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Burst this bubble! In praise of market downturns

Caroline Craig | Aug. 31, 2015
A stock market in free fall could have a chilling effect on Silicon Valley startups. It could also bring a return to rational investing and a renewed focus on good business plans

The New York Times' Farhad Manjoo is another who sees an upside to the downturn in Silicon Valley.   

The boom has made Silicon Valley soft: Companies are spending too much, investors are funding too many me-too ideas, and most founders have never had to confront any limits to their overweening ambitions. Venture capitalists won't quite say they are looking forward to a correction, but some do say that a bust could toughen the place up.

Others, such as Business Insider's Matt Rosoff, are optimistic that "instead of the tech startups vaporizing, the old inefficient businesses they've started to replace will finally topple over and die." He cites unicorns Uber and AirBnB as two such startups that save consumers money and could thrive in a downturn. On the enterprise side, Rosoff thinks companies looking to cut costs are "more likely to give newfangled services a serious look" to help squeeze more cost out of their IT infrastructure. "[If] the current tech darlings are actually disrupting older industries, why would that disruption suddenly stop just because the economy turns down?"

In the end, startups with good ideas will still prosper. After all, Google and Salesforce were born out of the dot-com bust. "This is a paradox of invention as well as of investing," writes Manjoo. "Bad times feed good ideas, which in turn lead to good times, which breed complacency, waste, and lots of bad business plans."

 

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