How to Survive the Silicon Valley Bubble Five strategies you should be implementing now, just in case.
By Neil Patel •
Opinions expressed by Entrepreneur contributors are their own.
Is the tech industry headed toward another bubble? Everybody seems to think so. Maybe it's just click-baiting, maybe it's just fear-mongering, but the pundits and talking heads are predicting that the utopia is crumbling. We're either inside a growing bubble, or it's already bursting. Consider the following prognostications:
Related: How to Prep Your Startup for the Collapse of the Tech Bubble
- Business Insider: "Silicon Valley's Denial is Over: Everybody Thinks We're In a Bubble"
- LA Times: "The Silicon Valley Investment Bubble Starts to Deflate"
- The Atlantic: "The Great Silicon Valley Bubble Machine"
- Vanity Fair: "Is Silicon Valley in Another Bubble . . . and What Could Burst It?"
- TechCrunch: "What The Tech Bubble Means Outside of Silicon Valley"
- NYPost: "Silicon Valley Leaders Foresee Tech Bubble Burst"
It all sounds pretty ominous. But is it true? You get to decide, but you can't deny that things are changing. Things are changing big time. And, as we know, change requires adaptation.
After analyzing the situation, I put together the following list of adaptations that you should consider implementing as soon as possible.
1. Stop relying on valuation.
Valuation is one of Silicon Valley's mythical metrics. Valuation has produced those much-talked-about unicorns, which are as fleeting as they are legendary.
Instead, valuation is a vanity metric, and oftentimes, it is meant to enhance the confidence of shareholders and entrepreneurs rather than accurately represent the company's value. Investor Bill Gurley, in fact, has called the delusional behavior around unicorns "hubris" -- an ancient Greek term for excessive self-confidence and pride.
If you're craving a high valuation in the first place, you're probably making a mistake. But if you do gain a generous valuation, view that number with skepticism.
2. Understand that your customers are your best investors.
What exactly is "bursting" in the bubble? Simply put, it's investment money. The ultimate goal, therefore, should be investment independence from traditional sources. And one way to accomplish that independence is to get your customers to "invest."
Okay, so that's not exactly investing. You want to increase your customer base, which increases revenue, which increases the company's total value. In other words, focus on your customer base more than you do on large, one-time investments.
And understand that there are many strategies to increase appeal and increase revenue quickly. One such example is pre-selling to your customers and releasing a minimum, viable product. With this two-pronged strategy, you can expand and grow more quickly than you think.
Related: Will the Tech-Startup Bubble Burst in 2015?
3. Don't depend on traditional VCs and investment models.
This suggestion goes hand-in-hand with the above suggestion. Suddenly, bootstrapping makes a lot of sense. And while it's not easy, no one ever said bootstrapping would be easy.
The thing is, soon, you might not have a choice. When bubbles burst, investment money disappears. That leaves you with one option for your startup: Pull hard on the bootstraps.
So, before you boo-hoo about your loss of top-dollar funding, consider the advantages of bootstrapping.
- It's fast. You can start right now. No waiting, no pitching, no slow-going. Just start.
- It forces you to launch your MVP (minimum viable product) earlier.
- It makes you lean and efficient.
- It forces you to watch every penny.
- It generates quicker cash flow.
- It inspires creativity.
- It's incredibly exciting.
- It preserves capital.
- It produces a realistic valuation.
- It becomes profitable, faster.
- It preserves your equity.
- It enhances profitability.
Is it painful? Of course, but so is a bursting bubble with no escape route. Either way, you're in for some pain. As for bootstrapping, there is profitability on the other side of that pain.
4. Try to make some money. Fast.
Investor Bill Gurley, quoted above, said this: "I have a feeling there are more people working in Silicon Valley for companies that don't make any money than there were in 1999."
If he's right -- and remember, he was just expressing his feeling -- then something needs to change. Many VC-backed companies have been content to ride on the bankroll, simply waiting until the time is "right" to make their money and become self-sufficient.
For many startups, that time is long gone. As the bubble bursts, the investment money is going to fly away, and many startups will be revealed for what they are: just startups.
Every startup that is now relying on investment should start trying to make some real cash. I recommend doing intensive marketing, investigating growth-hacking possibilities and putting your time into methodical content marketing. You're going to need it.
5. Diversify outside of tech.
If tech bursts, everything changes. The ripple effects of a second dotcom explosion will go far beyond the Valley, disrupting even international tech economies.
Smart startups are realizing that tech as an industry is kind of a misnomer. If you're referring to any contemporary product or service, it's tech. Even a company that delivers razor blades to your doorstep is backed by a technological platform.
And, that's the point. While you can innovate and build in the tech space, realize that there is more potential than simply building a snazzy SaaS or slick app. Seek to broaden your startup beyond its technological toolkit. In other words, offer something that non-tech industries will value.
Conclusion
One Silicon Valley player who doesn't believe the bubble is bursting is Marc Andreessen. His VC firm has a lot to lose in clout and respectability if Silicon Valley pops to pieces.
Andreesen has said, "I think we're in a bust. We're in a long-term technology bust. I think technology has been undervalued since 2000, and we're still undervalued."
Maybe he's right. Hopefully, he is right. But on the more-than-likely chance that he's wrong, let's play it safe, play it smart and work hard to shore up our livelihoods and our brilliant innovations. Let's prepare.
What are you doing in the face of an impending technology bubble burst?
Related: Mark Cuban: Why This Tech Bubble Is Worse Than the Tech Bubble of 2000
