Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

We've been here before - boom and bust in Silicon Valley

Posted by Tom Foremski - October 13, 2008

I arrived in Silicon Valley in 1984 just after the PC bubble had popped. It was all doom and gloom at the time, there were stories about how Silicon Valley was washed up, and that innovation would move elsewhere. There have been many boom and busts in Silicon Valley since 1984 and similar stories about Silicon Valley all washed up and that innovation was moving elsewhere.

Silicon Valley didn't go anywhere, it got bigger and more influential. Many companies are moving to Silicon Valley because of the perfect storm of innovation that you can't get anywhere else: capital, people, and media.

You have to be here to be part of the conversation, to be part of the community otherwise you can't hire the smartest people, and you won't have access to smart capital, or the smart media.

Sure, innovation is being done in other parts of the world, but not on the same scale as it is being done here. And it's not just computer technologies, it is clean energy, and biotech too. Economic crisis is part of the landscape of being here.

200810131121.jpgSeasoned Silicon Valley entrepreneurs know all about boom and bust cycles and what needs to be done. Dave McClure, a serial entrepreneur has written a very good post giving advice to entrepreneurs:

Fear is the Mind Killer of the Silicon Valley Entrepreneur

twenty years ago, i moved out to Silicon Valley after graduating from college. i did not do so with the intent to get rich quick, but neither to live among sheep. i came here for geeks & technology, ultimate frisbee, and a free-wheeling, entrepreneurial spirit that has electrified the valley since The Traitorous Eight walked out of Shockley Semiconductor over 50 years ago and started a Revolution.

What's the effect on startups? The VCs want to extend the runway for their portfoilio companies. GigaOm provides the presentation that Sequoia Capital gave to its startups:
Inside Details of Sequoia Capital’s Doomsday Meeting With its Companies - GigaOM

Mike Mortiz kicked off the proceedings by saying that these are drastic times and that means drastic measures must be taken to survive. His message to companies was don’t worry about getting ahead, instead, “We’re talking survive. Get this point into your heads.” He warned that companies need to be cash-flow positive, and if they are not, then they need to get there now, because raising capital without being cash-flow positive is going to be tough. He was warning that there will be a price to pay for those who hesitate to act.

Not surprisingly PR firms have been blogging like hell, pointing out that good PR is all the more important during tough times, so don't cut your budgets. Todd Defren, at Shift Communications:
PR Squared: Will Social Media Help PR Weather the Storm?

We’ve been here before. We’ve seen the bloodletting. We’ve seen corporations slash marketing budgets at the exact moment when theyshould be pushing more of their chips into outbound efforts.

200810131129.jpgSimilar advice can be seen from Brian Solis at FutureWorks:
PR 2.0: Redefining the Echo Chamber to Excel in an Economic Crisis

Any company that intentionally pulls itself from the radar screen of their customers will be absent from customer decisions and referrals. In the process, you create a frictionless opportunity for your competitors to swoop in and fill the void.

Marketing, PR, service, and product development are now more important than ever. They will not only help you stay alive, but also fuel growth – even in a down economy.

Entrepreneurs aren't very good at cutting jobs. It is very difficult to cut staff that has been in the trenches with you, stayed up for days meeting deadlines and milestones. They will rather cut outside services, and those include PR and marketing. After all, they can save a couple or more jobs by cutting their PR firms.

This is why things are going to get tough in the PR world. Social media is very effective however it means doing more, more media relations, more content creation, etc. And there aren't going to be the budgets to pay for more services.

Media companies are in trouble too. This is going to accelerate the downward spiral of "oldstream" media. Newstream media is also suffering. Gawker Media announced layoffs and other media companies are following.

Newstream media companies such as GigaOm should be better able to handle a downturn because they started life with low operating costs but they face challenges in growing during a tough time for advertising of all kinds.

This could be a good time for a rollup strategy in media, if someone has the cash.

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