keep caught up on your tax payments. I don’t know why, but for all the people I know who ended up in financial trouble in 2000-2001, the IRS was a major source of pain. It’s easy to let the estimated tax payments slip on the assumption that you’ll have the money to cover the whole bill plus penalties next April - and deadly if you’re out of work then.
- Spread your eggs among multiple baskets. There are several dimensions to this. If you’re freelancing, try not to let any one client account for more than 30% of your billings. If you’re a developer, learn another programming language on the side to increase your chances of picking up more work in an emergency. Use user groups, conferences, and social networks to keep in touch with people: you never know when you might suddenly want to work that network.
- Don’t go down with a sinking ship. I watched a lot of people keep working for companies after the paychecks stopped 7 years ago, in the hopes that another round of funding would materialize. Unless you’ve got an ownership stake (no, stock options don’t count) and no other prospects, this is generally a boneheaded move. When a company is in such trouble that it can’t make payroll, it usually has enough other debt that you’ll never get paid even if someone does step in to buy it at fire sale prices. Move on before you start feeling like a complete sucker.
How about you? Are you starting to plan for the potential worst, or are you still in happy growth land? Have any other tips to share with the prudent web worker?
23 Comments Post your own comment
figgy says: April 2nd, 2007 11:01am
“By correlating the few known IPO and acquisition numbers with Alexa traffic rankings,…”
Isn’t this fundamentally flawed? My understanding is that Alexa is highly inaccurate almost all of the time.
figgy.
Timmie says: April 2nd, 2007 11:51am
I think it’s a bit premature to claim “Bubble 2.0″ as many of those sites are profitable–I know for a fact that MySpace and Facebook are, and it wouldn’t surprise me if YouTube and Blogger are.
The reason they are valued so highly is because of the number of “active” users they have. The capitalization of those users in terms of Ads has yet to be completely realized, but I have no doubt that reaching 60 million people per day (as a very low estimate) is worth a LOT of money. In thinking of market reach, I don’t think an $8.5 Billion valuation is too much.
Audrey says: April 2nd, 2007 12:41pm
Thanks for the tips on how to be ready for a downtown. I think we could all use this reminder, whether one turns out to be imminent or not.
I’d be interested in seeing more examples of item #3, since that’s something I’m working on personally right now. I bet there are some creative things other web workers are doing to diversify their income sources.
Dean Collins says: April 2nd, 2007 1:33pm
Great advice, as more and more people get out on their own as an independent contractors/freelancer this kind of advice should be applied to all of us working “without a net”.
Sure the hours are great and the rewards unlimited but self employed people need to vary their risk in accordance with this new realization….regardless of how great it is not to have a boss.
Regards,
Dean Collins
dean@mexuar.com
+1-212-203-4357 Ph
+1-917-207-3420 Mb
——————————————————————–
http://www.Mexuar.com
Want to voice enable your website?
Use Corraleta to reach your customers in 10 seconds or less.
GigaOM » What’s on GigaNET says: April 2nd, 2007 6:20pm
[...] WebWorkerDaily: Prepare yourself for Bust 2.0, whenever it happens [...]
Dave C. says: April 2nd, 2007 9:25pm
Thankfully, my main source of income comes from a mostly analog company. Since the paperless society hasn’t emerged yet, I survived the last bubble and will probably survive this one too. That being said, I’m definitely looking for new digs. Paper is so Web 1.0
What’s on GigaNET » TechAddress says: April 2nd, 2007 11:31pm
[...] WebWorkerDaily: Prepare yourself for Bust 2.0, whenever it happens [...]
EasyFlower says: April 3rd, 2007 12:48am
It is easy to find inexistent correlations. Funny.
Shashank says: April 3rd, 2007 1:20am
Nice tips. Although I wouldn’t like to believe that there would be such a bust. There will be saturation, but bust?
Aphra Behn says: April 3rd, 2007 1:38am
Two lessons I learned long before the dot.bombs of 1.0 and in fact long before the UK property crash of the 1990s:
Only cash is cash and the really greedy people aren’t greedy.
It’s sas that only five or six years on people can do an analysis which equates clicks with cash. Repeat the mantra: Only cash is cash.
The other one sounds more like a koan than a mantra is about deferred gratification. “If you take care of the pennies, the pounds will take care of you”.
Valuing sites on clicks indeed! I hate it when people are stupid, and I really hate it when smart people are stupid.
Aphra.
Swagato says: April 3rd, 2007 2:29am
umm what other languages can we learn.. For Web 2.0, it seems we are all going for J2EE…what can we learn to shield us from a downturn
Mike Gunderloy says: April 3rd, 2007 6:47am
What other languages? I think you could make a fairly serious argument for Cobol, actually - all those billions of lines of Cobol aren’t going anywhere, but most of the Cobol programmers are on the verge of retirement. If that doesn’t appeal to you, I’d urge diversification and fundamentals. In a tight market, people who can demonstrate the ability to pick up multiple languages with different mindsets (say, J2EE, Smalltalk, and Python) and a knowledge of data structures and algorithms are going to be far, far more valuable than those who only have one language under their belt.
socialorb says: April 3rd, 2007 8:43am
I argee with most of what you say. There is a possibility though that page views do count for allow ESPECIALLY if your a marketer. That many views is prime for analysis. I personally believe that Google bought YouTube to study video closer, turn the site slowely to a super site for internet TV, and advertising… but as a advertisor it wants to know how people respond to and act on the site, what they click, when they click it, where they come from.
That is some prime data on trends and patterns that no one else has except MySpace right now.
webified says: April 3rd, 2007 10:25am
Actually, what I learnt from the first dot com boom and bust is that you should get in and earn the bucks, then quickly exit and go back to grunt work after the bust. In other words, ride the wave then go back to plodding.
I’m a bit of an idealist. In the dot com boom 1.0, I was in the dot com. When it went bust, I stayed in the dot com by ganging up with a few fellas to do web consulting. It was rough. I think my monthly allowance was like $300 a month! Luckily, my salary is a little more decent now.
However with web 2.0 emerging, jobs for interactive people or new media junkies are a plenty and I could make earning 10X more than I do now. The smart thing to do is get a job, ride the wave, earn the bucks, network with a ton more of people, save up money, wait for the hype to die, go back to my own business? ;)
Amanjeev says: April 3rd, 2007 3:24pm
I agree. I was too young during the time of first dot com burst and fear the same this time. Can anyone tell what is the difference this time?
Marc Siry says: April 4th, 2007 1:47am
Great post, Mike. Considering that offline companies are firing people for no other reason than they earn too much, this is good advice for anyone, not just software developers working for buzzword startups.
I’d further advise everyone nowadays to keep maintain a ‘layoff emergency kit,’ analogous to an earthquake kit, in case of unforeseen joblessness. Spend four hours a month updating your resume, brushing up your online portfolio, attending free conferences in your city where you can do some networking, etc. When you see recruiters posting jobs in a field similar to yours, note their name & email for future reference. Think of it as an ongoing, low level job search, where you do everything but actually send out your resume (unless you actually are looking for a job, like Dave C.).
If you do suddenly find yourself with a lot of time on your hands, that’s the time to get busy. I’m actually surprised by the number of otherwise incredibly capable people who don’t know the first thing about the dynamics of looking for a job in the networked world- mainly because they’ve been heads down in a company for the past five years and it’s been the furthest thing from their mind. I recently posted a list of tips for the recently jobless which cover seemingly obvious steps like setting up RSS feeds for job boards.
Expansions and contractions in the business cycle are inevitable, because thought leaders move and followers follow. One or two high profile collapses will make the followers nervous and they’ll start to pull their support from ventures that are underperforming (most of them) and you’ll see a ripple effect of collapses. Is that a bust, or is it the natural weeding of companies that shouldn’t have survived in the first place? Easy to say the latter until you’re the one getting your walking papers.
Steve Cook says: April 5th, 2007 5:47am
How about having a business model that is based on real world profit rather than the latest Wow! idea?
During the last downturn the company I worked for struggled, but managed to keep its head above water thanks to a business model that was based on real world value (despite still being a web-based company).
Of course the downside of that sort of thing is that it can be less sexy and have less chance of making one a multi-billionaire than jumping onboard the latest bandwagon. But then one has to balance that against the risks.
Audrey says: April 5th, 2007 8:59am
@Steve: What do you mean by real world value? Obviously it’s important in the long run that your product or service brings in revenue, but there’s a huge range of things people are willing to pay for (either directly, or indirectly through viewing advertising).
What is the “value” of that startup? | TechWag says: April 20th, 2007 5:28am
[...] Web Worker Daily and Blogs.business2.com have a really fascinating article on the valuation of Web 2.0 Startups. Looks like the CEO of E-Snips was poking around alexa to determine how some of the more recognizable web 2.0 startups were doing in their traffic counts, and then offset that by how much some of the companies had been bough for. Business 2 states: So how much is a Web 2.0 startup really worth? Everyone is wondering that these days, especially since there are so few acquisitions or IPOs by which to measure them. That’s why I like the slide below created by eSnips CEO Yael Elish. It gives an approximate value for many high-profile Web 2.0 sites by correlating publicly available Alexa Web traffic numbers with the value of known deals like YouTube’s. This slide is hardly accurate for many reasons (see below), but it does help you visualize how one company may be doing against another. Source Business 2 [...]
笨笨包的天空 » 什麼是網站的『價值』？ says: April 21st, 2007 12:09am
[...] Web Worker Daily 以及 Blogs.business2.com 發表了一篇很有意思的文章 [...]
Job Hunting Expenses says: October 10th, 2007 3:46pm
Glad to see someone is staying on top of things.
Valuating a Web 2.0 startup | Best Stock Offers says: November 20th, 2007 10:51am
[...] (Graphic and comments Courtesy eSnips, Business 2.0, techwag, and web worker daily). [...]
Web Worker Daily » Archive Open Thread: Paying for Web 2.0 « says: May 9th, 2008 11:00am
[...] to “get enough Google ads on enough pages and our troubles are over.” Despite our worries about Bust 2.0, there doesn’t seem any end in sight to the proliferation of free services. But sooner or [...]