Many ad technology companies will fail in 2012, or shortly after that. Ok, that may be too harsh, and may be too specific. The reality is many businesses, in general, will fail in 2012. However, the reason I point to ad tech companies is because of what happened in 2007.
According to the U.S. Small Business Administration, at least 80% of new businesses will fail within five years of their start date. There is no exception when it comes to tech and digital media start-ups. This statistic shows the wild ride we’re expecting in the coming months.
To explain my logic, let’s take a trip back to memory lane, before 2007. Let’s look at 2005. Back then, a small start up named Right Media came into that market. It had ambitions to be big. It had ambitions to create a new form of ad buying and selling in digital media. It achieved both, which led to it being sold to Yahoo for $850 million in 2007 (full disclosure: Right Media was a Horn Group client until its acquisition).
I don’t know if founders of ad tech companies were inspired by Right Media specifically. Surely there were other major acquisitions at roughly the same time (DoubleClick) that were equally inspiring. However, what Horn Group soon noticed was a digital media and online advertising start-up boom in that same year. Many of these companies were also created in 2006, but were operating in stealth. They decided that 2007 was the year to come out in full force.
Back we are to 2012, the five-year mark for these companies is coming (if it didn’t eclipse it already). Judgment day may be coming and it will be interesting to see who emerges beyond this year, and in what state.
What does this mean for five-year old digital media businesses? If they have been well-funded, then they’ve got time. Of course, “well-funded” is a relative term. Furthermore, these companies are not out of the woods, as a majority of startups don’t make it past ten years as well.
For other companies who haven’t raised boatloads of VC money, the focus is finding a way to make a profit (or even just decent revenues) or finding an exit. If they haven’t figured out how to make money by now, then they’re in trouble. This year could be their last shot.
Small business growth is the driving force behind economic expansion. They create jobs, increase lending and spur innovation. What will happen to these if many ad tech companies fail this year? Could there be a flood of talent in the market that surviving companies can harness? Or could it create new resources for new companies being created this year?
The answers are coming soon. Increased competition, the five-year countdown, and the pressure to stay competitive have set the stage for a very interesting show.
What do you think? Will companies fail this year because they’ve hit their five-year mark without making any business impact? Will they fail for other reason? Will they not fail at all?