

Ask HN: If I believe there's a tech bubble, how should I proceed? - jmathai

Basically, in the event that we're entering a tech bubble, how do I as an entrepreneur capitalize on that? I'm already building a product, haven't sought investment and want to know what I should avoid to maximize my chances of success.<p>Discuss!
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TomOfTTB
This is from my completely anecdotal observations so take it with that grain
of salt. But I actually think a bubble is good for people like you. To explain
that let me give you my advice...

1\. Ramp up as quickly as possible. If there is a bubble than it will pop and
funding will dry up. So you need to get funded as soon as possible.

2\. Run Lean. Take whatever funding you get and figure out how to live off it
for as long as possible. That means staying on Ramen for the time being.

Here's the reason for my advice. People treat the end of the first bubble like
it was a dead period with no investments. That is not how I remember it. There
was maybe 6 months where funding dried up but after that investors went
looking for slightly safer bets. Companies that had survived the collapse and
still appeared to be running well. Those companies had their pick of the VCs.

Most VCs will tell you their #1 criteria for funding is smart founders.
Nothing proves how smart you are than out living your competitors. So if you
can build a good product and survive the initial burst I think you're golden.

At least that's my 2 cents.

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jmathai
Good points. My biggest question was if funding was a good idea. Seems like
the general consensus is to get it while it's easy.

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baberuth
Don't build bubbly products.

Startup/VC bubble seems to be a very popular topic in hacker circles, as if
all web businesses might get wiped out when the bubble "bursts".

It's wrong to think of all startups as being susceptible to the same sorts of
valuation bubble concerns -- tons of "web startups are just businesses with a
web component". Tons of web startups are just retail outlets that happen to do
most of their business on the web.

Airbnb, Etsy, Amazon, etc just connect buyers and sellers, which is something
brick and mortar retail outlets have been doing for time eternal. The
valuation of Color doesn't affect their (Airbnb's, Etsy's, Amazon's) business
model.

Don't build bubbly products. Investors will always invest in cashflow, whether
its web based or otherwise.

Edit: Clarify ambiguous referent.

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jmathai
Well, I'd disagree that Color's valuation doesn't affect their business model.
When you take $40M then you're saying a few things including: we're going to
build a great (ala expensive) team, we're going to build it fast, and we're
going to get users right away. That impacts one's business model greatly.

Also, I don't want to build products to appease investors. Cashflow is the
goal, investors are a less important detail if you want to go that route.

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baberuth
That was unclear on my part. What I meant is that Color's valuation doesn't
affect _Amazon's_ business (obviously a simplification and subject to some
overlapping macroeconomic factors).

i.e. Who cares if some investments are bubbly, so long as you're building
businesses that are less susceptible to bubble dynamics.

Editing previous comment to reflect the original intent.

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jmathai
Gotcha. I agree with that. So I was curious if taking funding now has any
implications that are not present if there wasn't bubbly activity.

Your point about building a business regardless is the key though.

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mikeryan
It seems to me that any "bubble" which exists is on the funding side, I'm not
seeing a ton of seemingly irrational exits (which is the strange thing about
this "bubble")

Seems to me the smart play is to try to get as much startup funding as you can
right now, build a really long runway and a huge, sustainable company.

~~~
jmathai
Interesting. So you're saying to capitalize on the money which is being made
available. I was wondering what the pros and cons of this are.

I agree that the bubble exists on the funding side. When you take investments
aren't you then participating and abiding by the rules of the bubble?

I was wondering if staying away from the funding (bootstrapping maybe) would
let you make decisions that didn't include pressure from the bubble.

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re1s
There was an interesting link here the other day, a post titled "What are the
picks and shovels of the digital Gold Rush?". It makes some good points.

[http://erehweb.wordpress.com/2011/03/17/what-are-the-
picks-a...](http://erehweb.wordpress.com/2011/03/17/what-are-the-picks-and-
shovels-of-the-digital-gold-rush/)

Other than that, take advantage of the number of willing investors!

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triviatise
bubbles shake out all the weak hands so when it is over everyone left standing
hits it big. We barely made it through 2009, but we have more in sales in 3
months than all of last year.

It is difficult to internalize how hard you need to work to hoard cash before
a recession, especially when times seem great and money is easy. Even after
surviving the 2001 and 2009 recessions it is easy to get sloppy when you have
a lot of money in the bank account. We knew the 2009 recession was coming in
2007 and it was still dicey.

Also I dont think we are near another recession, this bubble will have some
time to play out.

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nir
"Disregard hype, acquire savings", whether by taking on project work at high
rates or getting investments (if you feel you need them).

A bubble is a good time to build your reserves, especially if you're aware
it's a bubble and stay frugal. This'll put you in a good position during the
inevitable slump.

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stretchwithme
Invest in things that you believe can actually be self sustaining.

Stay away from things people think are easy to do and look at things people
think are hard to do. And then figure out where people are very wrong about
the latter, as they often are.

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drewcoo
Gold rush? Sell shovels and picks!

I'm not kidding. Find a way to supply something to the people seeking to get
rich. And profit from their efforts whether they succeed or not.

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bloodnok
While it's painful when the bubble pops, it does serve to clean out all the
shit that shouldn't have been funded in the first place.

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michaelpinto
Go ahead at full speed — the best time to start a startup is when everyone
else is running away.

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goo
Well, I'm proceeding by shorting Netflix in about 6 hours. We'll see how that
goes.

