The Entrepreneur Bubble and How to Survive it

VC Peter Rip's latest post is about what he terms an "Entrepreneur Bubble". He says there are a lot of talented developers currently founding Internet companies - due to inexpensive computing resources, lots of VC money in the space, and a shared excitement over the Web 2.0 meme. Peter wonders how many will survive. He makes some good points, for example that these new Internet companies need to seriously consider how they will "sustainably differentiate" their product - given that a lot of other people will be developing the same or very similar idea.

Is this just a variation on the old 'survival of the fittest' evolution theory, as TechCrunch suggested in the comments? And more importantly, what are some of the characteristics needed for an Internet start-up to survive? 

Good business management is undoubtedly one of the factors that will determine which of the current crop of Web 2.0 companies survives long-term. Microsoft's Don Dodge, a member of their Emerging Business team, emphasized the importance of a solid business management team that will compliment innovative technology.

Listening to your users is also crucial. If a lot of users are complaining that your product isn't up to scratch or hasn't been innovating enough lately, then you should listen carefully. The blogosphere is a particularly important feedback mechanism in this respect. I'm reluctant to name names, but the recent example of Inform.com is illuminating. Inform.com, a start-up that employs 55 people, launched their product with the help of a NY Times feature article trumpeting it as "the ultimate newspaper of the future." The Inform.com team made some remarkable claims in that article. For example that their product "will perform information-delivery feats that its founders claim no other Web site can match" and "Inform.com is a media revolution in the making."

Trouble is, influentials in the blogosphere actually tried the product and came away distinctly unimpressed. Mike Arrington on TechCrunch panned Inform.com and called it "unusable". Rafat Ali on paidcontent.org said Inform.com "fails miserably" and predicts an early demise for it. Greg Linden, who has developed a personalized news service called Findory with just 2 employees in total, was also unimpressed by Inform.com.

I haven't tried out Inform.com myself, but my point here isn't to review their product. My point is that listening to the blogosphere is a good way to gauge whether a product or service is likely to be 'fit' enough to survive the Entrepreneur Bubble. Contrast the blog reaction that Inform.com got to the overwhelmingly positive reviews and uptake that Flickr.com got.

I'm not suggesting that blogs are right all the time. Some would argue the jury is out on the long-term business viability of del.icio.us, for example. It's a highly praised and well-used technology, but what are the business models for del.icio.us?

Budding entrepreneurs should bear in mind that it takes both a compelling, well-developed and differentiated product AND good business models and management, to survive the Entrepreneur Bubble.