10 lessons to learn from dead dot-coms
By Jenny C. McCune • Bankrate.com

They may be dead, but you can still learn from all the fallen dot-coms. Their demises can give your small business vital clues on how to survive, says Bill Hutchison, global director, technology industry for Arthur Andersen Business Consulting.

From his office in the high-tech hotbed of San Francisco, Hutchison saw a great many Internet companies come and go over the last year. "They blew a lot of money and took a lot of hard knocks, but their experiences can teach us all something," Hutchison says.

"It was remarkably like the Internet and suffered the same fate as a lot of dot-coms," Hutchison says. Just as some dot-coms failed when advertising revenue failed to materialize, so did the video text craze, which ended when advertisers failed to pony up the money and ads necessary to allow the newspaper and other sponsors of the new technology to make money.

Lesson 2: Don't develop products without determining that people want them.
Too many dot-coms rushed in blindly, convinced that hype was a substitute for substance. They'd come out with a new technology or Web site without first figuring out whether anyone cared or would pay money for it. Just because it can be done, doesn't mean that it's a good business idea.

Lesson 3: Don't shoot for market share; aim for profits.
Similarly, dot-coms fell for faulty business logic -- that the winner of the prize was the company with the biggest market share, not the one posting the biggest profits.

Lesson 4: Don't spend it all in one day.
They also spent money like there was no tomorrow, and consequently, tomorrow never dawned for these companies. Of course, this wasn't all the dot-coms fault. "The investors were pushing them to take and spend the money," explains D. Quinn Mills, a professor of business administration at the Harvard Business School in Boston. "Investors would push a whole lot of money on companies before they were ready. They'd take it, spend it and then wouldn't be able to deliver fast enough."

Lesson 5: Don't go public before you have to.
Going public put an enormous pressure on dot-coms to deliver, Arthur Andersen's Hutchison says. A public company has shareholders who want dividends and their stock shares to increase in value. Many public dot-coms cracked under the pressure. Had they stayed private, they might still be around today.

Lesson 6: Be frugal when you're starting out.
The dot-coms also spent money for money's sake rather than casting a critical eye over how to best spend the money (on more servers for the Web site, not on fancy furniture and beer blasts for employees). Besides misspending money, the dot-coms failed to reserve any cash for a rainy day. So when their investors got nervous and failed to hand over more money, the dot-coms failed.

Lesson 7: Just because you're a dot-com doesn't mean that you can't use experienced help.
Many dot-coms ended up in bankruptcy because their owners failed to hire experienced business types. There was a prevalent notion that dot-coms played to a different piper and couldn't use people who were experienced in the ways of brick-and-mortar businesses. "Business success is still about experienced management," Arthur Andersen's Hutchison says.

Lesson 8: Patience is a virtue.
Too many dot-coms and their investors failed to gauge how long it would take for the dot-coms to succeed. "For most of the dot-coms, what they were trying to do couldn't be done as fast as they thought," says professor Mills, who is also the author of E-Leadership: Guiding Your Business to Success in the New Economy. They'd run out of money and that would be the end of them."

Lesson 9: "Me-too" is another name for "failure."
"There was really this herd mentality," Hutchison says. "Everybody's doing this, so let's go do this." In this case the dot-coms were right about marketshare. The company who went first in a niche generally had the best chance for success. Copycats generally didn't have a chance and quickly became road kill on the Information Superhighway.

Lesson 10: Act like a chameleon.
Of course, the dot-coms did demonstrate some skills that businesses of all stripes can use. Many were quick-change artists, able to reinvent themselves nimbly and quickly. Such speed and agility is something that larger companies are trying to emulate and that all companies, including small ones, must heed.

Because of technology advancements, a new wave of Internet companies will be started this year and next. The major problem that professor Quinn sees: Will they be able to get funding after so many investors got burned last year? Although they are "funding worthy," the demise of so many dot-coms with bad ideas may cast a long shadow over the new, viable group of dot-coms. That said, a dead dot-com can teach a living startup a thing or two about how to run -- and how not to run -- a business.

Jenny C. McCune is a contributing editor based in Montana.

-- Posted: March 2, 2001