Tips to prepare yourself for Bust 2.0

An interesting graphic reprinted over at The Next Net shows the results of applying a somewhat novel method of valuing Web 2.0 startups. By correlating the few known IPO and acquisition numbers with Alexa traffic rankings, the CEO of eSnips came up with a chart that ranks sites according to their theoretical worth. According to her rankings, Wikipedia, MySpace, YouTube, Orkut, and Blogger are all worth upwind of a billion dollars, and another seven sites top the $500 million figure.

Let’s pause for a moment. If you buy that premise, you’re putting an $8.5 billon price tag on a dozen Web 2.0 sites. That’s around the market value of Pepsi Bottling, number 192 on last year’s Fortune 500 list. I don’t know about you, but equating a batch of cool social web sites with a company that delivers 200 million servings of soda pop every day seems just a bit out of whack.

Nobody likes to use the B word, of course, but “bubble” is turning up in more and more discussions of Web 2.0 these days. If your own web workerhood is characterized by a business plan of “let’s get a bunch of page views, and then someone big will buy us out,” this might be a smart time to do some planning against the disaster that we all hope won’t strike again. As a veteran of the dot-com crash of 2000, here’s my short list of things to think about:

  1. Put emergency living money in a savings account (or equivalent safe place) and don’t touch it. Three months’ living expenses is the traditional recommendation, or six months’ if you have kids or rely on a single income. Remember, if you lose your job because of a downturn, everyone else will be hunting too and it will be a lot harder to get a new job than it is now.
  2. Keep caught up on your tax payments. I don’t know why, but for all the people I know who ended up in financial trouble in 2000-2001, the IRS was a major source of pain. It’s easy to let the estimated tax payments slip on the assumption that you’ll have the money to cover the whole bill plus penalties next April – and deadly if you’re out of work then.
  3. Spread your eggs among multiple baskets. There are several dimensions to this. If you’re freelancing, try not to let any one client account for more than 30% of your billings. If you’re a developer, learn another programming language on the side to increase your chances of picking up more work in an emergency. Use user groups, conferences, and social networks to keep in touch with people: you never know when you might suddenly want to work that network.
  4. Don’t go down with a sinking ship. I watched a lot of people keep working for companies after the paychecks stopped 7 years ago, in the hopes that another round of funding would materialize. Unless you’ve got an ownership stake (no, stock options don’t count) and no other prospects, this is generally a boneheaded move. When a company is in such trouble that it can’t make payroll, it usually has enough other debt that you’ll never get paid even if someone does step in to buy it at fire sale prices. Move on before you start feeling like a complete sucker.

How about you? Are you starting to plan for the potential worst, or are you still in happy growth land? Have any other tips to share with the prudent web worker?