The Ugly Adolescent Stage

  Originally uploaded by Al Q.

I’ve got a couple teenagers and a pre-teen at home. Being a teenager sucks. Being the parent of a teenager equally sucks. But this post is not about all that. I don’t feel like I can add much more on the subject of parenting teenagers.

Startup companies are like kids to me. We have a bunch of them in our portfolio. And I love them all equally even though some are straight A students who never get in trouble and some are the underachievers who you know could do so much more if they just tried a little harder.

Startups come out of the womb with the same bright shiny hopeful optimism as kids do. They develop quickly, learn, to walk, to talk, get bigger, turn into real people and then they hit their ugly adolescent period. They start to doubt themselves, they get zits, they get distracted with other things, and they start hating you and you start hating them. Even though you still love them.

Jason heard a pop yesterday. But it was a zit popping not a bubble popping.

It’s true that we’ve got some problems on wall street. In fact, we’ve got some problems in our economy here in the US that go beyond the subprime mess. We’ve been running huge fiscal budget deficits and trade deficits here in the US for years. Clinton fixed the fiscal situation briefly but Bush brought us right back to spending more than we take in. The dollar is not wanted. There are many other places global investors can put their money these days. And they do.

But those problems are not what’s wrong with web 2.0 companies. I disagree with Jason that the problems on wall street are going to impact Internet ad spend and VC funding. We are in the midst of a massive move of ad dollars from non-measurable media to measurable media. Ad growth may slow down or stop but the move away from traditional media to new media won’t slow. And VCs have raised so much money that they are not going to stop investing anytime soon.

What we are seeing in web 2.0 are growing pains. Most of these web 2.0 companies were started in ’04, ’05, and ’06 and they’ve now grown into companies with lots of employees, lots of invested capital, and lots of promise. And it’s time to start showing something for all that investment and promise. Some will do that easily. They are the straight A students who succeed effortlessly. Others will struggle. They are the kids that need help and attention and love. And some will just fold the tent and go home. Thankfully I don’t have a kids analogy for that kind of company.

Yesterday we saw Dave Sifry step down as CEO of Technorati. Technorati has been around a long time. They’ve had a lot of promise. I sill use the service every day. But it’s clear that Technorati is one of those kids who drive you crazy. Why isn’t the service more reliable? Why is it harder to use after the recent revisions? Why do I wish someone would build a better mousetrap? Dave and the rest of the Technorati board is probably doing the right thing in looking for a new leader. That’s the most common prescription for ugly adolescence.

But I don’t think throwing out the founder and bringing in a new leader to run the business is a cure for ugly adolescence. I think you just have to go through this stage regardless of who is running the business. You have face the doubts, you have to admit that some of the things you’ve done were wrong, you often have to cut back the ambition and focus on the little things that are working. That takes leadership. If the founder and the team around him/her can provide that leadership, that’s best. If it takes someone new, then you better be sure you found the right person. Because the one thing that will turn ugly adolescence into something much worse is a new leader who is a bust.

Jason’s probably right that the rest of this year won’t be a lot of fun in web 2.0 land. Next year might bring more of the same growing pains. There will be a shakeout. Bad companies based on bad ideas will shut down. Some already have. But I think this phase of technology revolution that we call web 2.0 is going to grow into a wonderful adulthood. I am banking on it.

#VC & Technology

Comments (Archived):

  1. Charlie Crystle

    Well, sure, it’s never fun. And always fun. Your focus has been very much on the “web 2.0” side of things, but there’s tons of great stuff happening all over, and bad companies dying, and good companies dying, and good and bad replacing them.What’s exciting to me are companies that are making money. Real companies, regardless of sector or tech focus. There are tons of ideas, and a bunch of features floating out there, but only a few real businesses, relative to the total number of startups out there. I’m biased, of course, because that’s what I’m running, but I never really got the excitement around funding features. But the result has been interesting; it’s brought a lot of people to the web in a deeper way because so much end user power has been created. But we’ll see consolidation, and there’s soooo much noise now that most people don’t see most of these features, which individually are unsupportable as businesses.Like FaceBook widgets–the difference in adoption between the number 1 widget and number 10 is huge, not to mention the other 500 or so. Ramble ramble, ramble, burp. Done for the week. Have a great weekend everyone!

  2. Emil Sotirov

    Just a note about Technorati…Fred, here is what you posted in August 2005:”Technorati… It’s been useless anyway for the past nine months.”And here is what I posted in July 2005:”I just don’t see how Technorati could keep a hold on blog search. What they do is purely technical… and easy to replicate by Google and Yahoo… I am not aware of anything in the business model of Technorati that may offer any kind of resistance. May be I don’t know something that the venture capital folks backing Technorati know… But, as I see it, if they haven’t already arranged the sale of Technorati to ???… it might be too late now.”

  3. nick

    Sounds as though you need a cute new baby in the house to remind you of the wonders of being a parent (and to get fresh spit-up on all your clothes).We’d be delighted to fill that role 😀

  4. Nathan Bowers

    Just a nitpick: Clinton didn’t “fix” the budget, he got lucky. The 1990 saw huge increases in productivity (and tax revenue) due to the PC and internet booms and the end of the early 90s recession that helped sink G.H.W. Bush’s presidency. Also there was a peace dividend due the end of the Cold War. Also, it helped that Clinton had a super hostile Congress that prevented him from spending money.We should be so lucky to have gridlock again.If there is in fact a bubble, it can’t be significant since we’re not seeing irrational exuberance and a rash of overvalued IPOs (thanks SarbOx). Maybe some VCs will lose money, but it’s not like any big pension funds are going down the toilet. Plus, it takes hardly any capital to start a web app these days. By the time you need big money for big hardware and fat pipes you’ve already proven your viability.

    1. fredwilson

      clinton didn’t just get lucky. at the start of his first term, there was a big debate inside his administration which was ultimately won by Bob Rubin and the money guys who convinced Clinton to balance the budget and thus spur a lowering of real rates that would fuel an investment boom. and that’s exactly what happened. sure there was a peace dividend and probably a number of other factors at work. but the fact is Clinton left GWB a HUGE budget surplus which was blown away by the ridiculous Bush tax cuts and now we are a bigger debtor nation than ever.

  5. bsiscovick

    I mean it’s true; in times of economic turbulence all cyclical sectors are negatively affected. Sure this economic downturn will ripple through to the world of VC and startups to some extent, just as it will every other cyclical sector.But I am not sure I understand the rational behind Jason highlighting this sector as one that will be uniquely (or disproportionately) hit hard. If anything, I would argue that the startup/VC sector is uniquely positioned to whether this economic storm better than most. At the end of the day, this isn’t 2001 and current fundamentals are strong! Internet companies today have viable business models (and Fred’s point on advertising is spot on). The pace and quality of innovation continues to increase exponentially. Internet services and business models are still in its infancy, opportunity remains tremendous. And unlike sub-prime mortgage lenders, current Internet investors are well aware of their past mistakes and (hopefully) employ a healthy sense of skeptical optimism when selecting investments.I hope I am not being naively optimistic and I am sure many venture-backed companies will go under, but my intuition tells me those startups that fail in today’s market will do so primarily because of failure to execute or poor strategy (or both!) and not because of a systemic economic issues.

    1. bsiscovick

      Just to add two quick notes:1) One area which may be negatively affected by a prolonged economic downturn is the ability of VC’s to raise new investment capital. In this economic environment permeated with fear we may see institutional investors return to more traditional investment classes with less alternative investments. 2) Check out Henry Blodget’s post on Silicon Alley Insider (…. Henry paints a similarly gloomy picture, but I am pretty sure he is referring specifically to the challenges facing large, publicly traded Internet companies (once an equity analyst, always an equity analyst…). If he is referring to small startups, I’d have lots of issues with his post.

  6. JeremiahKane

    I think you make an important point that big market events don’t always have have negative ramifications on the tech economy. I would go further and note that wall-street events don’t always translate over to the “real economy” as a whole. The crash of 89′ didn’t cause a recession, the 1998 Russian Rubble/LTCM crisis didn’t, while others… internet bubble and the real estate/savings and loan crisis precipitate recessions or occurred during a pre-existing one. In this case, while it seems to me that the potential is there to slow ad sales if corporate credit drys up, corporate balance sheets are strong and the underlying shift to online advertising is real and will continue. In addition, since in the last crisis the tech economy was at the center of the both the expansion and the subsquent crash there is a tendency to expect the impact to be worse that it will be this time around. Web 2.0 is not in the middle of this crisis and if the economy remains strong, which I think it will, it should continue to thrive.

  7. Michael

    Great post! Pardon the diversion, but Suicidal Tendencies were ringing in my head while I read this. I think the lyrics from “Institutionalized” are apt. (Hey, all Jason really wants is a Pepsi!)Sometimes I try to do things and it just doesn’t work out the way I wanted to.I get real frustrated and I try hard to do it and I take my time and it doesn’t work out the way I wanted to.It’s like I concentrate real hard and it doesn’t work outEverything I do and everything I try never turns outIt’s like I need time to figure these things outBut there’s always someone there goingHey Mike:You know we’ve been noticing you’ve been having a lot of problems lately.You know, maybe you should get away and maybe you should talk about it, maybe you’ll feel a lot betterAnd I go:No it’s okay, you know I’ll figure it out, just leave me alone I’ll figure it out. You know I’ll just work by myself.

  8. Todd Tweedy

    Sometimes you just have to be lucky…