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Tech ventures running lean but upbeat

Entrepreneurs attending a South by Southwest festival focus on innovation instead of the economy.

March 18, 2009|Dan Fost

AUSTIN, TEXAS — With tech-savvy entrepreneurs planning their next ventures and pulsating parties packed with digital hipsters, this year's South by Southwest Interactive Festival didn't feel like an event on the verge of Great Depression 2.0.

But underneath it all lingered the reality: Tech company valuations have tanked, venture capital has grown scarce and Americans are obsessed with conserving cash.

Nevertheless, many techies here this week felt, if not quite insulated from the economic shock wave battering the country, then at least hopeful that they could help the recovery.

"There's a feeling of optimism, and out of that comes great new ideas and business models," said Hugh Forrest, who runs the interactive festival.

Attendance at the music and film festivals of SXSW, as it's known, is down this year. But when he's finished reviewing the numbers for the interactive portion, which ended Tuesday, Forrest expects an increase of 10% to 15% over last year's record 9,000 attendees.

Many of the attendee-crafted panels ignored the economy to focus on emerging trends in mobile technology or how to use Facebook, Twitter and other social media.

That didn't stop attendees from trying to learn from previous busts. One session, "What do I do with myself, now that the economy has collapsed?" featured veterans of the dot-com crash of 2000 now running leaner businesses.

Surviving that to see Web 2.0 companies emerge has infused some entrepreneurs with the discipline to make money from their businesses sooner and the confidence that things won't stay bad forever.

"Broke is the new chic," said Bryan Mason of San Francisco, who led a panel that urged people to quit their jobs and start new ventures.

Mason left Web firm Adaptive Path Inc., Jeff Veen left Google Inc., and together they started Small Batch Inc., whose first venture created a new way of looking at Wikipedia information.

"We did a little consulting to put some cash in the bank, and now we pay ourselves a sustenance wage of 25% of our old salaries," Mason said. "We opened an office in the Mission [neighborhood of San Francisco] where we can walk to work, there are cheap burritos all around and you can get $2 beers, and everyone around us is boot-strapped."

Christy Canida, the community and marketing director for Instructables.com, a San Francisco company that gives ideas to do-it-yourselfers, said she and her chief executive agreed to come to SXSW only if they could keep expenses below $1,000.

They were nominated for an award, so their admission was free. They found a cheap 6:40 a.m. flight. They took a 75-cent bus from the airport. And, though Canida is six months pregnant, they're sharing a hotel room with the chief executive of another Internet company.

"To a great extent, we know what this looks like," said Canida, who went through the dot-com cycle. "We're keeping our head above water and budgeting for the year ahead. People need to be taking those measures now instead of at the last minute, when the company is about to go under."

In the video game panels, people in their 20s gushed about ways to start new things that may catch on even during the recession.

"The iPhone and other mobile devices have helped create new business models for a lot of these people," said Gus D'Angelo, an animator from San Francisco. "Now they can sell games and applications for small amounts."

Some companies do have a window on the country's wider economic struggles, particularly personal finance websites.

The worse things get, the better these companies seem to do. Mike Ferrari, CEO of SmartyPig, a Des Moines company that combines banking and social networking, said he's added five times as many new users this month as he did last month.

Aaron Patzer, CEO of Mint .com, a personal finance site in Mountain View, Calif., said its users were spending an average of $4,300 a month in January 2008. That figure rose with tax refunds last May and June. But since the economy went into free fall in August, spending has tumbled 16% to $3,600.

"Budgeting is very hard to do," said Gartner Group analyst Stessa Cohen, who moderated a panel on finance with Patzer, Ferrari and others. "Usually you have to get divorced or go bankrupt to do it. But all of a sudden, we're savers, because everyone is scared to death."

Just don't talk about fear in the convention center halls. Laura Mayes of Houston just quit as a vice president of a public relations firm to focus more on her start-up, Kirtsy .com, a news and information aggregation site for women. (She also plans to spend more time with her young son.)

"I'm walking away from a huge salary. I'm an idiot," Mayes said. "But I once asked my grandmother what it was like to live through the Depression, and she said, 'No one had any money, so no one knew we were poor. No one was trying to keep up with the Joneses.' "

"Now I'm embracing my precious Jewish grandmother's words," Mayes said. "It makes me very hopeful to do this."

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dan.fost@danfost.com

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