What the experts say today: "The outgo was bigger than the income, which is never good," says Robert Labatt, a research director for Gartner, a research and consulting company in San Jose. "They built a brand in North America and a smaller brand in Japan, but they were unable to make that brand work efficiently enough to be profitable." Labatt has high hopes for CDnow's future under Bertelsmann's worldwide and capital-rich umbrella. And as for the much-touted database of paying Internet shoppers that CDnow's proponents singled out as a strong point: Labatt thinks that although the data alone are useful, "the sale and reuse of that data is becoming more of a thorny issue, just as it has become more tactical."
Streamline.com
Formerly: Streamline Inc.
Founder: Tim DeMello
Date of Inc. anatomy: November 1996
Vital signs then: DeMello started a Massachusetts-based service that provided home delivery of groceries and picked up and dropped off movie rentals, dry cleaning, and film. Each customer paid $30 a month for Streamline to deliver groceries weekly and stock them in a box (consisting of a freezer, a refrigerator, and a few open shelves) located in the customer's basement or garage. In contrast to services like Peapod Inc. that set up partnerships with local grocery stores, Streamline operated its own warehouse. DeMello, with $5 million in the bank, projected revenues of $1.1 million for 1996 and nearly $50 million for 1998.
What the experts said: Although one was enthusiastic about the potential for market acceptance, he warned that some customers might find the once-a-week delivery too infrequent. Another expert suggested that at-home grocery shoppers usually liked to be around when the bags arrived, so they could inspect the contents. Finally, noted a third observer, if DeMello couldn't convince a large number of shoppers in enough cities they needed his services, profits would be pint-sized.
Vital signs now: After the original Anatomy article appeared, Web shopping exploded, and Streamline decided to capitalize on the trend by adding the dot-com suffix before it went public, in June 1999. Pricing the offering at $10 a share, Streamline raised $45 million. But for the six months ending July 1, 2000, it lost $23 million, and its stock price dropped to less than $3. In September, Peapod, a Streamline competitor, acquired the ailing company's Washington, D.C., and Chicago assets for about $12 million in cash. It also agreed to assume Streamline's lease obligations in those locations. In November, Streamline announced it was discontinuing its service.
What the experts say today: "The online grocery model is very expensive to start up and maintain," says Ken Cassar, a senior analyst at Jupiter Research in New York City. Cassar notes that distributing perishables and nonperishables costs non-brick-and-mortar grocers a pretty penny. "And add to that Streamline's refrigerator-in-a-garage model, and it becomes a more daunting model," he says. Then there's the tomato problem. "People tend to be rather particular about their tomatoes and other produce items. It takes a big leap of faith to allow someone else to pick your tomatoes," Cassar says.
Switch Manufacturing
Founders: Erik Anderson, Jeff Sand, and Tony Guerrero
Date of Inc. anatomy: August 1996
Vital signs then: Anderson and Sand, industrial designers, created boots and step-in bindings for snowboarders in their spare time. Guerrero came in to head up sales. The trio teamed up with seven boot manufacturers, including skateboard-shoe star and snowboard-boot up-and-comer Vans Inc., for licensing deals that brought in $5,000 each and a $1 royalty for every pair of boots. The founders projected $9 million in sales for 1996 and $28 million for 1998.
What the experts said: Most industry moguls said that Switch faced an uphill fight that would require more capital. A couple even suggested that Switch either beef up its licensing efforts or sell part or all of the company to one of its licensees.
Vital signs now: Switch definitely caught the beginning of an upward ride in the snowboard industry, becoming one of 300 snowboard-equipment brands, Anderson says. But following the consolidation trend in the industry, in July 1998 it was acquired by Vans for $16 million in a three-year earn-out deal. At the time, Switch had $11 million in revenues and employed 32 people. Now, as a part of Vans, Switch no longer sells its own brand of boots. It also downsized to eight employees. Guerrero left for a sports-related Internet venture, and Anderson says he'll probably leave when his earn-out period comes to an end this summer.
What the experts say today: Anthony C. Warren, a partner at Strategic Technologies LLC, a small investment bank based in Princeton, N.J., that specializes in the technology sector, thinks that in selling Switch to one of its licensees, "the founders took advantage of a narrow window of opportunity which could have disappeared rapidly in an overpopulated, fashion-driven market."
Cruel World
Formerly: Career Central Corp.
CEO and cofounder: Jeffrey Hyman
Date of Inc. anatomy: December 1998
Vital signs then: Kellogg School of Management M.B.A. Hyman created a recruiting system to link up fellow M.B.A.'s with companies. Businesses on the prowl for recruits paid Career Central $2,995 for its automated matchmaking services. In the early days Hyman's placement rate wasn't stellar. (Out of 700 searches from December 1996 to August 1998, a mere 100 M.B.A.'s were placed.) The company posted 1997 revenues of $560,000 and hoped to hit $4 million in 1998.
What the experts said: One challenged Hyman's assumption that the recruiting industry hadn't changed for 100 years. Others suggested that his service was little more than a résumé retriever -- not the kind of in-depth service for which customers would pay top dollar.
