How to Benefit From the Lessons of Tech Stocks Free Falling

The stock market correction on tech companies on February 5th was chilling for some, but I believe it was a correction that will prove to be helpful. Joe Flyod’s TechCrunch piece got it right.

Most tech stocks are over valued, and many companies being overfunded aren’t ready for prime time growth yet. The good news is that market corrections like we saw on Friday will help us to avoid another tech stock bubble burst.

Startup investments have become a sexy trend over the past 8 years or so. Good for a few, not as great for many others, and driven more by FOMO than conscious planning.

The last few years of tech investment have been a bit like running with the bulls in Pamplona. It’s easy to watch the action increasing and think you need to jump in. Investing can be a good decision, but it’s important to vet the true potential value and chance for success of a startup before diving in.

A mixed outlook for 2106 funding means that there will be fewer investments, but the investments that do happen will be smarter. Investment dollars are expected to decline along with FOMO in 2016, but the number of non-VC funding continues to rise.

If you’re an entrepreneur this is good reminder to see where to cut costs, where to increase real value, reassess your current value, and plan on how to deliver more with less. Whether you secure more funding or not, being smart in how you run your business based on today’s resources is always helpful.

If you’re an investor this is a good time to do your due diligence before plunking down your future dollars. Assess whether the company has a solid plan to scale at a mature rate. Remember that companies that pivot once or twice are more likely to flourish. And most importantly, make sure the problem/solution fit is a great one.

Whether you’re an entrepreneur or an investor read the Startup Genome Report Extra on Premature Scaling. The main finding of the report is that 92% of startups failed within 3 years. Of those who failed, 74% failed due to premature scaling. These numbers aren’t new to most entrepreneurs, but the report also has good insights on how to increase your odds of succeeding. Fortunately we can learn from the failures and achievements of other companies.

While timing, market, business model, team and great execution matter, the number one thing you have to have to be profitable is a product (or service) people will pay for. This seems like a no-brainer, but a lot of people invest time and money on an idea they think is brilliant without first testing whether anyone will pay for it.

While the Friday free fall scared a lot of people, it can also be considered a moment of inspiration if we take a step back, breathe and then move forward with fresh eyes on how to best support our startups.

Brett Greene is the Founder of New Tech Northwest, the faster growing monthly event in Meetup.com history. He has spoken at the White House, was listed in the Forbes.com Top 35 Social Media Power Influencers of 2015, has appeared on NBC Television as a social media expert and has been engaged in community building, marketing strategy and execution, brand development, mentoring, and digital communication services for 15+ years.

You can connect with Brett on Twitter at @BrettGreene.