In search of dot-coms that are standing on 'terra firma?' By using various criteria ranging from history to profitability, Inc. tries to find six 'real' dot-com businesses.
There's an awful lot of smugness out there these days. The number of people walking around saying "I told you so" about dot-com failures (confident in their ability to perceive the past accurately) is nauseatingly high. It's easy to look back now and see that the rules of the old economy never changed. But frankly, it wasn't so easy to see then. If we had all known what we know now, we never would have bought into business principles that simply made no sense. Right?
Which brings me to this issue of Inc. Technology. The current thinking that all dot-coms will fail is as flawed as the idea was that all dot-coms would succeed. Good businesses are good businesses, regardless of whether they live on terra firma or not. So a few months ago, we set out to look beyond the smug factor and find dot-com entrepreneurs who had built sustainable companies.
A "realbusiness.com" would meet commonsense criteria. First, its business model would be intelligible -- companies with 16 revenue streams need not apply. Its leaders would have industry experience and would grow the business conservatively, using cash flow and limited outside financing. It would be either profitable or on track to earn a profit soon. Its owners would employ no hockey-stick trend lines in their financial projections. And finally, the business would be in it for the long haul. We would look for companies for whom an IPO (or any other get-rich-quick exit strategy) was not the end goal.
But it turned out to be surprisingly hard to find such commonsensical companies. Witness, for instance, my meeting with Gary Conley, CEO of FlyteComm. We were certain enough that the company met our criteria that I flew out to talk with Conley at his office in San Jose. FlyteComm makes software that lets Web surfers track airplanes in flight, thus determining their arrival and departure times. It solves a real problem for real customers, from people awaiting traveling spouses to business managers tracking their freight. And Conley, a crisp, polo-shirted private pilot, is an experienced, financially prudent leader. Founded in 1994, FlyteComm has grown slowly, reaching revenues of more than half a million dollars last year. So far, so good.
On my visit, I checked off our criteria. Revenues? History? Management team? All as reported prior to my trip. "And you're profitable, right?" Here Conley cleared his throat and looked uneasy. "We were profitable until April," he said. That's when he and his adviser Rich Okumoto had decided to shop for VC funding and invest heavily in new hires, new products, and new markets. They weren't planning on breaking even again until shortly before their newly devised IPO, at least two years away. At some point FlyteComm would be able to track anything that moves, from airplanes to automobiles to ships to lightning. And, said Conley, "we see ourselves today as a half-billion-dollar company."
"Half a billion?" I asked. "Are you sure?"
He was sure. And I was, too, but of something else. Despite the real appeal of a business that seemed destined for growth, this formerly bootstrapped and profitable company no longer looked to me like a "realbusiness.com." Not that Conley's vision is unattainable. But for me, FlyteComm no longer fit our built-on-fundamentals mold.
We kept searching. After a couple months of research, we selected the six promising companies we profile here, representative of hundreds of businesses that are generally flying under the radar but are worth learning from. These entrepreneurs haven't tried to reinvent the world to match their business models. And so it's likely that they will still be here tomorrow. Hey, nothing's guaranteed. But in our estimation, given some time and some luck, each of our "real" businesses will have something to be smug about. -- Elaine Appleton Grant, Editor