Web startups must up their game in tough economy

Web entrepreneurs shouldn't be spooked by the economic downturn and its accompanying tightening of venture capital and slower growth of advertising revenue.

Rather, they should see these challenges in a positive light because they will force Web startups to become more efficient operationally and to develop truly unique, useful products, said speakers at Web 2.0 Summit in San Francisco Wednesday.

[ See related story "Nine Web 2.0 startups beating the odds in down economy." ]

A common, defining characteristic of Web 2.0 technologies is their use of the network as a platform that allows problems to be addressed in new ways, leveraging the collective power of the user community, said Tim O'Reilly, CEO of O'Reilly Media, which is producing the event with TechWeb.

"Do you really think we're done yet with the idea of the network as platform? I don't," he said.

Web 2.0 holds the promise of tackling enormous global problems, which translates into equally sizable opportunities for the entrepreneurs that rise up to the challenge of finding solutions.

"If there is a silver lining in the downturn, it's that we're going to clear a lot of the clutter. We're going to remind people of what matters," O'Reilly said.

In fact, aiming for a larger good as a corporate goal is, ultimately, good for business because it inspires and motivates employees, said Larry Brilliant, executive director of Google.org, the search giant's philanthropic arm.

"Today, it's hard to recruit people into a company in Silicon Valley unless people feel it's a good company doing noble things in the world," Brilliant said.

Internet entrepreneurs with well thought out plans and products will find backers. "Good ideas will get funded," said legendary venture capitalist John Doerr, a partner at Kleiner Perkins Caufield & Byers.

Doerr said that in recent months his company has made nine investments in the Web space, including several tied specifically to iPhone and social networking applications . "We're doubling down on this [Web] opportunity, but doing it strategically," Doerr said.

To survive the downturn, Doerr recommends that entrepreneurs act decisively and quickly to secure financing, loans or, if necessary, sell the business. They should also be very conservative about spending by limiting, for example, software purchases that aren't absolutely needed, but aggressive about approaching suppliers to renegotiate existing contracts.

The tough times also call for entrepreneurs to "overcommunicate with everyone" and avoid sugarcoating at all costs, while fine-tuning research and development plans, Doerr said.

Those that adjust accordingly will emerge stronger, so it's crucial for start ups to not give up.

"While you're cutting things, above all, do not cut hope," Doerr said.