Lessons From The Dot-Com Bubble Crash That Businesses Should Be Using In Today's Recession
WHAT WAS THE DOT-COM BUBBLE?
For five years, from 1995 to early 2000 the NASDAQ index rose rapidly with newly listed companies, mainly consisting of organisations in the internet service, or technology fields. These quickly became known as “dot-com” companies. Many of these were start-ups with little, or no record of profitability, and or, with unrealistic business models.
During that period, the technology dominated NASDAQ index’s overall value rose almost seven-fold. This rapid incline mirrored the early enthusiasm of the investors in dot-com companies. This in turn, created many of the newcomer’s stock prices to skyrocket, turning their company owners into millionaires over night.
Investors continued to pour money into the start-ups, even those with debt that had no realistic hope of making a profit. This overconfidence from investors led shares of the dot-com organisations to be priced far higher than their true value.
Many investors convinced themselves that the traditional factors that value a company’s share price, such as current assets, debts, revenue, profit margins, market share, and cash flow were not directly relevant to assessing the future performance of dot-com organisations – especially start-ups
WHEN WAS THE DOT-COM BUBBLE CRASH?
Making borrowing more expense, the U.S Federal Reserve announced an increase in interest rates to avert inflationary pressure in the year 2000. This necessary action to reduce investment capital, meant that between March 2000, and October 2002 the NASDAQ index fell almost 80% – erasing all of its gains during the dot-com bubble. By end of 2001 most publicly traded dot-com companies failed, and the bubble burst.
FOUR LESSONS FROM THE DOT-COM BUBBLE CRASH
What can we learn from past recessions and crashes? Below I highlight some lessons from the dot-com bubble crash from Peter Thiel’s book, ‘Zero To One’ that can still guide businesses today.
You can buy the Peter Thiel book, ‘Zero To One’ from my non afilliated link here
- Make incremnetal advances. Small incremental steps are the only safe path forward. Grand visions inflated the bubble so they should be indulged.
- Stay lean and flexible. All compnaies must be “lean” – meaning unplanned. Try things out, “iterate” and treat entrepreneurship as agnostic experimentation.
- Improve on the competition. The only way to know you have a real business is to start with an already existing customer. Build your company by improving on recognisable products already offered by successful competitors
- Focus on product not sales. If your product requires advertising or sales to sell it – it’s not good enough. The only sustainable growth is viral growth.
UK RECESSION
It was announced on 15th February 2024 that the UK had fallen into recession. This was said to be primarily due to people cutting down on their spending.
If a country’s economy fails to grow for two consecutive quarters, then it is in recession. According to official reports, the UK economy shrank by a larger than expected 0.3% between October and December 2023, and shrank by 0.1% in July to September 2021. However, the UK’s economy grew by 0.1% for the whole of the year.
Excluding the COVID years, the 0.1% rise is the weakest since 2009 when the UK and other major economies were disturbed from the global financial crisis when bank lending almost halted.
However, the UK is not alone in facing this recent economic pressure. The European Union narrowly averted recession in the second half of 2023, while Japan confirmed its economy had contracted for a second quarter.
YOUR THOUGHTS
What’s your thoughts on the current UK economy? How long do you think we will be in recession for? Are recessions a good thing, should we embrace the fall in economy so we can start to build it back up again, only stronger? Let me know what you think.
How To Go Forward
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