

Calacanis: Collapsing Economy Will Kill 50%-80% Of Startups - brandonkm
http://www.alleyinsider.com/2008/9/calacanis-collapsing-economy-will-kill-50-80-of-startups

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tdavis
As usual, the sensationalist title misses the important part of the argument:
He's positing that 50-80% of _venture-backed_ start-ups will die before
_making it to their next funding round or reaching profitability_. So,
essentially, 50-80% of start-ups that require non-trivial amounts of money
just to operate will possibly die before they would have otherwise.

On the other hand, if you have a real _business_ with _revenue_ and lacking
_excessive costs_ I'm going to predict that you'll see a smaller bottom-line,
but that's about it. Our company costs $3,000/mo to run, including living
expenses for two people, and we technically have a staff as well -- we just
pay them with kickbacks instead of ridiculous salaries.

Even given his actual prediction (which, again, the title fails to
illustrate), I still think he's overreacting. VCs still have tons of investor
money that they need to do _something_ with and given the fact that many
previously "safe" investments are becoming unsafe, giving money to VCs
actually, at least to me, starts to sound like a better bet than it did
previously.

~~~
netcan
>> _He's positing that 50-80% of venture-backed start-ups will die before
making it to their next funding round or reaching profitability._

I guess this is a semantic issue. But essentially, yes, he's defining sratups
as those things dependant on investment of some kind.

>> _Our company costs $3,000/mo to run, including living expenses for two
people, and we technically have a staff as well -- we just pay them with
kickbacks instead of ridiculous salaries._

Is that an equilibrium? Without investment, exit or revenue increase in the
mid-term future, are you still going to survive? Founders & employees living
low in exchange for potential future earning are also investors. An they are
also influenced by the same sort of things other investors are influenced by.

I'm not saying I agree with this piece, but would you admit that it might get
difficult to hire someone with noodles & options if there hadn't been any
exits in your vicinity for a while, little startups where going bust left &
right, and a few big scares hit home (eg Facebook shuts down).

I agree with your basic premise. A business that makes more money then it
spends is safer. If it's in the business of selling bread & butter, even
better. But startups as a sector are less like that.

~~~
fallentimes
>> _"I'm not saying I agree with this piece, but would you admit that it might
get difficult to hire someone with noodles & options if there hadn't been any
exits in your vicinity for a while"_

If we chose to hire someone full-time we'd pay them an above market salary.
Luckily, we probably won't need to do this for a while (at least a year).

>> _"Is that an equilibrium? Without investment, exit or revenue increase in
the mid-term future, are you still going to survive?"_

It's only temporary as not only are we already profitable, but our sales &
traffic are growing every day and we've been launched less than two months. We
could last two years without revenue anyways (even though it doesn't apply).

The launching of concerts, improved crawler speed, SEOism (once Google updates
their PRs) and some other non-public things we're working on should improve
revenue & traffic significantly as well.

We're almost certainly not taking investment, and we're certainly not exiting
anytime soon. We're going to issue dividends without balance sheet risk - like
real companies do.

~~~
netcan
The idea I was trying to put forward is that employees taking a high
stock/salary ratio & founders are investors. This is obvious on the
theoretical level. But the point that I am making is that they are also
subject to market 'whims.' In fact they constitute their own sort of a sub-
market with it's own whims (as is the VC market, IPO market, etc).

A year or two of bad news & bad predictions could sour it. Employees &
founders might start to favour corporate jobs.

Not saying it has to be drastic. VCs pulling purse strings a little tighter.
Founders ready to bail a little earlier. Employees a little less willing to
take stock. Angels preferring to take a year or two off. Most 'startups' would
be affected by at least some of these.

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ojbyrne
This seems like most things Calacanis writes, there's about 3 lines of
argument, and 200 lines of self-promotion. He manages to get Mahalo, Silicon
Alley Insider, TechCrunch50 and his BA of Psychology into the piece. But my
favorite part is how the Holocaust is used as a leadin to his experiences in
the first bubble.

~~~
alaskamiller
It's 5000 word treatise on name dropping.

~~~
omouse
So it's a typical arts/humanities paper. His GPA must be through the roof!

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SwellJoe
Add that to the 50%-80% that die of natural causes and we'll end up with a
negative number of startups!!!!!11!! There'll be a startup void and we'll all
be sucked in. This is terrible.

Or am I over-reacting?

~~~
froo
Financial Market's collapsing? - Check

Built a machine large enough to destroy the world? - Check

Yahoo still #1 site in the world according to Alexa? - Check

Created a negative business void? - Check

Cyndi Lauper staging a comeback? - Check

These are truly the end times my friend... be afraid, be very afraid.

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pg
The 50-80% is a safe bet because the failure rate is at least that anyway. But
it would be remarkable if startups started to die of a bad economy instead of
the usual cause: not making something people want.

~~~
fallentimes
Exactly. I can think of scores of mediocre startups that took too much money
and failed, but I can't think of any great startups that failed because they
didn't take enough money.

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bayareaguy
If you're a pre-ipo startup selling pricy products to high end financial
firms, then you're probably in deep doo doo now.

However this looks to me like a huge opportunity now for new startups to
displace established firms, particularly for those offering essential features
at lower prices. I'd be very worried if I were Microsoft.

Also I think startups offering online services and games could possibly see a
huge boost in their subscriber base if the doom scenarios play out and we have
large numbers of formerly employed people with a lot of time on their hands.

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patrickg-zill
Oh no! 100% of those running startups today will be dead in 95 years!

Wall Street != Main Street != Startup Street

~~~
froo
I think it might end up worse than that before this is done sir.

In 95 years I predict Yahoo! will stage a comeback and become the supreme
Internet superpower (after several more buyout attempts from Microsoft), being
led by Jerry Yang's head in a jar (think futurama)

I also predict Google will change their name to Google!!!1!lol! in an attempt
to stay relevant.

At least one thing will remain consistent, the general stupidity in comments
on YouTube. Perhaps that's what the world should base their financial economy
on instead of the gold standard. It would seem a safer bet if you ask me.

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jwilliams
Might kill off 50-80% - might also foster a bunch of new ones.. Maybe even
ones that have better fundamentals than the ones that died.

\- e.g. market analytics, risk reporting, compliance... Or startups that drive
efficiency and productivity gains - companies will be desperate for these
kinds of ideas in the coming 6-24 months.

------
Angostura
Businesses fail for one of 3 reasons:

1\. Bad idea 2\. Bad execution 3\. Outside forces.

Astonishing! what a revelation!

------
ivankirigin
Something ignored here is that lots of people will decide not to start
startups because they become more risk averse in a downturn. That will kill
many more, I suspect.

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amuse
LOL - reality kills 90% of all startups anyway.

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tom_rath
"This post has been deleted at the request of its author."

Was it really that bad? Calacanis can come across as a bit full of himself,
but I've often gained an insight or two from his posts.

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time_management
2001 saw the crash of a startup and technology bubble, so it was brutal for
startup companies moreso than for the economy as a whole. Although the 2000s
saw an increasing number of technology startups, this change was based on
fundamentals rather than a bubble, per se.

The 2008 crash is worse than 2001 from a broad-based, whole-economy
perspective, but since the bubble's been in real estate and finance, it's the
people in those industries who are going to get hurt the worst, not startup
entrepreneurs. It's going to be like 2001 for investment bankers and real
estate agents, but not as bad for technology.

------
quasimojo
he is absolutely correct, and it will take out more than just startups

we were told that reflating the dot-com bubble on the back of real estate as
opposed to letting a recession clean out malinvestments would be bad. we
didn't listen

we were told that low interest rates at the fed wouldn't help, just make
commodities more expensive. we didn't listen

we were told that $100 billion in stimulus checks would not have a measurable
impact on the economy. we didn't listen

now the kicker is that the $700 billion dollar near-nationalization of
mortgage lending won't help either. in six months people will wonder how $700
billion could seemingly vanish with no positive results

people are really bent on this idea that things will be fine by mid 09

next to go is whatever is left of the dollar. at some point people will
realize the dollar has become a black hole and they will evacuate it. i would
suggest that the dollar is already dead, no fiscal restraint can save it now

US dollar gone by 2025 -> USA gone by 2025

~~~
gscott
> US dollar gone by 2025 -> USA gone by 2025

I was with you right till the end. The thing about property is that it doesn't
go anywhere. It is all still here. While credit will be hard to get, it was
similiarly hard to get in the past. Other countries are not in a perfect
position to take the "superpower" status away from the United States. China is
too closed (currency, politics, etc), Russia is turning back to communism,
France can't keep there own people happy, Iran might start an arms race, the
EuroZone has there own problems, etc. Considering everyone else, the US for
the most part is pretty stable.

~~~
bitdiddle
Well the dollar seriously could go, when the world stops trading oil in it.
That's already starting to happening.

Also the chinese and other large sovereign banks don't need to necessarily
dump their dollars. That would be shooting themselves in the foot. Kind of
like Gates selling all his MS stock. All they need do is change the mix and
slow down their purchases of dollars, replacing those with euros.

That's also happening, started several months ago now.

I'm not sure credit will be so hard to get. There's plenty of money around,
just a lot less stupid money. For folks who are credit worthy there will be
credit. This will be a new concept to many people.

~~~
froo
> _This will be a new concept to many people._

Here's a little anecdote about your point as it is unbelievably true.

I have a cousin, she's not too bright. Her first credit card was maxed out at
about $10,000 so she applied for a second credit card to help pay off the
first. It didn't quite dawn on her that she might have to stop the luxury
spending.

~~~
helveticaman
Not unlike eating a popsicle, reading this made my brain hurt. +1, but ouch.

