The Dawn of the 90’s, and the world had to have a technological renaissance according to the baby boomers who expected the millennium to bring in such change. For humanity’s sake, this renaissance was brought to life with the rise of the Internet. In 1995, all eager and somewhat tech savvy individuals started adopting the Internet in droves and started tinkering with it to figure out how to tap this new and exciting opportunity. This was all part of latest technology advancements at that time.Apart from the usual companies like Amazon.com and Google.com which people knew were born with the Internet, there were so many other companies like Broadcast.com, Pets.com, Geocities.com and much more.
Have you heard of the latter few? If you were around during this part of the Internet then you would, if not it’s highly unlikely.
New Opportunities, New Pitfalls
So sensing this new opportunity everybody, their family and even their dogs started businesses that were on the Internet. None of these “Businesses” were based on value or any sort or of a product that customers wanted. Most of the businesses started in this era were just websites with content on it. But, the human greed took over and a lot of Investors and others sensed opportunity in this space, started Investing massive amounts of money for massive valuations without any real fundamentals.
These companies would use their massive funding to swank up their offices, give ridiculous amounts of discounts and Incentives to the user to get them to use the product.
There came a time, when most of these businesses were not making any money in spite of all the money Invested. This was because they did not have a solution to a problem and in many cases not even a real product.
All this false funding, and no true product led to one of the biggest crash of technology companies in the United States. This was called the dot-com bust of 2001 where hundreds of companies that were boasting, just a few months back of massive valuations lost all their net worth and were worth nothing.
The stocks crashed, the Investors lost money, the VC’s lost money and almost everybody involved lost money except maybe some of the founders who had massive, unjustified salaries that made them much richer.
A lot of people rode this greed wave and burnt their fingers. And in typical fashion, Wall Street immediately devalued the valuations of most tech startups, but in spite of all this craze the true companies with great products survived.
Google rejected a Yahoo bid for purchase. Amazon continued its journey, Apple released the iPod. Microsoft was still the leader in many fronts and so on.
In the recent times, the startup scene has taken a huge turn with again everybody starting a startup. The reasons now being, that it is much easier to start a business even in emerging markets like that of India and many South East Asian companies. Many companies especially in the Indian sector like Flipkart, Snapdeal do not make a cent of profit because of massive competitions. Flipkart and Snapdeal, rivals to Amazon are the poster boys of the Indian startup scene. The valuations they are getting is alarming, plus the discounts they give to their users cannot ever be continued in the long-run.
How to stay away?
The Best way would be is to see if a company can make a profit for a considerable period of time. Does the business have an Advantage that the rivals do not have? Does it possess technology that cannot be replicated easily,It’s this kind of factors that need to be noted and kept in mind.