The dot-com shakeout
is old news. But there’s a wealth of lessons all of us can learn from
the excesses, waste, greed, and well, human stupidity of failed dot-coms.
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At the height of the dot-com craze, monies and stock options were pouring
like there was no tomorrow. Venture capitalists were showering ridiculous
amounts of money to any business that ends with a dot-com. It seems that
every Dick, Tom and Harry (and a few home business enterprises) could get
their hands on investors’ pockets, even without a business plan,
technology, experience, or even a product!
Those who got VC money crowed about it all over town, wearing it as a
seal of approval for their entrepreneurial fortitude. Of course, a year
later, things began to crumble. The weaklings were weeded out, and only
those with valid business models remain. The question, “What were they
thinking?” now reverberates throughout the business world.
 “F’d Companies: Spectacular Dot-com Flameouts” (Simon and Schuster;
April 2002) by Phil Kaplan looks back at what went wrong to the failed dot-coms.
Kaplan is the creator of the dot-com deadpool F*edcompany.com, a
mega-popular site that chronicles the layoffs, the bankruptcies and the bad
behavior of the Internet players written in an irreverent style. His is the
site that you go to if you want to check on the latest news about failed and
falling companies.
The book is a good read (if you could focus beyond the expletives). It
contains accounts of over one hundred failed companies, each with one “spectacularly
stupid idea that managed to burn through millions of dollars and leave
behind scores of pink-slipped employees.” His colorful anecdotes and
factoids reveal big lessons from big mistakes that every Internet
entrepreneur should take to heart.
The book provides a cautionary tale of how not to conduct business in the
“new” economy, and below are some of the lessons that Kaplan shares:
1. Never pay more for products than what it is sold
for. In an earlier
effort to attract customers, merchants were almost giving away the store.
Prices were cut way too low, often sacrificing margins. But then again, who
was looking for profits back then? It was just eyeballs, eyeballs and more
eyeballs.
WebVan
“Uhh … okay so raising and burning through more than $1
BILLION (that’s billion with a “B”), the online grocer WebVan gained
notoriety as being one of the biggest dot-com failures of ‘em all. The
grocery business is a penny operation. Margins are razor thin. The most
successful grocery retailers are big chains that buy in bulk, sometimes
directly from the manufacturer. WebVan just didn’t have the buying power,
infrastructure, or demand to compete.”
2. Find products that are suited for the Internet. One cardinal rule of
doing business on the Internet is that not all products can be sold over the
Web. Some products lend itself better on this new business medium than
others.
Pets.com
“I’m out of dog food and my cat’s box needs new litter. I
know what I’ll do: I’ll order Dog Chow and Fresh Step online from a sock
puppet and then I’ll watch the dog starve and the cat sh*t all over the
house while I wait for it to be delivered… They should have sold actual
pets and shipped them UPS better margins.
3. Avoid products where shipping costs become too prohibitive. If your
products cost more to ship than the product itself, then you are in trouble.
If potential shipping delays can wreak havoc on your customers from
missed Christmas presents to spoiled steaks -- say bye-bye to your
customers.
Furniture.com
“After spending $2.5 million on their domain name,
Furniture.com discovered that UPS wouldn’t ship bulky items like sofas and
tables, and they were forced to use more expensive shipping alternatives.
‘There were many cases when we would get an order for a $200 end table and
then spend $300 to ship it. We never could figure it out,’ one former
Furniture.com engineer told CNET’s News.com.”
4. Customers don’t want all services to be digital. Dot-coms discovered
that many customers are not willing to change their buying habits. Customers,
based on age-old habits, buy some products in a particular way: they need to
try on
a pair of shoes before buying; they smudge the lipstick to see if the
color works well; and they examine antiques upfront to determine if the
piece is worth its price.
BeautyJungle.com
“I’m no make-up expert (not that there’s anything
wrong with that…), but don’t you try it on or smudge it at least before
you buy it? Far as I know (and apparently what online makeup retailer
BeautyJungle.com, found out) is that people don’t trust the pixels in
their computer to compare one shade of red lipstick to another …I’m just
pissed off cuz I looted through their garbage but couldn’t find what they
did with all that leftover hand lotion … Financed with $23 million and no
hand lotion. Shame”
5. “Give it away now and profit later” leads to big trouble now,
bankruptcy later. This also covers dot-coms that spent $1 million a month
(even more) on ads to generate traffic, and to worry about profits later.
Many of these companies quickly burned through their cash.
BitLocker.com
“BitLocker.com had an easy-to-use system for building
dynamic websites that required no database application platforms on the
server… It was useful, it was easy oh yeah, it was FREE… They prided
themselves on helping their ‘customers’ save money because they no
longer had to spend ‘thousands of dollars’ on application platforms,
databases and staff. I can see it now, ‘At Pud’s Auto Emporium, we save
you THOUSANDS of dollars by giving you cars for FREE, NO STRINGS ATTACHED!’
.. Originally funded with $10 million, BitLocker.com closed on June 15,
2001.”
6. Ahead of its time is a synonym for stupid. There must be a need for
the product. You cannot start a business and expect it to succeed if your
market is too small, or not ready for your offerings.
Z.com
”Z.com developed original programming for the Internet…
Broadband, fast shared Internet connections are cool and relatively cheap
… But simply put, 1999/2000 was just too early to sink a lot of $$$ into
something like this. Being first is one thing, but if you’ve only got
enough money to last for a year or so and the technology isn’t widespread
enough to SUPPORT YOUR BUSINESS, you’ve got a problem.”
7. Solution in search of a problem makes a bad business plan. Sad to say,
but many dot-coms simply weren’t thinking. Some only had an
iota of an idea; but since they had the right connections and pedigree, they still
were able to get funding for their businesses.
iHarvest.com
”I don’t think I’ve ever seen a more useless company
than iHarvest.com... It was a browser plug-in that allowed users to click a
button and magically store copies of web pages on iHarvest’s server…$6.9
million was invested into this company by people who apparently weren’t
aware that Internet Explorer and Netscape ALREADY DO THIS. THERE’S A
FUCKIN ‘SAVE’ OPTION UP ON THE TOP OF YOUR BROWSER, promise… They
discontinued service on September 28, 2001.
Kaplan shares many other lessons that you will find valuable. You may
never see the millions these dot-coms once enjoyed, but you can benefit from
their bad judgment, miscalculated moves and overall dumb ideas. After all,
they are now gone and you are still here working to make your small
businesses a slow-but-sure success.
The book will be available in April 2002, but you can reserve your copies at
Amazon.com today.
About the Author:
Nach M Maravilla is the
publisher of Power Homebiz Guides.
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