Business models – We think because of the current economic client and funding environment companies will be forced to focus on the business side of running a business in 2009. Closing the doors because you run out of cash is not fun for anyone. Investors will expect a real business model from startups and one that doesn’t start with, “Once we have 50,000 users…” We saw this start to happen last year at a facebook meet-up. Several people in the audience wanted to know how the top application developers were going to monetize their success. Short of acquisition, these companies didn’t have an answer. This year, they will need one. How about charging customers who use your software? Surely, if the product is valuable, people can spare $10 a month. Look at the iTunes App Store for an example of how to do this right.

Substantive content – The Internet has truly democratized content. You can post a video, publish a book, write a blog, become an expert, and really put any content you want online as soon as it’s done. But now, we consumers of content spend a lot of time searching for something worth reading let alone finding something we might remember or share. Many people who published perhaps shouldn’t have. Case in point, who better to know what’s funny or not than Will Ferrell versus some guy listing his video under comedy on YouTube? We predict in 2009 consumers of content will focus more on content they can validate or that includes some level of credibility. Sites that have credible subject matter experts or support validation of content should garner more attention in 2009.

facebook is valuable, but social networking is a feature – My non-tech family members are on facebook. The Today Show just did a segment recently about parents invading their kids playground. I even saw some not so flattering pictures of my nephew at his first year in college. facebook may not be worth 15 billion anymore, but we definitely see a new surge of friend requests and many are coming from the least likely of usual suspects. The increased user base will renew the interest in facebook and reverse the declining valuation trend. On the other hand, many other social networking sites are struggling as most companies now include common features like invites, friends, posting, sharing and profiles. We suspect it will be hard for social networking destinations to prove their value in 2009 except for those already well established like LinkedIn for business and facebook for consumers. Look to facebook, and LinkedIn, to grow their dominant position but also for them to introduce new ways to generate revenue for themselves and those around them.

Bootstrapping – As the funding pendulum swings back toward tighter controls and stringent valuations, more and more innovators will resort to the garage startup and working a day job to fund the night job. Founders won’t want to give away ownership, nor invite board members into their decision space, unless the money is good and the cost not so bad. Those caught in this downturn or in the last one in 2001 remember what it means to lose control of your company to investors. Founders will choose to retain ownership as long as possible even if their launch is delayed. We discuss the impacts of various funding models in a previous post.

The New New New Thing – It’s time for new ideas. Calling your company Web 3.0 is not a new idea (notice the version 3 in the name). Tweets. Blogs. Wikis. Community. SaaS. Good stuff that came out of Web 2.0 and before. But people are no longer interested in a new twist on an old idea. The companies that establish a new product category in 2009 will be pleasantly surprised by increased interest from people tired of hearing about yet another way to send a message or post content.

Fast launch – Is the 6 month launch obsolete? Is the 2 month launch simply a bad idea let alone doable? We provide our opinion in this post. The latest trends in development languages and technologies, especially Ruby on Rails and cloud computing, enable faster launch times through quicker process and less over-head. Development teams will be forced to make hard trade-offs this year as they struggle to meet the demands of an evolving market and shrinking development cycle.

Please let us know what you think of our predictions and what you think will be important in 2009.

Some very lucky people were at technology startups around 1995. Companies going public prior to 1995 were forced into a strict reality of profitability. The general rule of thumb was several quarters of profits before you IPO. Then Netscape went public in 1995 with no profits and based on the hope, or should I say the hype, of the emerging Web. Look what they started by offering hype above reality. Their success changed the game for what was required by companies to create value in the market.

Imagine what may have happened to you if you believed in hype back then. Development of Hotmail started around 1994 and Microsoft bought it for $400 million in 1997. The product was just email in a browser which is something most developers could create in a weekend with PHP and the mail API. Broadcast.com was started in 1992 as online radio. In 1998, it went IPO and a year later was bought for $5.7 billion. The founders of Netscape, Hotmail and Broadcast.com were looking for the next great thing when most of the industry was stuck in reality.

Then the boom hit.

Everyone came flocking to the Internet and companies were starting all over the place. Idealab!, an Internet incubator, was working on creating a company a month. A company a month! How could that possibly lead to success? It takes years to build a great company. Yet, in 1999, 457 companies went public and a quarter of those doubled in the first day. If you define success by a liquidity event, then clearly success was to be had by many.

One of the most discussed business models was the land grab, a.k.a. the Amazon.com model. Don’t worry about profits or debt, just get as many eyes on your site as possible and stake your claim. Amazon incurred what felt like mountains of debt, and in the end out spent their competitors to success, though I don’t mean to trivialize the other aspects of their impressive execution. While some companies succeeded in this great California gold rush, like eBay and Amazon, many more did not. Why?

The bottom fell out.

In 2001, the stock market took a nose dive and the money dried up. A mere 76 companies went IPO that year. Most of the companies started during the boom went out of business or were gobbled up at bargain basement prices. What happened?

Companies were so focused on the hype and the land grab that they ignored one of the fundamental realities of business. When you don’t have any money, the doors close. Watch the movie Startup.com if you want to see this played out in real life.

Notables like WebVan, eToys, and Beyond.com floundered because they were caught up in the hype and expected the investor community to keep funding them. Had they paid attention to the reality of running a business that must pay expenses and do marketing to get customers, they could have weathered the storm and been the last man standing in a wide open field. Talk about a land grab. When hype implodes, the companies who come to their senses first will have the best chance of surviving.

History is repeating itself right now. The Web 2.0 movement emerged from the dust of the previous fire. The economy rebounded and money started flowing. Look at how many new companies are riding this wave, and as an aside, what’s up with those names???

Facebook is worth billions. MySpace sold for $580 million in 2005. YouTube sold for $1.65 billion in 2006. While many of us were just trying to stay employed, and others were switching back to their former careers, the savvy entrepreneurs remained dedicated to innovation and chance. Being at Google in 1999-2003, forgeddaboutit!

The movement was still hitting stride when some very notable investors in the valley revealed this presentation to the industry earlier this year. OK, to be fair, the economy was already in a funk. But yet again, those companies who were living on hype suddenly found themselves needing to preserve every dollar hoping they can reach cash flow positive before the lights go out. How many of these companies do you think will be around in a year or two?

What does this tell us?

If you believe Warren Buffet, then soon will be the time for hype again as everyone has just been forced back into the reality of trying to get through the crunch. Companies that have identified successful markets or products may run out of cash leaving a door wide open. Investors are preserving cash in case they need it to protect investments they have already made. How long do you think they’ll do that before they start looking for the next MySpace or Facebook?

Even more important, the companies that survive this contraction will be forced to become well-run businesses that effectively manage their bottom line. That in turn makes them attractive to investors provided the hockey stick growth is possible in their market. The money will flow again, that much is sure, if you believe Warren Buffet.

My advice to you is to let the market thin out for a year or so. Spend the time working in a stable job while you enhance your skills and brainstorm ideas. Then, when you have your next idea, a feeling you should definitely validate with all the smart people you trust, get started so that you will have a solid offering when money becomes more available again. That’s what I’ll be doing. I predict by 2010, the seed money will be flowing again. The best founders will not forget the lessons of economic down turn and opposing forces.

If you don’t think there are still great ideas out there, let me say that I still can’t check my voice mail when walking in my front door by just saying “What’s new?” I still don’t know how energy efficient my house is from reading a meter on my wall. I still haven’t worked on the product for my sister that I uncover in this post. And don’t even get me started about how many small businesses are still using desktop software.