e-Business Tips & Ideas

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Don't make the mistakes the dotcoms that are crashing and burning have made. And what exactly were those?

• Bad balance-sheet math: At no point did these companies generate financial statements that indicated any reasonable relationship between income and expenses. And yet they spent wildly, renting expensive offices in the Silicon Valley and New York's Silicon Alley, hiring deep staffs (and often paying salaries upwards of six figures for minor positions), and buying fantastic exposure in ads of every medium. No genuinely small start-up could long afford these lush business habits.
• No revenue model: The core question that is supposed to be asked of dotcom start-ups is, What is your revenue model? This is shorthand for, How do you envision bringing in income? What will your revenue streams be? In the past, dotcoms have vaguely explained that their revenue model involved a mix of ad dollars and e-commerce, and in most cases, that answer was accepted. It was a mistake because, as the failing dotcoms are proving, nobody had ever really put flesh on the revenue models. 
  Never open a business without understanding your source of revenue. This seems so elemental, but in the heady days when vaporous businesses such as Yahoo! and eBay quickly snagged multibillion-dollar market caps, so many people abandoned this axiom.
• Building market share to the detriment of the business: Market share is not God, although CEOs of the many failing dotcoms who pursued a strategy of building market share at any cost may have you believe otherwise. Look through the financial filings of many of the best-known dotcoms, and what's stunning is that a common practice is selling merchandise for less than they paid for it. Pay $300 to a wholesaler for handheld computers, and no matter how many you sell for $250, you won’t do anything but go broke.
• Ignoring stakeholders: Who has a stake in your business? Investors, your employees, management, your vendors and your customers. Long debates can explode around attempts to prioritize these stakeholders--whose stake is meatiest or weakest?--but probably the best strategy for most dotcoms is to assume that all stakeholders carry equal weight.
  To succeed, businesses need to satisfy all stakeholders. That doesn't mean all will get what they want (stakeholders quite commonly are in conflict with each other, and a management task is seeing that everybody gets enough to feel happy), but it does mean you need to stay aware of your stakeholders, their wants, and what you're delivering. Failed dotcoms often had little or no awareness that any stakeholders existed (at least any that were not on Wall Street), but stakeholders always exist and will always get their due.
• Forgetting what industry you're in: Guess what--your online store is still a store, meaning you're competing in a retail universe. Yet CEOs of stumbling dotcoms talk as though they're in any industry but retail, throwing around terms like new media, content and consulting. Never fool yourself about your industry.
• More ego than profits: Not only did many CEOs of now deeply troubled dotcoms forget what industry they were in, some seemed actually to forget that they were in business at all, and that the essence of a business is to make money from revenue--not from bedazzled stock market speculators and frenzied angel investors pouring cash into the till. The sad fact about many failed dotcoms is that they could have been successful--maybe not quite on the lavish scale hoped for by the founders, but profitable nonetheless. And they blew it by forgetting that, in the end, business is business. While it might be fun to make it on the cover of a magazine, it's ultimately more fun to be on top of a steady stream of black ink (and it's no fun at all to manage a business that's dripping red ink).
  The message for you: Don't be discouraged by the stumblings of the name-brand dotcoms. They had it coming. That sounds cruel, but really, they did. You can avoid their mistakes and thereby create a very different outcome for your business.