What The Bubble Got Right 340
dtolton writes "Paul Graham has written an article entitled What the Bubble Got Right. In recent years the roaring tech bubble has become a byword, yet Paul does an excellent job of articulating what it got right."
Lessons learned. (Score:5, Interesting)
Now I can jump up and down and DEMAND a development server and have plenty of examples to back up my need for one.
I'll now be the first person to raise my hand and ask the following question: "So, how will this make money?"
Whenever I hear New - anything - my instant reaction is BULLSHIT!
Those were great times; I wouldn't trade them for anything
I think the lessons learned are worth the pain.
JD
Re:bad article (Score:4, Interesting)
Been there, dumb, that! (Score:5, Interesting)
Foolish disclosure: I made money on only one of those starups and that entirely by accident. I wish our VC's and senior management had the long term vision, so absent in those days, that is implied in Graham's article.
who put this sig here?
Re:Graham's daydream (Score:3, Interesting)
How much do you talk with Google? Do you call up Amazon much? If you get it right, outsourcing customer relationships is not a big problem.
I used to work for MyHomeKey.com, and customer relations was a BIG part of our business. (I think we outsourced it to a company in Texas.) Generally speaking, we had top notch phone and email support. When people used it, that is. For the most part they could check statuses online and figure out what was going on. If something changed in the date we got a service tech out there, our support would call the customer.
The only reason why things didn't work out is that the businesses we worked with (everyone from Home Service Store to Sears) couldn't handle more than 300 service orders a day! The ONLY company who was always on time and always handled their orders was Rotorooter. (If anyone remembers when Rotorooter had online ordering, that was my technology!) Everyone else kind of threw up their hands and said, "it's just too much". *sigh*
Greenspan Crashed The Ecnomy (Score:3, Interesting)
There was plenty of high value in the network revolution and still is. It's just that so many con men showed up, that when Greenspan put the screws down trying to make it a zero-sum game, the positive-sum players got eaten alive by the zero-sum players.
People couldn't see through the bubble? (Score:5, Interesting)
Re:Look at the bigger picture (Score:3, Interesting)
Re:Wish I had a job before/during the bubble. (Score:3, Interesting)
I take issue with one point... (Score:5, Interesting)
Options were part of my compensation when I first started my current job back in '99. We went IPO in Spring '00. About a dozen of the higher-ups became millionares at the opening bell. At the height, my options weren't worth anywhere near millions, but it was fair chunk o' change for a 1-year-out-of-college grunt. Unfortunately, I wasn't vested, so I couldn't excercise any of my options...
I just reached my 5-year anniversary, and my initial option grant is now fully vested. It is also fully worthless. After being delisted from NASDAQ, even if I could find someone OTC to buy, the share value is but a fraction of my excercise price. Now I do know people who worked for larger companies who have made, and continue to make, a decent return on their option grants. It is a great incentive to both keep the employee productive (his production has an impact on the stock price) and loyal (encourage him to stay with long vesting periods). But there are just as many of us "survivors" who took a lower salary with option grants who got burnt on the deal.
Re:People couldn't see through the bubble? (Score:5, Interesting)
I've traded futures and shares for many years, so I knew a bubble when I saw one - recognition that a bubble was happening was part of my training, if you want to look at it that way. However, one of my close friends, who is a *very* savvy businessman and has held very high level roles with multiple global corporations, used to argue with me that "everything has now changed with the Internet", "stock dividends are irrelevant now" and so on. Lots of investment advisors were saying the same thing; presumably some were trying to profit by boosting the stock they wanted to sell, and others were too dumb to know any better.
I pointed out to my friend that this had been said many times before, which he knew, but he thought the Internet bubble was The Big Leap Forward. His background covered 20+ years of business in manufacturing and IT, and he'd seen the Internet and related technologies could make changes to those areas that were an order of magnitude more significant than anything else he'd seen. All of this is still true, so he's not actually wrong.
As others have said, spikes in Yahoo, Cisco, MS, Sun etc. share price will happen, but the infrastructure that supports these companies is probably the safer investment bet in the long term. That said, a lot of people (myself included) felt that Cisco was one of those infrastructure companies, but it was part of the bubble - it can be hard to distinguish between the two.
Re:I regret to inform Mr. Graham.... (Score:1, Interesting)
Re:People couldn't see through the bubble? (Score:4, Interesting)
Not that you don't know this, but to comment on what happened and why it happened to Cisco. It's a simple answer. People bought boat loads more equipment then they needed. Cisco had built a manufacturing pipeline based off needs at the height of the bubble. They we're feeding off the VC. Once that dried up, they had way too much inventory, way too much capacity, and had goals way out of line with the needs of the market.
People just way overbuilt the capacity. I'm not sure if it's still true but at one point people were saying something like 90% of all fiber in the ground is still dark. Cisco was or had just finished gearing up for growth when the well went dry.
I'm not going to say I saw thru it from the beginning. However, I have no formal economic training, and nothing but a skeptical mind. I invested in a startup thru my brother. He just wanted a check, and told me he had this great idea. He needed some funding to get thru to the VC stage. The day after he gave me the predictions for my net worth after the IPO, I just laughed and asked if I could cash out. Unfortunately, I couldn't. It was a scam. Everyone in the company had every intention of selling out the moment it was legal after the IPO. No one had any interest in actually starting or running the company. All they wanted to do was bring in investors and then print stock to sell. It was a classic pump and dump. However, they had Deloitte and Touche (I'm told a well respected accounting firm) proding them along, because everyone stood to make money.
I took my percentage of the company and what my predicted value was, and used that to estimate the market cap. He was claiming the company that had 3 employees and $50K in startup money and was in business for a total of 360 days was going to net 10 times as much as the VA Linux IPO, which at the time was the single largest IPO ever. I laughed, a company with no assessts, that any lawyer could file the paperwork for. All they needed some a couple of stooges to get excited for the VC people and they were set.
We missed out on IPO'ing. I'd have happily just taken my money back once I figured out what was going on. I'd probably be rich beyond my lowly asperations if it had gone off one 1/100th as well as he claimed it would. Oh well, live and learn. Maybe by the time I'm 50 nobody will remember and we can have a repeat of history.
I had it figured out by the winter of 1999, you can't tell me everyone else didn't know by then. They really just wanted to cash in before it dried up.
The internet will change the world, it is a disruptive technology, but one doesn't fundamentally shift an economy the size of the US in a 2 year period. The benefits claimed will be there, but they'll be there 20 years from now. Unfortunately, nobody was willing to make the investments and let them grow over that period of time.
Kirby
Re:Graham's daydream (Score:5, Interesting)
The one corporate archetype that I've found that could realize Paul's (and my) dream is the model that ARM [arm.com] follows. ARM is the intellectual property company that focuses on R&D behind the ARM family of RISC microprocessors. The trick is that they generate all their revenue from licensing fees and royalties from partners (like Intel), who take the R&D that ARM does and incorporates it into their own offerings (like StrongARM). ARM, while >10 employees, is miniscule when compared to it's competitors in the microprocessor space. And insanely profitable. ARM's is a fascinating story, and should be a case study for anyone who wants to see how a tenacious and dedicated team of really smart people can create a successful business in the face of seemingly overwhelming odds.
Licensing of IP is one of the few formulaic ways that I've seen where one can accomplish big money while maintaining a small core team.
Re:Full Text (Score:4, Interesting)
Some good stuff, over-romanticized (Score:3, Interesting)
I do take issue with his emphasis on 'nerds' and 'style'. Of course the technically inept manager-types are called 'suits' because their fashion is attempting to hide technical incompetence, and nerds dress down to avoid that. But, its one thing to dress down to repel pretenders, it is another thing to avoid dressing up because you can't pull it off yourself.
He's over-romanticizing and overrating the nerd 'culture', which is essentially an over-focus on one tech competency to the exclusion of all else. Even when 'eccentric' single-minded tech or science types do get rich, they get far less than they would if they were more 'well rounded'. Even the tech-wealthy like BGates are arguably more competent at business and law than they are at tech.
The tech types will always need to develop real competence in broader areas of life and business if they want to be taken seriously. The lack of breadth is what marginalized CTOs and their IT departments. Rather than understanding the business well, finding innovative ways to become more competitve, and selling their vision as strategic peers, they focused on their infrastructure, workload, etc, and so became seen as plumbers, and were outsourced at the first opportunity. There are exceptions, but as a class, we've blown it.
Was it because the suits were too dense to see the opportunities presented, or because CTOs didn't make their innovative strategies heard -- who knows? But the result is the same.
Perhaps the best result is that the competent tech folks go off and form their own businesses, and sell stuff back to the suits at 5x the price; but that still requires much more than just the tech competence he extolls.
It'd be better if he was more clear about that.
Re:I think Marx would shit a brick if he could see (Score:2, Interesting)
It amazes me that communists who would love to destroy the working capital markets always measure things in term of income.
Wealth is a curse. The trust fund child is the most likely to end up the meth-head heroin whore.
You can't see this?
Wealth is a curse. Communism is wrong.
If you really believe in equality you would see that sociey provides so much just because we are here. We are all better off with the current system than having a revolution based on envy and power lusting miscontents.
Communism is a curse on the world designed by envious people who want to have everyone else do what they say.
It is slavery by the government. It is a failure.
The bubble got Globalization right too... (Score:4, Interesting)
I was a founder/director of a New York webshop which I started and later sold for stupid amounts of cash to a bunch of guys who then still believed the "up up up" mantra of the day.
Our company built all kinds of supply-chain mgt. tools, extranets, inventory systems, etc. -- some of which was good, and some of which was thrown together from pieces of code I'd be embarrassed to post here.
The crazy thing is though -- that sh*t really did change the planet.
Two years ago (post bubble) I started a small (very small) manufacturing business building (we'll say "widgets") in China.
I was instantly struck by the fact that sourcing a manufacturer, monitoring production, sourcing raw materials, shipping, tracking inventory, selling and fulfilling are *ALL* internet enabled now -- by similar tools to the ones we had been building for the past 6 years. Not to mention the fact that if you know how to build/use those tools, you can beat the pants off businesses that are 10 times your size.
Now I have a slowly growing manufacturing business (struggling more than growing most weeks) which could not have existed pre bubble.
On a larger scale, this is a huge trend. The fact that the little guy can find a manufacturer overseas, produce widgets (literally anything you can think of), and go head to head with billion dollar manufacturing businesses is a fantastic degree of empowerment. And its completely a result of our "failed" internet bubble.
Anyway -- my two cents -- the time for building the tools is over. The time for using them is here.
Peace.
Re:I regret to inform Mr. Graham.... (Score:3, Interesting)
Graham's argument would be that the core of the Bubble is "The Internet is going to fucking change everything." Which has a definite amount of validity to it.
I imagine you would argue that the core of the bubble was "The Internet means profit is for losers." Which is of course silly.
What the Bubble got wrong (Score:4, Interesting)
First off, he says he is coming from the vantage point of Yahoo.com. When Yahoo IPO'd, I knew "the market" had gotten ridiculous (the fact that Yahoo, was IPO'ing, never mind what it IPO'd at and went to). I had been buying stocks up to them using the fundamental analysis technique pioneered by Benjamin Graham. This is the technique the best stock pickers of the second half of the 20th century - Warren Buffett and Peter Lynch - use. Among all things it concentrates on profit and profit growth. Yahoo had made no profit, in fact it was losing money, so I knew it was ridiculous. In fact, I remember most clearly August 10th, 1995 when Netscape IPO'd and went to over 100. That's when the stock market bubble started in most estimations. I actually bought Netscape that day, and even made money on it. But I always felt the market was unstable after that, and I was right.
All this person sees is the small piece of ice on the top of a giant iceberg. He's still speaking in bubble-speak. The only thing connected to reality is #10, productivity. And everything he says within that is nonsense.
One thing neglected in all of his delusions that IPO's and Venture Capital in the mid-1990's created the massive Internet that we have today is the decades of government paid R&D, in the billions of dollars, through DARPA, that actually created the Internet. The Internet was a socialist, or, to be technical about it, a fascistly modelled (business/government cooperation) economic program. Decades of taxpayer dollars poured into R&D which creates something which *starting* in the mid-1990s can be used to start increasing productivity.
Economists have been debating whether or not productivity increased due to the Internet thus far and it very may well not have - it may take decades for that to hit. Despite all of the technical innovations in the early 20th century (cars, assembly lines), it wasn't until the end of World War II that any of this productivity was significantly felt, and that was after massive government involvement in the economy, starting with the New Deal, through the WWII almost total takeover of the economy by the government including rationing, on to Eisenhower and his "military" buildup. It wasn't all to strictly military purposes, the highway system was originally sold as a military expense (Original name the National Defense Highway System) along with the government funded R&D that created transistors, computers and so forth.
Also not mentioned is the severe world economic crisis that became apparent starting in the mid-1960's, started affecting things obviously in the early 1970's and which is still with us today. The average US inflation-adjusted hourly wage is below [bls.gov] what it was 30 years ago. That does not sound like the economic utopia he is talking about - the US (and industrialized world) has been digging a whole for 30 years, with brief respites in the mid 1980s and late 1990s, where capital went hog wild during the short lived good period.
This person doesn't even seem to understand equity fundamental analysis within the current dominant economic viewpoint, never mind alternative economic viewpoints which see the economic system as even more fragile, which I subscribe to. Even dominant psyche stalwarts like Alan Greenspan or chief economists on Wall Street like Stephen Roach often speak gloomy things which you can read about in the Wall Street Journal, but not in the local newspaper for idiots with a big sports section on the back cover and local murder news on the front.
Re:bubble? (Score:3, Interesting)
"Bubble" usually refers to a time when the prices or valuations of things are ridiculously, absurdly high way out of proportion to their true value. It's become a pyramid scheme: people are often buying stuff solely to resell it at a higher price, and not to actuallly *use* the stuff. Saying that a market is on a bubble also usually implies that the bubble's about to pop, bringing down everyone with it.
For example, saying that there's a housing market bubble implies that very soon buyers will realize that the crazy-high prices for houses just aren't doable, and all those people who bought houses for such prices on the promise that the prices will only continue to increase -- well, they're about to learn a lesson the hard way.
There was, of course, a giant internet company stock bubble in the '90s.
I believe the term came from the Japanese economy which, during the '80s, could do no wrong, until things popped. They've still not recovered. Those were called the "Bubble Years".
Re:What the Bubble got wrong (Score:2, Interesting)
My first thought was that you'd have to step on a lot of t-shirts to make 70 million a year.
My second thought was here they are spending all this money on tech and infrastructure and the only thing that made money was a >$20,000 site hosted on a celeron based server at an offsite host. The absurdity of it was quite clear to me.
One thing I will say is that Yahoo! Store (formerly Viaweb founded by Graham and others) was actually really profitable during the bubble (and I'm sure still is). Lots of people paying big bucks every 30 days. Though it seemed the managment at the time really didn't care. Cash wasn't very sexy.
Re:Wish I had a job before/during the bubble. (Score:1, Interesting)
I started at just over $70k in 1996. When I left, I was making about $135k... and I left for a job working for a non-profit making $65k.
Best decision ever.
Re:The problem with stock options... (Score:3, Interesting)
How do you calculate the cost to the company? You can't estimate the cost when the option is granted, it have no fixed value until the option is sold. If you wait until the option is sold, then the public has already bought their shares, with no way to know the expense that will be created when the option is exercised. Once you try to expense options, you may as well buy public stock, hand it to the employees but not let them cash out for 5 years. At which point you way as well just pay them more
Re:Options (Score:3, Interesting)
It's an interesting question how the affect of options tails off with size. I suspect it is not linear though. By the time I left Yahoo it had 2000 people. You'd think that would be well past the point where ordinary employees thought they could affect the fortunes of the company, but it wasn't. We had the most gung-ho receptionists you can possibly imagine.
Re:Quit trying to follow the money, and be happy (Score:4, Interesting)
There ARE jobs like that, most retail is like that, as one example. You help people find what they need, sell it to them, put stuff on shelves, maybe oversee some other people doing that, rinse and repeat. You never really need to learn anything new unless you want to move up the corperate ladder and even then you often don't. Being a cashier today doesn't require much different skills than it did 50 years ago.
Not the case with computers. Being a prgrammer today requires vastly different skills than one 10 years ago. 10 years ago it was all about DOS apps in a single user envrionment, with just some being Windows or MacOS. Now it's all about multi-user, multi-tasking apps and cross platform is continuing to get more and more important. Languages have changed too, I mean look at the rise of Java and PERL.
Also all the real knowledge and skills you need are robust ones. YOu need to understand how a computer works, how it thinks and how languages relate to that (if you're a programmer) so you can quickly learn and adapt to neaw languages, OSes and environments. Not the case with a cashier job, you can just memorize all the things you need to know and have no deeper understanding.
Well way too many
Those people, I don't much feel sorry for if they can't find jobs, they really shouldn't have gone in to tech.
When I got my current job (computer support), I was kind supprised. I mean I was qualified, no question, but not ideally. I figured with all the doom and gloom on
They said that most couldn't answer questions to match their credentials (CCNA's who couldn't correclty sum up the differences between a switch and a hub) and most appeared to just want any job they could get where I seemd to actually want to work for THEM (which I did, they specificaly interested me).
So I think the grandparent was valid, people that are interested and motivated in a higher level field will almost always be better than those that just are chasing dollar signs.
Re:Quit trying to follow the money, and be happy (Score:3, Interesting)
It may not be a good plan to hope to do "something you really like" after many years of minimum effort, but it does work to do SYRL after a few years of maximum effort. At least, it worked for me.
I talked a little bit about this in Great Hackers [paulgraham.com], and much more extensively in "How to Create Wealth," which is probably the most subversive of the essays in Hackers & Painters.
Re:Paul G. is a "one trick pony" (Score:3, Interesting)
This was already happening during the Bubble. One of the companies we worked closely with was started by MBA types, and outsourced all their development to India. It was a disaster.
Outsourcing development is for banks who need to get reams of routine database software written, not for startups. If someone is really just a "marketing expert," they won't have the vision to tell the armies in Russia and India what to build.
Re:Quit trying to follow the money, and be happy (Score:2, Interesting)
Re:Graham's daydream (Score:2, Interesting)
Not deader than ever (Score:3, Interesting)
Marxism classifies people not by their place on a 'social ladder', but by ownership of means of production: capitalists own them (factories, resources, distribution chains etc.), and workers don't. Hence, the concepts like "middle class" are out of Marxist classification: you have only the capitalists and the workers.
Now, in post-industrial society the superficial contrast between the owner and the employee may not look so dramatic, but the distinctions still exists. A burger flipper doesn't own the restaurant, an engineer has no control over his corporation's marketing, distribution and financial resources, a scientist in a corporate research lab does not control the fate of the project he runs or the results of his work.
Re:I think Marx would shit a brick if he could see (Score:3, Interesting)
I don't know where you got this from, but even taking it at face value, remember that this is "average" by quintile. In other words, when you look at the 80-100% quintile, this is skewed upwards dramatically by the 98-100% slice that makes something like 500k/900k/6000k. And when you look at that last percentile in its components, it's probably something like 1000k/2000k/3000k/50000k.
Cheers,
Richard
Hype Machines Squash Opposition (Score:3, Interesting)
BULLSHIT. The bubble was perfectly obvious, but the "hype machine" was running at 110% throttle and didn't allow criticism of itself. People like myself were shouted down
The exact same thing is happening right now in the current bubble of American politics. It is perfectly obvious that America is starting WWIII, but the hype machine doesn't allow examination of that, much less criticism. After 1995, criticism of the Internet was squashed in a similar fashion; due to people's greed and hatred, they fully supported an irrational environment of operation. Hence it crashed. It could only crash.