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John O'Neil


New Silicon Valley Bubble?

Posted: 06/20/2012 9:43 am

Did the Facebook I.P.O. sputter portend a new bubble or was hubris at play? Two 27 year olds spend a Saturday negotiating a billion dollar deal and tell their respective boards about it after the fact. Can this report be true? Did Facebook acquire Instagram with only 13 employees and no get-to-money plan for this huge sum? Such rumors zip around Silicon Valley and raise the question: how big and how soon the next bubble? And are Mark Zuckerberg and Kevin Systrom the newest posterboys for "bubble-ish" Silicon Valley, as Kara Swisher of the Wall Street Journal called it?

When I wrote Paradox of Success in 1994 I hoped to provide bubble warnings by looking at what success -- lots of it too soon -- does to peoples' lives. Absurd amounts of money in the hands of young investors went after equally inexperienced entrepreneurs. Result: terribly crafted deals and inflated people. When the dizzying dance stopped, lots of carnage was left. Is that dance starting again?

As it happens I had recently listened to Silicon Valley leaders and yes, they saw signs of hyper-growth in housing prices, office space, cloud warehouses and so forth. But, they felt people were more cautious than during the last bubble build-up. Disturbing numbers were quoted to show how fast the Valley was expanding. Other signs of ominous growth are found in the large immigration of professional helpers who are coming to serve the next wave of young multi-millionaires. Some observers opine that the wave of helpers itself is creating early bubble symptoms. When the numbers of professionals seeking to support the about-to-become super rich kids at Facebook, Zynga, Twitter, Foursquare, et al reaches a tipping point, the growing bubble will pop. (The actual date when that will happen will cost considerable money: write for details.)

Let me offer a three-point warning:

• To those now surfing the developing wave, get off as soon as possible. Cover your stock positions, redress your growing outgo, protect your kids by setting a good example of "near normalcy." Get help in addressing your own shadow issues.; greed, hubris, "expansionism" (second and third homes and vast wine collections), closed-loop social life (spending time with only those like you).

Be sure and select your advisors and therapists wisely. There will be a severe shortage of good ones and a surprising number of quacks and charlatans who will appear magically to help. Find and treasure true friends, get involved in hands-on-service, join a 12-step group if indicated. There will be lots of swollen egos and bubbling parties to avoid; please do so. Grow vegetables, raise chickens, start a terrible garage band. Create new learning ventures as you will definitely need them. Read "hero" books like Steve Jobs' biography and cry for his massive losses and show gratitude for the road he traveled that you can avoid.

• To those who would flock to serve the latest Silicon Valley gold miners: its already too late. By this warning I am hoping to convince you to keep that gracious home in Cleveland and not disrupt your family and way of life to seek fool's gold. By the time you buy a smaller inflated house, and fight to get your kids into crowded schools, and figure out how to operate in the rather steamy, strange land of Silicon Valley, the scent of bubble gas will be in the air.

• To those who wish to make their packet by investing, especially from remote places with poor access to good local knowledge: don't! Regardless of how great some of these bubble companies may become, speculators will so distort the prices that logical, careful strategies will be impossible. Besides, insiders always get in early.

Entire new sectors like social networking, cloud plays, game apps, have become hard to read even by on-site veterans. The investment scene is weird, wild and warped already. Ask yourself how are you so well positioned and why are you so smart that you can beat the experienced locals already steeped in frustrations.

If you are playing with clients' money and wish to get closer to the action, please consider what you may do to your personal life and family. See the movie, The Social Network, again. The US is a magnet for bizarre investors and buyers of all kinds: modern art, ski resorts in Wyoming, New York penthouses. Each generation finds lots of greedy fools rushing to replace the last batch. In the '80s & '90s it was Japan and Latin America's rich individuals and corporations buying up overpriced US real estate, vineyards, and resorts. Now it's fat wallets from Asian and Russia from places most Americans can't pronounce. Only now, thanks to Silicon Valley companies, fools can find their way to make clever investments via the internet. Thus turning the Valley into Vegas. "Caveat Emptor" was never more appropriate.


We may have a few more good years and I hope we do. And I don't expect many to follow my warnings since Paradox of Success book didn't slow folks down. But for those who did take a good look at the dark side of their nature, their hidden self inflation and avarice, alarms went off and they got healthier, wiser and wound up much better off.