The Tech Market: A Failure of Ideas, Not Execution
October 6th
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I have been having an online discussion with my friend Andrew Badera, who wrote the initial “idea = 1% execution = 99%” posting on the NextNY mailing list that I blogged about last week. His position is that execution is worth far more than ideas. We have been going back and forth in the comments of that article, and in the process I realized something I think is significant enough to elevate to a blog post.
The sorry state of tech entrepreneurship is not a failure of execution, but a failure of ideas. In the last four or five years, the Web 2.0 market has seemed explosively successful. But I would say that from an economic perspective it has been a failure. Because at the end of the day, a market cannot be judged by how much VC has been raised, but by how much actual revenue the companies are making either independently or after acquisition, as parts of larger companies.
The truth is that as it relates to generating revenue, Web 2.0 has been a bust. This is intuitively obvious, but unfortunately I don’t have any hard statistics to back it up. But the clearest indicator is that startups are not being acquired. If the best of the best were accretive to earnings for the acquirer they would be. The idea that the raft of social media companies with no revenue model was going to somehow “figure revenue out later” after building up large audiences of free users has, I think been debunked. Web 2.0 is old enough that there should be way more companies making lots of money.
Which brings me back to the idea vs. execution argument. In the Web 2.0 era, there have been lots of excellent entrepreneurs. The failure of the overall market is not because no entrepreneurs are executing, but because they are, by and large, trying to execute bad ideas. We are currently living through the fallout of that. Yes the overall economy is obviously bad, but this trend is not a new one. It has been clear for at least a year and probably longer.
What the Web 2.0 market actually confirms for us is that bad ideas cannot be overcome with excellent execution. Otherwise we would be seeing lots of hugely profitable social media startups. The proof is in the (lack of) profit.
The sorry state of tech entrepreneurship is not a failure of execution, but a failure of ideas. In the last four or five years, the Web 2.0 market has seemed explosively successful. But I would say that from an economic perspective it has been a failure. Because at the end of the day, a market cannot be judged by how much VC has been raised, but by how much actual revenue the companies are making either independently or after acquisition, as parts of larger companies.
The truth is that as it relates to generating revenue, Web 2.0 has been a bust. This is intuitively obvious, but unfortunately I don’t have any hard statistics to back it up. But the clearest indicator is that startups are not being acquired. If the best of the best were accretive to earnings for the acquirer they would be. The idea that the raft of social media companies with no revenue model was going to somehow “figure revenue out later” after building up large audiences of free users has, I think been debunked. Web 2.0 is old enough that there should be way more companies making lots of money.
Which brings me back to the idea vs. execution argument. In the Web 2.0 era, there have been lots of excellent entrepreneurs. The failure of the overall market is not because no entrepreneurs are executing, but because they are, by and large, trying to execute bad ideas. We are currently living through the fallout of that. Yes the overall economy is obviously bad, but this trend is not a new one. It has been clear for at least a year and probably longer.
What the Web 2.0 market actually confirms for us is that bad ideas cannot be overcome with excellent execution. Otherwise we would be seeing lots of hugely profitable social media startups. The proof is in the (lack of) profit.
