Silicon Valley’s Bust is A Matter of Time
Behind the billions of dollars keeping Silicon Valley afloat are clues that the good times may be coming to an end.
The tech rush may be nearing its end.
Dubai has always been a source of fascination for me, probably because the whole thing feels like it's on the verge of collapse. It's one thing to build the tallest skyscraper in the world, but compounding that with underwater luxury hotel suites and indoor skiing in the middle of the desert makes me nervous--it feels like the scene just before the proletariat stages a bloody uprising and sets everything on fire.
Maybe that's dramatic. At any rate, a background of Scottish skepticism has instilled in me a firm belief that if something is too good to be true, it probably is. Which is why this may be the year Silicon Valley gets its comeuppance.
San Francisco has famously been a land of booms and busts; it's been awash in tech money for about the last 8 years, which is long enough for everyone to have forgotten the dotcom bust around 2002 and for a cloying attitude of overconfidence to take root. That's fine for businessmen stroking each other's egos over $200 steak dinners, but overconfidence is not what drives innovation. It's also fostered a sort of arrogance that has led startup founders to abandon accountability and ethics; they don't seem to mind much when they miss revenue targets. By a lot. According to Fortune, "a vast majority of the 131 startup unicorns missed their 2015 revenue targets," and that kind of oversight doesn't fly when it comes to finance.
But while unicorn startups may be congratulating themselves over what they view as tremendous success, Wall Street is becoming increasingly disenchanted. Proof of that was in Fidelity's devaluation of some major companies like Zenefits and Dropbox.
Dropbox's devaluation is a clue to rocky times ahead.
And then there's the issue that there are simply more startups now than there ever have been. Y Combinator even says, "We fund a lot more startups than we used to. The first YC cycle in summer 2005 had 8 startups. The most recent, in winter 2014, had 75." And while Y Com is in place specifically to help startups succeed, the blatant truth is not that all of them will, and the more of them there are, the less money there is to go around. Angel investors aren't philanthropists: when tech stops being as lucrative, easy investment money will be difficult to come by. I'm not alone in thinking that the bubble is close to bursting.
While there are dozens of superfluous startups and useless apps littering the Silicon Valley landscape, hardware startups are having their share of headaches. Look at the Kreyos smartwatch, a San Francisco-based company that raised over $1.5 million on Indiegogo and then, very quickly, imploded. Or Coin, a universal credit card device that's been struggling for the past two years to get its product to customers and is now finding that its initial concept is now obsolete in the face of mobile payment options. For every successful startup, there are are dozens that took money without delivering.
Coin: a good idea that couldn't deliver before becoming obsolete.
There's light at the end of the tunnel though, and it's in the form of designers who retain engineering integrity. The key is to focus on producing a necessary, quality product. That can happen anywhere, and it doesn't have to happen in one of the most expensive places in the world (for a good laugh, look at current apartment prices in the Bay Area). Keep overhead low and be wary of easy money.
San Francisco will bust, as is the inevitable result of all booms, but it doesn't mean bringing your product to market will be impossible: it just means you'll need to apply your intelligence to finance and business as well as to great design.