Steve Blank, author of the acclaimed “Four Steps to the Epiphany” has learned more than most entrepreneurs about the secrets to engineering a satisfactory valuation and exit. And he’s identified how those routes to liquidity have changed over time. Now he’s suggesting (and he’s not alone) that we may be entering a New Internet Bubble. So are we really heading Back to the Future, and facing a return to dot.com madness?
Steve sets out the history - and today’s bubbling signals - at length in his blog here. I thought that it would be worthwhile summarising his findings - and offering some observations about how UK entrepreneurs might need to adapt.
4 Waves of Startup Investing
Steve identifies 4 ages of startup investing. Some of us (I count myself lucky to be part of that band of brothers) have managed to survive - and occasionally thrive - through all 4 ages:
1: The Golden Age 1970-1995
Build a solid business and establish a track record of profitable growth before going public.
2: Dot.com Bubble 1995-2000
Suspension of the laws of rational economics. Anything goes (and often did). The race to go public.
3: Back to Basics 2000-2010
Emergence of the Lean Startup movement. A return to a new form of rationality. IPOs rarer than hen's teeth.
4: The New Bubble 2011-?
A different form of déjà vu all over again. Market leaders achieve huge implied valuations.
New Rules for a New Bubble?
Steve identifies the leading indicators that suggest that a new bubble may be emerging - just think of Facebook’s $50bn valuation. But this "bubble" - if it develops - is probably going to be more selective, and nowhere nearly as stark staring bonkers, than the last one.
Firstly, it’s built on a far more sold foundation. The lean startup movement - unlike the “if we build it they will come” attitude that fuelled the first dot.com bubble - has taught entrepreneurs how to be much more disciplined about the key steps of customer discovery, customer validation, customer creation and company building.
Although there may be some halo effect, it’s going to be harder than it was in the late 1990’s for start-ups and early stage companies with weak customer focus or poor execution discipline to be dragged along by the undertow. So in that respect at least we’re not about to go Back to the Future. Bad companies (and daft investors) won’t be able to magic up stellar valuations.
Building on the Basics
Entrepreneurs shouldn’t be tempted to throw away the hard lessons learned over the past decade, but to build upon them. The disciplines of customer discovery, customer validation and customer creation still form the essential foundations. But the attitude to company building may need to adapt.
A trade sale to a large organisation desperate to catch up with accelerating innovation in their markets - or expand into new ones - still represents the most likely route to liquidity for most entrepreneurs. Having a visible presence is going to be important in attracting their attention.
Start-ups and early stage companies will need to fully exercise the new tools at their disposal: they will need to become experts at harnessing the power and potential of inbound marketing and business social media. They will need to punch above their weight, and articulate genuine thought leadership. But the buzz must be based on a solid foundation.
They must show how and why they are different before they attempt to prove that they are better. They will need to develop a coherent, attractive marketing position. And - most of all - they will need to prove that they have established a repeatable, scalable and predictable sales and marketing machine.
What’s Your Perspective?
I strongly encourage you to seek out Steve’s full article, and to review the presentation embedded within. What’s your perspective? Are you seeing the signs of a new bubble? And how do you think today’s entrepreneurs ought to react?
By the way, when it comes to creating a repeatable, scalable and predictable sales and marketing machine, you might find it interesting to compare your organisation to some of the best-in-class by reviewing our Business Scalability Maturity Model.
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