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Dot-Coms Overlook the Essentials

A year and a half ago, my cousin left a cozy job as pediatrician at a local hospital after 14 years to start a new career with an emerging search engine dot-com company. He was sure this was a great opportunity for quick wealth.

Despite my advice to find out more about the company’s business model and ability to withstand a downturn – should one occur – he joined the organization. He was a perfect example of a bright, energetic Generation Xer lured into an uncertain but runaway industry.

From day one he wondered whether he had done the right thing. A parking lot filled with expensive imported cars, bloated salaries, scores of new hires coming in as fast as possible, expensive production and lavish weekly parties were the order of the day.

Conversations in the halls had more to do with the burn rate than the value of the company’s offering. The burn rate is how fast a company goes through its venture capital money before the next round of financing in order to raise more money, with no real commitment to making money. It is a vision distorted by the idea that first to market wins. No doubt, these young dot-commers’ mothers had read them the story of the tortoise and the hare. But they had no idea how to get from A to B. They were just talented at creating lofty goals that looked good on paper.

Today, of course, the dot-com landscape is littered with the ruins of companies that had bright ideas. Some were good, and some were dumb. A majority had no idea how to run a business or what it took to deliver value and retain customers and money for growth. In the old days of financing , a company needed to have been around awhile and have had an immaculate business record and history of making a profit before it could gain money.

Too much marketing, too little business sense is the requiem for the dot-com demise.

But you also have to question the investors or those who guided the investors who bought into some of these ridiculous investment schemes. Where was their due diligence? Pets.com and petstore.com went through $150 million in a matter of months, with expensive, high-value television production and millions of dollars for time during the Super Bowl to lure millions of customers worldwide. I guess they thought that people around the world would jump onto the Internet and buy something. People didn’t. Nobody got it. What was the point?

Pixelon, another dot-com, blew $12 million of its $30 million at a one-night party at MGM Grand Hotel in Las Vegas. It turned out that Pixelon’s managers had questionable backgrounds, confirming that fast money can attract the worst elements.

Here is my advice for dot-coms that want to stick around longer than the end of the year. Dot-coms think technology is the most important thing they have. For any readers working for one of those companies, spruce up your resume and move toward the door – your time is limited. Technology is not an end. It’s a distinction. Faster and bigger aren’t always better.

• First and most important, have a solid business plan. This includes a realistic strategy that focuses on how many dollars the company is likely to take in (revenue) and what will be left at the end of the month.

• The plan must include research. Do people really need the product or service? Is the offering at a better perceived value or lower cost than the traditional ways of buying it from brick and mortar companies? AMR Research in Boston concludes that dot-coms spend hundreds of thousands of dollars on technology that consumers don’t appreciate or even want.

• The plan must include an understanding of whom the customer is. A customer profile is essential for marketers to know who their customers are. Define the profile not only in general terms, but also dig deeper to understand it segment by segment. Don’t look too deeply, however, because most companies can market effectively only to a few segments.

• Cash forecasting develops an idea of what is needed to meet expenses. This element is particularly important when working with investment capital. Cash forecasting will reveal when revenue will start to cross over and produce a profit. Forecasting demands and includes expense budgets by department.

• Understand but don’t underestimate the competition. What does the competition offer? What is their value proposition? Their revenue? How many revenue dollars per employee? Compare them to the industry. If anything is out of line, they’ll be the first company out of business.

• Focus on content. What personalization techniques are likely to distinguish your site from the competitor’s and keep customers coming back. Content is still king in Web site development.

• Get a board of directors to rein in that wild-eyed entrepreneur. An inexperienced CEO needs assistance from seasoned professionals.

• Learn from brick-and-mortars that have been around awhile. How do they stay in business? What are their strengths? Emulate their success on your Web site.

• Customer service is greatly neglected with dot-coms. Yet, customer satisfaction is a key element to sustaining business after a customer samples the product or service.

• Don’t try to do everything inhouse. Focus on your core strength and find outside partners whose focus is what you are outsourcing. This may cost a little more, but it will avoid a bloated workforce. The hidden benefit costs of employees is seldom recognized, but it’s still an expense.

These are only a few essential areas to review. Remember, it all begins with a realistic plan.

And what about my cousin? He has survived three layoffs. The company has been absorbed by another dot-com at a fraction of the original stock price. He went in and recommended that his salary be cut in half, is polishing his resume and is considering returning to medicine.

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