Startups In Distress – We’ve Seen This Movie Before

Startups In Distress – We’ve Seen This Movie Before What new investors need to know

Rita McGrath / Thought Sparks

Wired magazine offered an article on the state of things in startup-land and discovered, astonishingly, that “The Bad times are Coming for Startups.” But not every startup, of course, mainly the ones that blithely ignore entrepreneurship 101, go for growth above all else, treat profitability as a quaint artifact from another era and haven’t figured out a sustainable business model.

The unrewarding role of teaching principles of entrepreneurship during bubbly periods.

We saw this in the dot.com frenzy.

Fueled by a desire to not miss out on the Next Big Thing since the personal computer revolution, resources went pouring into startups. Anything with a .com on its name could raise capital it seemed. My own students (I was at Columbia Business School by then) listened to me talking about the importance of parsimony and more or less giggled.

B2C – Back to Consulting, B2B – Back to Banking This of course is a story without suspense. A cascade of events eventually let to what came to be called the dot com crash. The Fed raised interest rates several times. Wall Street analysts began warning their clients about being overweight in tech stocks. And people began doing the math on companies with impossibly high valuations, given their revenues (let alone profits).

So what does any of this teach us about today’s frothy businesses?

As people wiser than I have said, if something is not sustainable, it won’t last forever. We’ve got the Fed raising rates. We’ve got people starting to ask uncomfortable questions about the Unicorn club, unflatteringly describing Uber, for instance, as little more than a Ponzi scheme.

Any bright spots?

Absolutely! As Carlota Perez has observed, bubbles and their aftermaths are a feature of how capitalism works, not a bug. Just as the railroad bubble and bust left both the US and the UK with important railroad infrastructure and the dot com bust left us with the basis for the digital businesses to follow, this bust will leave us with important infrastructure, too.

Leading Strategic Growth and Change Speaking of big companies behaving entrepreneurially, this week is all about my inperson Columbia course “Leading Strategic Growth and Change.” We explore the topic of how companies can make adaptive change a reality in a consistent way over the course of the five day program. It runs again next October.

SparcHub

We’re also on the brink of releasing a commercial version of our SparcHub software, which helps you to bring the principles of discovery driven growth to life in an easy to manage package. You can watch a recorded demo here: https://my.demio.com/ref/ClKpAsUWzDQY dVnJ

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