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Why Dot-Coms Failed (And What You Can Learn from Them)

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Headlines are rife with the tally of dotcoms that have "dot-bombed" or are in a downward spiral, not to mention the associated financial losses and human costs. Fingers that once pointed gleefully at the stock-ticker to catch a glimpse of that day's market ascent now point in blame toward Wall Street analysts who, it seems, had conflicts of interest, weren't altogether honest in their activities, and allegedly manipulated the market for personal interest (Gosh, there's a surprise!). What seems to be lacking, at least publicly, is a careful examination of why these companies failed. And yet, out of the smoke lifting from the rubble of the former "e-bubble" we can find some valuable lessons.

Review this period in time as an opportunity to learn how to improve the success rate ? however you measure success ? of your business or department.

Traits that Fostered Failure

The "Lots of Money, But No Vision" Dilemma. The dotcom frenzy was fueled by dreams of extreme wealth ? for executives, employees and investors. All resources were focused on fast-tracking to IPO, without adequate emphasis on a viable business plan, solid mission, and inspiring vision. Paradoxically, the allure of riches brought waves of talented people, but studies suggest that employees are ultimately most rewarded ? and show higher rates of job satisfaction and loyalty ? by contributing to a workplace that has a larger purpose that aligns with their beliefs. The focus? Greed. The result? Employee turnover was reported to be as high as 75%, a few people got rich, employees got laid off with little notice, companies failed, and most investors lost a lot of money ? in some cases, life savings. Current investigations suggest that Wall Street analysts, immersed in conflict of interest, issued false reports to encourage small investors to buy stock.

The "Business as Web Site" Approach. Lacking sound business plans and virtually ignoring even basic human-resource and customer-service requirements, most dotcom leaders focused on expensive, splashy Web sites and a polished "Gen X" image ? an emphasis that didn? t bode well for hundreds of the start-ups. Unfortunately, simply getting funding and building a technology infrastructure doesn? t make a successful business. There has to be a need and a purpose to the enterprise (aside from spending someone else? s money). Why else would someone become ? much less remain ? a customer?

The Burn Rate. Billion-dollar statistics tell the tale of many dotcoms? ability to burn through enormous amounts of funding (a.k.a. - other people? s money) with little consideration for or accountability to spend wisely or earn a profit. Many dotcoms seemed more like groups of kids spending lavish allowances while playing with someone else? s technology and sitting in someone else's designer office chairs. Compare this with more patient large companies, or the thousands of small businesses whose owners start and maintain companies on personal lines of credit and shoestring budgets that demand mindfulness about which expenditures are the most cost effective. (Interestingly, these same small businesses have provided the majority of all net jobs over the past decade.

The Speed Trap. "Getting to market first," "urgency," and "speed is a competitive advantage" were common business mantras of the dotcom and high-tech world. Yet the faster these organizations moved, the more they ignored signs of severe employee burnout, pending droughts of funding, poor customer service, unfocused leadership, and diversions from the original vision and mission (for those that had bothered to define them in the first place) ? each of which helped bring the e-meteor crashing to Planet Earth.

The Lemming Syndrome. When the dotcom era blossomed, thousands of investors were only too happy to support an e-commerce start-up or anything with dotcom in the name. The words "online" and "e" gave companies the Midas touch, regardless of industry, resulting in a kind of greed-induced mass hysteria. Rather than following a vision specific to and suited for the organization, dotcoms followed the few seemingly successful e-enterprises hoping to ride their wave. As with actual waves, there comes a time to break on the beach, and the copycats that had no viable business came washing up to shore like driftwood.

What Survivors Did Right

Resonated with the people behind the wallets. Lesson: Develop a sincere vision that has meaning to you and your business or department members, and nurture that vision. Retain and hire the people that believe in that vision. Foster a work environment that is respectful of people and their non-work lives. Leave money out of the equation until you? re planning how to remain viable and when discussing financial compensation. (Do not forget to discuss the non-financial rewards, such as learning opportunities, healthy work environment, etc.)

Remembered that customers need more than shallow advertisements. Lesson: Companies that have survived thus far, in addition to actually having a viable plan for a business that is appropriate for an electronic venue, made customer-service a high priority ? in action, not just in advertisements. Relationship-building, customer-service training for employees, and having a clear reason-for-being helped these companies to rise above their more clueless counterparts.

Spent funds wisely. Lesson: Business owners and respectful employees worldwide write every company check as if it? s coming from their personal bank account ? because directly or ultimately, it is! Adopt this mindset when deliberating expenses. This is not to encourage a scarcity mentality or to cut perks such as bottled water that improve the work environment and boost morale. As Leo Farnsworth says in the movie Heaven Can Wait, "We don't care how much it costs, we just care how much it makes!" The problem is when elaborate and unmindful spending occur with no thought given to incoming resources. A more considerate mindset ensures a healthy decision-making process when it comes to expenses, as opposed to spending money just because you have it (or assume that's the case). Consult the organizational vision to help determine whether an expense is a waste of good resources, or is warranted and meaningful.

Allowed time for thoughtful planning and execution. Lesson: Haste does make waste, and the thousands of employees being laid off in the name of streamlining are good examples of speed taking precedence over patience. Before hiring en masse, why not think about the consequences, both good and bad? Before laying off employees, why not assess how they can help you attain your vision, and if the layoffs are in sync with your vision.

Charted their own course. Lesson: Tracking and learning from competitors, business advisors and benchmarked success stories are only part of the business-enrichment cycle. Look inward to develop and decide where and why your enterprise is changing. Reconnect with what? s most important to you to chart a course toward success. Also, define success in terms that are most rewarding to you; don? t assume that monetary statistics equal success.

Jamie Walters is the founder and Chief Vision & Strategy Officer at Ivy Sea, Inc. in San Francisco, CA.

Remember, this information is food-for-thought, not customized counsel. The most effective interpersonal and organizational leadership or communication program is one that's been tailored to meet the unique needs of you and your group. If you have questions, connect with a qualified adviser or e-mail us for suggestions.

Copyright © 1997-2001 Ivy Sea, Inc. San Francisco, California. All rights reserved. Limited duplication or distribution allowed with prior permission from and credit to Ivy Sea, Inc.

Last updated: Sep 24, 2001




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