Right now, it seems like the biggest, buzziest business opportunities are coming from the start-up world. With the sudden proliferation of convenient smartphone apps that range from Venmo, a personal finance management tool, to Snapchat, the wildly popular picture messaging application, it’s no wonder that mobile start-ups are becoming the darlings of venture capital firms everywhere. Around campus, it also seems that students are getting excited about job opportunities in Silicon Valley, which are becoming an increasingly common career of choice. It’s like a modern day gold rush, with students rushing to California to pan for the next Twitter rather than precious metals.
The problem is that this recent excitement over start-ups is reminiscent of the dot-com bubble that burst at the beginning of the millennium. Both involve raising millions in funding based on ideas or early-stage products alone, before their popularity in the actual market is tested. They then launch with massive amounts of marketing attention, attracting even more investment, but fail to capture the market. Those companies will then try to keep their product afloat and re-launch new versions, until they, and their investors, are out of money.Although the exciting part of start-ups is the possibility that they will become the next big tech star, the fact is, Founder Institute CEO Adeo Ressi estimates that 97 percent of start-ups fail.
One main reason for the failures is the sheer glut of companies that exist only to solve the most minute and obscure of first world problems. There’s Tinder, a dating app that lets you “like” or “dislike” strangers based on their profile pictures. There are apps like Ordimo for ordering food in a restaurant so that you can bypass the wait for a server. There are websites like Twitter and Instagram that offer more and more choices for social connection, no matter how redundant. Unfortunately, these types of products reach the largest audiences and monetize the most easily in the short term, which explains the overabundance of these companies. A parody website, firstworldproblems.biz, highlights this issue — you select a ridiculous problem and it spits out a surprisingly popular app or website that will solve it. For example, clicking “I need entertainment, but deciding which link to click is difficult” redirects you to StumbleUpon.com. Ultimately, there is a limit to demand for apps and websites that no one really needs. Most of these recreational but unnecessary companies aren’t going to make it.
For example, Formspring, a social media site that used to be popular a few years ago, recently closed down its site. The CEO had stated in March 2013 that it had “been challenging to sustain the resources needed to keep the lights on”because the site simply wasn’t popular anymore. Although it was taken over by new management in a last-minute save, it has sunk a long way since just 2011, when it raised $14 million in venture funding and boasted 28 million users.Even start-ups that used to be extremely popular can fail quickly, especially without a solid monetization strategy, dragging its investors down with it.
The ease with which new start-ups can raise capital heavily contributes to this feeling of congestion in the start-up market. With investors trying to get ahead in the investment cycle by investing large stakes in seed-stage companies (following the successful Y-Combinator accelerator model) along with the low cost of barrier to founding an app or Internet start-up, the market has become flooded with ideas, both good and bad. This makes it harder for individual start-ups to corner enough of the market to survive.
Although many start-ups have had success stories, the vast majority will fail. There are many positive aspects of working for a tech start-up, but I’m sensing a confidence about the start-up industry around campus that should be tempered by caution. The start-ups that are more likely to survive are the ones that can diversify and branch out. Social media websites and mobile app companies must have a long-term appeal and a loyal customer base to keep from fizzling out the way Formspring did. Finding a good start-up to work for could also entail moving away from mobile and consumer web to enterprise software and hardware companies. These kinds of companies will have a less fickle consumer base and monetize more easily than social media and apps. The start-up world seems to be growing limitlessly at the moment, but students should refrain from jumping in headfirst. Choosing the right start-up with long-term growth potential is the only way to weather the storm when the bubble bursts.
Barbara Zhan is a sophomore from Plainsboro, N.J. She can be reached at barbaraz@princeton.edu.
Read More
On encampments, free speech, and ‘time, place, and manner’ rules on university campuses
Christopher L. EisgruberPresident Christopher Eisgruber ’83 comments on encampments, free speech, and “time, place, and manner” rules.
President Christopher Eisgruber ’83 comments on encampments, free speech, and “time, place, and manner” rules.
Princeton needs to be a climate justice leader — emphasis on the ‘climate,’ emphasis on the ‘justice’
Alex Norbrook and Eleanor Clemans-Cope“Princeton must not only withdraw its support from injustices, but also positively re-invest in sustainable and community-informed initiatives.”
“Princeton must not only withdraw its support from injustices, but also positively re-invest in sustainable and community-informed initiatives.”
Princeton must move towards a world-changing curriculum
Luqmaan Bamba“If we in the Orange Bubble are supposed to be taught how to be changemakers, our education should not just stop at learning about change but also extend to the tangible application of it.”
“If we in the Orange Bubble are supposed to be taught how to be changemakers, our education should not just stop at learning about change but also extend to the tangible application of it.”
