Living in the age of hyper-awareness
It's amazing how a single newscast can set the world on fire.
The very second Standard & Poor's announced they had downgraded the US Credit rating, communications systems around the world began to boil. Reaction time was critical and those who could react the quickest were able to position the negative news into something less negative, perhaps even a positive.
Reaction was fast and furious. At the same time, over-reaction was even faster and furiouser. Few people were able to gauge the proper response to the events unfolding.
Our always-on, always-tuned-in society was instantly aware of the crisis, and at the same time, instantly aware that everyone else was instantly aware. There can be no better breeding ground for panic. In a matter of seconds, Wall Street had become a series of digital flashmobs competing with other digital flashmobs.
We have entered into a new age of hyper-awareness where reaction times have dropped from minutes to seconds, and in the case of computers that make trades based on mathematical models, the time is now measured in milliseconds. This new level of awareness is still a crudely refined capability that we are only now beginning to understand.
The Secret Story Behind the First Tech Bubble
The original tech bubble began with Netscape in 1995. Their IPO was extremely successful as the stock price jumped from $28 to $71 on the first day, and ultimately cleared the way for hundreds more net companies to do IPO's far earlier than ever before. A firm with $3 million in losses suddenly became worth $2 billion.
Jim Clark, Netscape's co-founder had been advised strongly against going public, but went ahead anyway because he had to make payment on a mega-yacht he was having built. If he missed the payment, the builder would give his slot to someone else, and he wouldn't get his yacht for years.
The bubble began to collapse in March 2000 when an article in Barron's stated that many Internet companies were running out of cash at an alarming rate.
Few people realize one of the other key factors driving the bubble - Y2K. In the late 1990s, hysteria was beginning to build around the calamity that Y2K would bring as a result of computer clocks not being able to properly switch over to the new millennia.
Tech people everywhere suddenly remade themselves into Y2K experts and people managing tech budgets quickly realized that anything presented to upper management that mentioned Y2K got instant approval. In a matter of months, managers around the world learned how to frame every request around Y2K and tech budgets mushroomed.
Companies around the world were freeing up record amounts of capital because no one wanted to get caught with their pants down. With larger than normal budgets, geek influence began to grow and millions of new tech projects sprang to life. Fledgling startups found it easy to get first-time customers, often with other fledgling startups, and the entire house of cards sprang to life in a matter of months.
When January 1, 2000 came and went with few notable incidents, the entire Y2K industry began to collapse, and along with it, the rest of the tech sector. Companies no longer needed their larger-than-normal budgets for the annoying snot-nosed kids on the geek side of house and the Barron's article simply gave upper management a reason to begin slashing budgets.
While certainly not the only reason, Y2K was a critical part of why the bubble collapsed. But in 2000, it collapsed over a matter of months, not hours.
So What's Changed?
Many of the theories arising in the late 1990s were not wrong. The timing was wrong but the underlying theories were sound. They were simply too far ahead of the curve. Many of the same concepts that were used to launch failed companies over a decade ago, have been successfully reborn inside of today's markets. The buzz-words of the 1990s included things like:
• Paradigm shift
• Bricks and mortar
Certainly the language is different, and not all of these concepts still apply to today's business environment. But each has provided a piece of foundational thinking needed to build our current crop of successful Internet companies.
Forcing Business Underground
Our increasingly dysfunctional above-ground job sectors have given rise to mushrooming underground economies operating inside the web. For every celebrity startup vying for VC money, hundreds of below-radar operations are making serious inroads, raking in hordes of cash. But they are doing it with very little startup money.
In spite of what some press stories are telling us, money for early-stage startups is nearly non-existent. Banks have stopped lending money to anyone without mega assets. Angel investors are running scared. And 70 percent of all Venture Capital firms have simply disappeared over the past 10 years, dropping from roughly 2,500 firms in 2000 to 750 today. The only reliable source of money is still friends and family, but it usually only comes in small amounts.
Replacing many traditional VCs are a series of Micro VCs that have cropped up as a result of Amazon leasing server space at a nominal cost, eliminating the need for startups to buy their own server farms. We are also seeing an interesting trend towards hybrid incubators like Techstars and Lightbank that offer small amounts of funding along with mentorship and coaching.