Are we experiencing another tech bubble, or the biggest secular move of the digital economy since the integrated circuit? This debate rages across Silicon Valley, India and the global industry, with both sides creating many convincing presentations, articles and tweetstorms to support their view and refute the other.
The truth is a bit more complicated. First, we cannot refute today’s secular changes. Internet penetrates every aspect of daily life and business. In 2014, over 2.4 billion people were using the Internet and more than 8.7 billion devices were connected, a huge leap from the Internet’s 50 million users in 1998. The way users access the Internet has also changed, thanks to the rise of mobile.
Still, layered across these major shifts are significant indicators of a potential bubble. We see 5, 10, or even 20 me-too start-ups chasing the winner-takes-most markets where the winner is already established. At the same time these start-ups burn more quickly due to monstrous amounts of late-stage capital.
Increasingly, we see new investors entering at stages with which they have no experience and entrepreneurs feeling the pressure to grow before they have basic proof of product market fit, let alone unit economics.
If you take a step back to analyse the mindset, you’ll find analogous behaviour across the long history of start-ups. Outrageously optimistic predictions have long taken the place of reasonable consideration of risk.
The unique formula for a winning company rests on four pillars: unit profitability, restrained burn rates, capital stability, and contingency planning.
This is an excerpt from Tech in Asia. You can read the full article here.