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How to survive another bubble bursting

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How to survive another tech bubble burst
How to survive another tech bubble burst

Tech start-ups are in a quandary. They need to prove to potential investors that they have what it takes to live through what could be another tech bubble bursting. But in order to do that, they may need to already have some financial backing.

Like not-so-small tech companies including Twitter and LinkedIn, start-ups need to prove that they're built to last and have the cash resources they'll need to grow, according to S&P Global Market Intelligence analyst Scott Kessler, who covered the rise and fall of tech firms during and in the aftermath of the dotcom bubble.

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"Twitter's ad revenue is still rising … but as user growth slows, it becomes more and more important to ask whether Twitter can continue to grow revenue if it can't substantially increase its user base," said Debra Aho Williamson, principal analyst at research firm eMarketer. "Figuring out how to keep the revenue engine going even if usage doesn't grow should be a major focus," she said.

And to avoid failure in the current tech start-up environment, it could help to look at the results of previous tech bubbles, experts say.

"There were a number of companies at the turn of the century that really had very immature business models, they really hadn't demonstrated they were solving a big problem, that they were good stewards of capital," said Rocket Lawyer CEO Charley Moore in an interview with CNBC. Moore's firm provides legal services and advice to small business owners including tech start-ups.

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Like Moore, many embedded in and tracking the start-up world seem to agree that future success is not just a matter of concept and popularity, it's about having a product that makes lives easier and a solid business model that promises sustained profitability.

What's more, start-ups should focus on differentiating themselves from competitors, providing value and operating with lean organizations, S&P's Kessler said.

"I wouldn't characterize what's going on now as a bubble, necessarily, but I would say that we are undergoing a correction ... where companies are going to have to pay more attention to the bottom line and margins than perhaps they had in the last couple years," Moore said.

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Ultimately, investors need to have faith that a company can deliver the revenue growth it they're expecting.

"It's not that available funds for start-ups will be going away, but that funding will be provided to fewer, proven companies with the right unit economics or efficiencies, for sustainable and scalable businesses," said Keith Moore, CEO of Coverhound, a San Francisco insurance information start-up partnered with Google.