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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>

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