Until the middle of 2000, the Internet economy was flying high, elevating the larger economy, not to mention the stock market and the portfolios of millions of investors. Then the bottom caved in.
During the first quarter of 2001, in the middle of the implosion, 164 Internet companies declared bankruptcy or shut down completely. This is a drastic increase from the five that did so during the first quarter of 2000, according to Webmergers, Inc., a market research company in San Francisco. Things have improved lately, though the shakeout continues, with 54 dot-coms failing during the first quarter of this year.
What’s a Net entrepreneur to do? Can you still make a profitable go of it in today’s leaner-and-meaner dot-com world?
Today’s Tips from Internet Entrepreneurs
Yes, you can, says Jim Romeo, author of the new book Net Know-How: Surviving the Bloodbath–Straight Talk from 25 Internet Entrepreneurs. You just have to think differently, and more traditionally, than many of the still wet-behind-the-ears digerati who created the dot-com bubble.
Based on his experience of talking to and writing about these 25 dot-com entrepreneurs, Romeo offered five pieces of advice in a phone interview:
1. Strive for profit, not just market share. In the dot-com heyday, Net entrepreneurs priced their goods or services below cost to gain market share, create a buzz, and attract venture funding. Many achieved wildly successful initial public offerings. Scores of millionaires were born virtually overnight.
The whole digitalada came crashing down when investors began demanding that Internet companies justify their sky-high valuations with hard earnings.
“Dot-com entrepreneurs today should go back to basics,” says Romeo. “The new economy is a misnomer. It’s just the old economy with a different look. You need to follow the same principles that created the industrial revolution and built the wealth of nations.”
2. Minimize your expenses. The failure to do this was the biggest culprit in the dot-com collapse, says Romeo. In the old days–two or three years ago–many Net entrepreneurs started off by hiring lots of people before they even had any market share. Lavish salaries and funky perks, such as Friday afternoon pool parties, were common.
Today, says Romeo, you need to better watch your cost of operation. Expenses should follow revenue, not vice versa. Don’t spend on head count and overhead and hope you can make enough money to cover your costs. “This is a recipe for bankruptcy,” says Romeo.
3. Be realistic about funding. It used to be that you could attract funding from venture capitalists by doing little more than writing a gushy business plan and including the word “Internet” in it.
There’s still venture funding out there for dot-coms, but it’s tight, says Romeo. “These days funding is usually given for ventures already up and running with proven track records,” he says.
To fund a new dot-com today, you have to either do it yourself or find “angel” investors–family members or friends or perhaps local businesspeople or philanthropists you know who are willing to bet the farm or part of it on your ideas.
4. Don’t expect overnight success. In the dot-com go-go days, the mentality was geared toward “instant gratification.” Too many people had too little patience for the grunt work necessary for long-term success.
You need to create a realistic business plan today, says Romeo, and monitor it over time. Give yourself enough time to achieve success. Expect to pay dues.
You also need to do market research. You can’t assume that if you build it, they will come. One reason many dot-coms failed is that people did not come.
5. Think twice about relying solely on the Web.“Pure-play” Web businesses–based strictly on the Web–have a smaller chance of success than those backed by a “brick and mortar” physical presence. Most Web successes have other sources of profit, says Romeo.
Despite the economies created by the Internet, many people still like to see and pick up what they’re considering buying. They also like to shake the hands of those they’re making deals with. “It’s a matter of trust,” says Romeo.
Because of the trust issue, it can be easier to make a success of a business-to-business Web venture than a business-to-consumer Web venture, says Romeo.
To Learn More
For more advice on making money on the Web, from those who have been there and done that, check out Romeo’s book, Net Know-How. It’s available on Amazon.com, which incidentally is a pure-play Web business launched in July of 1995. Despite consistently stellar reviews and billions of dollars in sales, Amazon just recently reported its first profitable quarter.
Reid Goldsborough is a syndicated columnist and author of the book “Straight Talk About the Information Superhighway.” He can be reached at email@example.com or http://www.netaxs.com/~reidgold/column.