In light of the recent
e-commerce industry
imbroglio, fingers are being pointed
at the hype surrounding the emergence of the
Internet as both a professional tool
and a household convenience. The propagation of the notion that all things Internet-related
would be successful was aided particularly by the blatant disregard of
sensible
business practices by
investors,
entrepreneurs, and the general public.
Investors did not have the insight to realize that startups were not any more
profitable a business venture than any other. What with their impression that
anything involving the Internet would surely grant them millions of dollars,
they backed many a new company, almost blindly. In his article "From
dot-com to dot-bomb", Bryan Aubrey writes:
A couple of years ago, it seemed that the smartest and quickest way to
make a million was to ride the 'dot-com revolution.' It seemed as if anything
connected with the Internet was golden. Venture capitalists were doling out
start-up loans as if success was a foregone conclusion.
Venture capitalists were all too eager with investments in companies 'going
online'. Money would be coming out of everywhere if one declared his company
to be a proponent of the e-commerce industry, armed only with an idea that had
the possibility of turning a profit.
The unfortunate truth, as it was revealed and sadly discovered by these investors,
was that not all these ideas were sound or made plenty of business sense - let
alone dollars. In fact, a good majority of these ideas did not sell (not well
enough to stick around the market to pick up a profit, anyway). If the businesses
lost money, the investors lost money. To bring up what most economists all over
the world were wondering, Aubrey asks:
Why had venture capitalists... been so eager to back shaky or wild business
plans..?
Why did they? It was, as Aubrey suggested, "simply because the word
Internet kept appearing in them". There is no denying that it was the
allure of the Internet that brought them in, wallets open and eyes sparkling
with fascination. Perhaps it was the speed in which the electronic medium operates
that brought a new kind of "acceleration" to the idea of investment.
Internet companies would yield quick results, as is the nature of the medium.
It is not too great a departure from logical thinking to somehow deduce that
the turnaround with financial investments would follow accordingly.
Small-time venture capitalists and other part-time investors were not the only
ones who fell sway to the buzz surrounding the World Wide Web. Even large companies
who have stood the test of time with formidable experience and business know-how
fell victim to the craze. Scott Rosenberg writes in his article, "CueCatastrophe":
What's interesting about the CueCat fiasco is not that it happened but
that large and ostensibly savvy companies chose to invest in the loony scheme.
A recent Wall Street Journal article reported some details: Digital Convergence
got $37.5 million from Belo Corp. (the media company that owns the Dallas
Morning News), $30 million from Radio Shack, $28 million from Young &
Rubicam and even $10 million from Coca-Cola.
To this, he adds in an almost incredulous voice:
What were the titans of business acumen who lead these blue-chip companies
thinking?
When these businesses crashed, millions of venture capitalist dollars went
along with them. These days, VC, big and small, are a little more cautious in
the dispensing of their funds.
Entrepreneurs, armed with ideas and enthusiasm, foolishly believed that was
all they needed to run a business online. If it was on the Internet, that was
all it would require. Bryan Aubrey writes:
Young, Web-savvy entrepreneurs enthusiastically set up e-companies, believing
that before you could say dot-com they would be driving Porsches up the driveways
of their newly purchased million-dollar mansions.
To this, he makes the addendum: "It didn't quite work out that way."
These startups often did not have enough savvy to understand the need for a
market niche or a sound business plan and/or methodology. In addition, the owners
or founders did not know how to run their own companies. In an article entitled
"The dot-bomb museum", Paul Andrews briefly mentions Netslaves,
a website whose sole purpose is to compile "the accounts of employees
'burned by the incompetence, moronic planning and hysterical management of new-media
companies'." Many online forums have been developed for casualties
of the e-commerce experience in the wake of the startup boom and its following
crash.
What with things not operating efficiently from within their foundation, these
new businesses would inevitably drive themselves, as well as any investor who
came along for the ride, to the ground. From Scott Rosenberg's article:
It's pretty obvious that any business launched without a clear vision
of how to sustain profits isn't destined for longevity... But in this post-dot-com-downturn
era, it does serve as a healthy reminder that a business model is not the
only thing you need to build a company. It helps to have customers, too.
The truth of the matter was revealed that a startup was not some sort of magical
device where venture capitalists put money in and out comes more money for everyone.
What was discovered was that a startup was just like any other new business
trying to eke out a living of its own. It needed to make sense in order to make
money. And it needed to keep up in order to keep on making money. Having ties
to the Internet was no guarantor of success.
A commonly held belief was that anyone with an idea and funding could just
go ahead and make themselves rich through the vehicle called the Internet. Many
went with this belief. A good many have failed. These failures, up until recently,
were not widely known. The general populace was still under the impression that
dot-coms, startups, and e-commerce were the way to go. Katherine Mieszkowski
writes in her article, "Dept. of 'Oops'":
"I'm under a lot of pressure at home to be successful. My wife thinks
that I can do anything, and she doesn't understand why all her buddies are
millionaires and we're not,' bemoans the chief technology officer of a start-up."
It was understood that going from the mere conceptual stages of business planning
to actually conducting business was a simple transition made possible with outside
money. Now with the aftermath of the online business drama, the public at large
is learning more about what went wrong. Mieszkowski continues:
But now that the stock market bubble has burst, a bad case of dot-com
fever has made a lot of very smart people look really, really stupid.
It is now becoming common knowledge that being business-minded plays a significant
part in running one's own company, even if it is online. It should be worth
pointing out that the entrepreneurs of tomorrow are made of members of the general
population today.
In the article "From dot-com to dot-Bomb", Aubrey writes:
In the year ending October, 2000, more than 117 dot-coms failed, according
to Boston Consulting Group. Over 51,000 workers have lost their jobs since
December, 1999.
There have been a large number of casualties incurred by the dot-com craze.
Ghostsites, for example, is a website devoted to capturing screenshots of dot-coms
that have moved on over to the classification of dot-bombs. In reviewing that
site, Paul Andrews writes in "The dot-bomb museum":
Today he adds 60 to 100 sites a month, about half of them sent by ghostsite
fans. He expects to have 400 sites posted by the end of May.
It is hard to believe that there was a time that investors came running with
checks in hand if you breathed the word 'Internet' in their general direction.
In that same vein, it is fairly incredulous to understand that those who only
had an idea but not the know-how to run a business wanted their own company
and that, for some reason or other, "Internet" was commonly
believed to be another word for "guaranteed success".
For what reason could business savvy disappear from everyone's minds especially
since so much money was involved? Aubrey has one suggestion:
The common factor seems to be that normally sensible people get carried
away by the appearance of something new in the world and lose their business
judgment.
Hindsight, they say, is 20/20.
Sources
- Andrews, Paul. "The dot-bomb museum" ContraCostaTimes 3
Jun 2001. 26 Jul 2001. <http://www.contracostatimes.com/biztech/stories_business/o3deadweb_200
10603.htm>
- Aubrey, Bryan. "From Dot-Com to Dot-Bomb: The Internet Boom
Comes Down to Earth." Fast Times. 26 July 2001. <http://www.fast-times.com/sp-01dot.html>
- Baldwin, Steve. "The Museum of E-Failure." ghostsites.
26 August 1996. 26 July 2001. <http://www.disobey.com/ghostsites>
- Brown, Janelle. "Bitch, bitch, bitch." Salon 1 February
2001. 26 July 2001. <http://www.salon.com/tech/feature/2001/02/01/vault/print.html>
- Langdoc, Scott. "Staffing, retention in the dot-bomb era."
eWEEK. 20 May 2001. 26 July 2001. <http://www.zdnet.com/eweek/stories/general/0,11011,2760483,00.html>
- Mieszkowski, Katharine. "Dept. of 'Oops'." Salon 25 July
2001. 26 July 2001. <http://www.salon.com/tech/feature/2001/07/25/wild_start/print.html>
- Rosenberg, Scott. "CueCatastrophe." Salon 11 July 2001.
26 July 2001. <http://www.salon.com/tech/col/rose/2001/07/11/cue_cat/print.html>