How to Prep Your Startup for the Collapse of the Tech Bubble
Many industry insiders believe we are in the midst of a tech bubble. What happens to all bubbles? They burst. And the fallout can be catastrophic.
Remember the dot-com bubble of the late 1990s? The housing bubble in 2007? We live in an era of bubbles, and they always start out rather innocuously. Some savvy folks decide to invest money in an innovative idea and end up winning big. More investors try to do the same, flooding the industry with capital. Companies can then no longer provide a good return on investment. But people get so caught up on the initial success that they continue to invest their money blindly.
Eventually, something will happen to spook Wall Street, and major investors will start selling their stakes. This causes a chain reaction where prices drop drastically, capital tightens and valuations plummet. When the bubble bursts, people lose tons of money and businesses often collapse beyond repair.
But have no fear: If -- or when -- we encounter the tech apocalypse, the strongest companies will survive. Here's how.
1. Prepare for the burst.
Companies that have truly innovative ideas and firm foundations in their industries are the most likely to survive a bubble burst. Do your customers wonder how they ever lived without you? If so, you'll likely survive. On the other hand, if your company is just riding the wave of a trendy industry, you'll likely go under.
No company will escape the burst unscathed. But there are ways to minimize the damage. Here are three preventative measures you can take to build a more resilient company:
2. Be disruptive.
This should be something you do even if you aren't facing a burst bubble. Your company should be built on truly innovative ideas that challenge your industry. Why did you start the company in the first place? What problem do you solve? Whom are you helping? Make sure you can answer these questions confidently. Startups that transform broken industries are much more likely to survive a collapse.
Uber is a great example of a truly disruptive company. It has revolutionized the transportation industry to the point that it's struggling to hire enough drivers to meet demand. Once riders experience Uber, they rarely go back to traditional taxi services.
3. Love your clients.
Make your startup stronger by developing an inseparable bond with your clients. Provide them with invaluable service. Make them feel like you are the only company that understands them. With this culture in place, they will never allow you to fail. What would they do without you?
This is exactly why Amazon survived the dot-com collapse. The company meticulously studied consumer habits and provided customer-centric services based on its data. Amazon's customers never left the company's side when the going got tough. After all, what other site sold toilet paper, digital music and clothing all in the same place?
4. Reduce your burn rate.
Be a smart spender. This is something you should do even if you don't face an imminent bubble burst. Only make hires that you believe are essential to your core growth. Don't hire those "nice to have" employees. And save the Google-type perks for when you reach Google-type revenue.
Only invest in necessary fuel that will help your company grow. Extra fuel will just cause a bigger fire when the bubble bursts.
For now, things seem peaceful out there; the tech startup bubble is still growing. But, remember: The bubble is delicate and bound to burst. Take these precautions, and when it does got poof! your company will remain standing.
Entrepreneur Editors' Picks
If You Focus on Problems, You'll Only Find More Problems. Here's How to Focus on Solutions.
Apple Asks This Jarring Interview Question as a Secret Way to Evaluate a Candidate