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Why have so many dot coms failed so dramatically?

This is really two questions in one. Dealing with the drama first, when there has been a craze there is almost always a dramatic reversal. From 17th century Dutch tulip bulbs to the mania for throwing money at bad business ideas as long as they were online, the downturn when it comes is dramatic and because itís dramatic the media go to town on their unending quest to turn a problem into a crisis and a crisis into a drama. In short the hype that created the problem is no less enthusiastic when the thing appears to go into reverse. You need to bear in mind that things are not necessarily what they seem. There is and always will be a shake out of bad sites and bad ideas, but businesses fail in the real world too. Had investment in untried people hopefully flaunting untried ideas not verged on the insane, the media would perhaps have turned its attentions to other matters, but as things stand billions of investors money has been "peed away" by bright young things with nothing more than a newly minted MBA to keep them on track. No wonder some have gone off the rails. The miracle is that so many have been able to start the journey.

Of course the press tends to ignore simple economic realities. Unreasonable investment of necessity demands unreasonable expectation of returns otherwise the system fails. The markets have given untried managers vast sums of money to play with on the back of simple and often simplistic ideas. The result is bound to appear to be far more than just tears before bedtime. An entrepreneur loses his home, his savings, his reputation and his marriage and the press sighs; "So what? It happens every day", and of course they are right. Some young enthusiast throws away millions of investorís money and that is news. If enough youthful hopefuls manage to do the same that is sheer theatre and the media world wide do the job that they are paid to do and milk the situation for all that it can be magnified to appear to be worth.

The trouble is that not only does the media deal in simplification and multiplication, the dot coms are right there at their side. Today the management of Kozmo.com announced their cure for what ails the sector. They dropped the "com" and will hereafter be known simply as Kozmo. If things were that straight forward business brains would be ten a penny, which is what, to all intents and purposes, the crazy investment in crazy schemes suggested that they are. So at the end of the day it is wrong to blame the press for manufacturing a crisis. The crisis has resulted from ignorance on the part of entrepreneurs, investors, managers and commentators. In other words the problem was created by me and thee, but mostly thee as they say "up home".

The knowledgeable executive, planning and controlling the development of e-commerce in their own operation will take heed of the lessons to be learned. They will use information to make mature judgements in the interest of the long term prosperity of their companies they will also be aware that for every dot com that fails with such drama there are tens of "bricks and mortar" companies that sink with barely a ripple. That is the way of business and it is why risk must be rewarded. This time the investment community has cheerfully increased the risk to the point where for many there is no hope of adequate reward.

Check List Ė Why Dot Coms Fail

  • They lack a meaningful business plan.
  • They think that strategy is for wimps and those who ought to know better confirm to them that this is the case in the "faster moving new economy".
  • The members of the management team grossly over-estimate their own intelligence and creativity and silly levels of investment substantiate their self-assessment.
  • They lack experience of the market.
  • Too frequently they lack experience of any market.
  • What little they know has come mainly from case studies and textbooks discussed to destruction by "third generation idiots".
  • In their enthusiasm they fail to develop an adequate infrastructure to deliver customer satisfaction and repeat buying.
  • They allow themselves to be influenced by "gurus" who insist that the world moves too fast for strategies and that "seat of the pants" reactive tactics are all we have or need.
  • They assume business idea that works in the real world will work online without understanding why it works anywhere. (Ideas such as people with feet like buying shoes.)
  • The management team lack experience and have no-one there to yell "THINK" at appropriate moments.
  • The management team has too much money to spend on too often meaningless advertising that is far too clever to include a message that has meaning to the serious customer.
  • The company is given a whimsical name that has no meaning to anyone beyond the self-styled "creatives" in the firm or among its advisors.
  • The top team under-estimates competition.
  • Marketing costs outstrip revenues.
  • They build all-singing and dancing sites where the serious buyer cannot discover how to place an order or make an enquiry.
  • They believe that building a database is more important than building sales.
  • They try to be all things to all men and become nothing to most of us.
  • They confuse what boy-surfers want with what grown-ups in a hurry need and they pander to the boy surfers.
  • They have no real understanding of how to generate site traffic economically.
  • They believe that branding is all and then forget that branding must refer to a desired product or service if it is to have meaning for the buyer.
  • Too often the management team lacks any sense of responsibility and loyalty to their investors and report that "It was great fun spending so much of other peopleís money".
  • Resources are squandered on fancy offices, fancy cars and fancy life styles rather than on "creating, identifying and satisfying customer desires at a profit".

In short, thanks to stupid, over-optimistic investment by people who should have known better the management team frequently suffer from what my grandmother called MMTS disease. (More money than sense.) Unless they learn from the experience they are doomed to repeat their failures and sooner or later it will be with their own money.

Of course there is fall-out from this Gadarene Swine approach to business. As I write perfectly sound start-ups run by experienced entrepreneurs are reporting that it grows harder by the day to find funding. The effect on economies of lost opportunities is literally incalculable.

A Model for Market Dominance

  • Know where you are going. Visualise your future in such detail that you can see, taste, hear, touch and enjoy the sweet smell of success.Work to your strengths. Get concerns out of the way. Look at the opportunities and define the market(s) that you will dominate. Analyse what you have going for you and use it before you lose it. Sort problems before they arise.Know your customers and competition.
  • Get everyone to the barricades. Either develop a short inspirational vision that will get everyone giving 100+% when the chips are down or forget it.Write the rules by which others will have to play. Design your mission as the rules of the game not as business-school-speak.Consider all possible strategies.
  • Choose and concentrate.
  • Analyse the environment(s). PERT+
  • After this itís a mere matter of tactics. Flexibility and commitment.

Key Questions

  • What strengths can we apply to succeed in the most profitable markets of today?
  • What strengths (competencies) do we need to develop now to dominate the most profitable markets of today?
  • How can we apply those strengths to have the key edge in the most profitable markets of tomorrow?
  • What strengths must we develop to dominate the key markets of the future?
  • How can we make it so expensive for competition that they lose money and withdraw?

Search Engine Positioning

  • 70 million competitors and growing by the day.
  • The $1.30 to $1.00 disaster.
  • Concentrate on the engines that matter.
  • Pages 1 or 2 count, the rest is silence.
  • Use phrases rather than generic words.
  • Forget the surfers itís buyers you need.
  • Maintain your position in the face of changing algorithms.
  • Make it easy to buy.
  • Create customers for life.
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