Cafe Witness

Wednesday, October 29, 2008

Who Starts a Company During Economic Collapse?

Yesterday, I attended Demo Day for AlphaLab, a local tech startup incubator here in Pittsburgh (and a sponsor of PodCamp Pittsburgh 3). The six companies they're currently working with will be nudged out the door at the end of the year, so yesterday was their chance to spread their wings (and make their pitch) in front of a roomful of potential investors, advisers and other interested parties.

But will any of their ideas fly?

Web-Wide Ripples of Discontent

Earlier this week, Steve Woolf of Epic FU (formerly JetSetShow) announced that they'll be ending their relationship with (formerly-considered-to-be) rising web video production company Revision 3. Due to international economic calamity, among other factors, Revision 3 is dropping numerous shows from their lineup, including Epic FU and Gary Vee's Wine Library TV -- which is odd, considering they're some of the web's most successful niche shows.

Perhaps their production costs outweigh their current revenue potential, but the long-term implications of this decision seem to be: Revision 3 can't afford to keep incubating emerging web video hits long enough for them to take flight on their own.

So if a company that's supposedly trafficking in The Next Big Thing (aka the web video revolution) can't keep their flagship shows afloat, what does that mean for companies like AlphaLab, who are incubating similarly-positioned, service-driven companies whose business plans hinge upon Web 2.0 metrics?

Building Houses During a Forest Fire

Every new company is fighting an uphill battle during this economic downturn, not to launch or to grow, but merely to validate their own right to exist. New ideas and properties that might have had a few years to experiment and develop an audience won't have that same luxury from investors who will increasingly be looking exclusively for "sure things" -- and if there's one field that's anything but "sure," it's the entire social media spectrum.

Admittedly, the AlphaLab-supported companies I consider to have the most potential -- Chogger and GameHuddle -- seem sexy to me because they're social media-based, and that's the arena I work in. But just because I can see their potential, that doesn't mean investors -- or customers -- will. In fact, I'd go so far as to say that these companies may be the exact right idea at the exact wrong time: concepts that COULD be sticky and even useful, if only their business plans didn't rely on large numbers of niche users having the time to find them, use them and spread the word.

In this economy, time is even less abundant than capital.

So: how can emerging companies -- social media-based or otherwise -- insulate themselves from an uncertain economy? Or, do new companies need to stretch beyond existing patterns of business thought and seize upon new opportunities before those uncharted waters seem too hazardous for anyone to fund?

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  • I have a client that has a similar business model as Revision 3.

    What I believe needs to be rethought is what defines success. What is the number threshold? We cannot compare a fledging site's numbers to FB, MySpace, or YouTube's. It takes time to build an audience, but will an investor take the time and money to do that? Can a site be happy just to be in the top 100K? And will that turn enough revenue? Probably not.

    Ideas will fly everyday, but what they won't do is make money any time soon.

    Great post. :O)

    By Blogger Ophelia Chong, at 10:53 AM  

  • Justin, there is no best time and no worst time to launch a company: when ideas and energy appear, they must be acted upon. When companies falter or fail, its due to a complex mix of circumstances. When companies/organizations succeed, again a complex mix of factors contribute. If you start something (or continue something) thinking that the economy or employment environment or money will prohibit success, then success is not in the cards. If, however, you start with the feeling that, come hell or highwater this idea is destined for greatness, then you have a far better chance of success (and cards will align to help ensure that success). Some famous person once said "the harder I work, the luckier I get".


    By Blogger Alex Landefeld, at 11:07 AM  

  • I agree that any company CAN succeed at any time, despite economic (or other) conditions.

    But when the economic deck looks increasingly stacked against web companies who are relying on non-existent business models, common sense says we should all stop exploring that space.

    I'm the optimist who think that, instead of following that common sense, we should instead explore alternate monetization options passionately, so as to find new ways to keep these new ideas afloat. I'd hate to see concepts that could be game-changers fall flat simply because the collective economic unconscious took a long look at the current financial landscape and blinked.

    By Blogger Justin Kownacki, at 5:31 PM  

  • I agree with Alex, although, it is difficult enough raising capital here in Pittsburgh during normal and boom periods, so if one was starting now it would be wise to secure some funds from friends and family, not to mention your savings, just in case this recession lasts a while.

    By Blogger Schultz, at 7:23 AM  

  • i have started my company aam india it services in economic collapse

    By Anonymous aamiits, at 4:14 PM  

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