How to Achieve Dot-Success in an Era of Dot-Bust

A week before Christmas 2000, my younger son went into his management job at a Dot-Com company, and was greeted with the words, "The party's over. Pack up your things. We're calling it quits." His company had grown from four employees to nearly 100 in nine months. It was the leader in its field, it had contracts with some of the largest institutions in its "space," and its business model seemed sound. But it wasn't profitable yet, and wouldn't be for many months. Its venture capital firm got cold feet, funding dried up, and his company was forced to close down.

If you believe the newspaper and TV journalists, you would think that the bubble has burst. That the e-business era is over. Kaput. Gone.

I, for one, don't believe it. E-business is still in its infancy and has a very long way to go yet. I'm very high on the Internet as a business vehicle. We have moved into a new phase; that much is clear. And to succeed in these times, we need to understand what went wrong with the failed Dot-Coms and then chart a course that avoids these mistakes.

All Dot-Coms Haven't Failed

First, I need to set the record straight. If you define Dot-Coms -- as the media seems to -- as pure-play (that is, Internet only) companies that received venture capital (VC) funding, then we are talking about 2,500 companies or so. Lately, they've been failing at the rate of about one per day. At that rate, about 15% failed in the year 2000. Yes, many more are in trouble, and the visible failures of companies like Pets.com and Garden.com are sobering. But we are not seeing a meltdown here, rather a long-predicted correction.

But we're also seeing fear -- rank fear. VCs, who were in virtual heaven with unbelievably high Dot-Com valuations on the NASDAQ stock market, watched while companies plummeted to unrealistically low valuations. Their shining hope of quick returns was replaced by a fear of losing their shirts. Many VCs panicked, leaving unstable Dot-Coms without funds to prop them up.

Bootstrapping

What the news media doesn't talk much about are the e-businesses that have grown by bootstrapping. That is, they haven't received any infusions of venture capital or bank loans, but have built their businesses gradually from their own personal investments or help from friends. I expect this number to be in the hundreds of thousands to a million. Many of these businesses are doing fair. Many are profitable. Some are very profitable indeed. Those that have failed -- and there are many that haven't turned a profit yet -- don't represent huge losses, a few thousand dollars perhaps. But out of these bootstrapped start-ups we'll see thousands of strong companies emerge.

I think it's important for us to understand just what happened that caused a spate of visible Dot-Com failures. I see seven common mistakes that underlie many of these failures.

1. Too many competitors
2. Short-term mentality
3. Undisciplined growth
4. Unrealistic revenue projections
5. Inexperienced management
6. Underestimating the costs of establishing a national brand
7. Lack of customer-centered focus

But instead of writing a negative article, I'd like to look to the positive lessons we learn from each of these mistakes, as you and I position our companies for the new year.

1. Select online target markets with clearly unfilled niches

One of the biggest mistakes Dot-Coms made was to grab for the large sectors that were filled with competitors. Pet supplies had a number of competitors. Grocery home delivery had its share. So did books and CDs and apparel, drugstores and computer PCs. With brick-and-mortar stores, competition is limited primarily by driving distance, so several similar stores can flourish in the same general area. But on the Internet, geography is no barrier, especially for other competitors in the same country or language group. This caused companies to compete with each other on the basis of price, making it difficult or impossible for them to make a profit, much less recover start-up costs.

The lesson for you and me is to select online target markets that are unfilled or underfilled niches. Instead of going head to head with an established competitor, find a customer need that has not been well met on the Internet, and then fill that narrow niche with excellence. You can find more help on niche marketing from my recent article, "Define a Unique E-Business Niche," Web Marketing Today, November 7, 2000. http://wilsonweb.com/wmt6/start-niche.htm Choosing a large sector forces you to spread your resources too thin. Choosing a narrow niche that you can concentrate on makes it possible for you to dominate your selected e-business arena without spending huge amounts of money.

2. Plan for the mid- to long term

Because so many Dot-Com investors and CEOs had visions of early IPOs (Initial Public Offerings of stock) or acquisitions that would make them millionaires, their goal often was to ramp up quickly, never mind the long-term consequences of their actions. VC investors were interested in early and large returns on their investments, so many decisions were made for short-term results rather than long-term health. The result, too often, was chaos.

You and I need to plan with a longer horizon. I don't mean, however, that you'll keep on doing the same thing. You may need to regroup and make very significant changes in direction. I've heard that it's dangerous to change horses in the middle of the stream, but it's better to change horses where you can, than to have the only horse you're riding fall down dead.

If you didn't succeed hugely in 2000, plan to approach 2001 with new hopes and dreams, and creative new ways to conquer your problems. Do what you have to do to reposition yourself for success in 2001. Of course, you'll need to find ways to become profitable this year. Few of us have the luxury of going very long without a positive cash flow. But don't put off the strategic plans you need to make. Do the things now that will begin to take effect in 2002 and 2003. Plan for the mid- to long-term future.

3. Rigorously control growth to fit solid opportunities

When you have millions of dollars of investor cash to spend in order to dominate your "space," it is very easy to bulk up very rapidly with undisciplined growth of employees more related to dreams than revenue. Internet gurus talked about the "Old Economy" operating by different rules (i.e., profits) than the "New Economy," and believed their own hype. They believed it, that is, until the NASDAQ began to fall. Then VC investors began to demand staff cuts, but many just came too late.

My advice is grow very conservatively in early 2001. Add staff only where you must. Instead, outsource to small virtual contract companies. Some you might investigate can be found at the eWork Exchange http://ework.com/ and Yahoo's Administrative Support | Organizations category.

Yes, you need to staff for growth, not just maintenance. But staff conservatively, so that your staff growth isn't far ahead of revenue growth.

4. Set realistic revenue and margin projections

Lot of unrealistic projections were made by Dot-Com dreamers. In early 2000 I had Dot-Com wannabes phone me with the question, "How much can we sell advertising for on the website we are building?" I could give some industry averages of rate card prices, but that begs the question of whether a company could sell advertising at all in the increasing glut of unsold inventory. As unsold inventory increased, rate card prices went by the way, and many siteowners were willing to sell available inventory for $1.50 to $3.00 CPM (per thousand banner views), though their revenue projections were for $35 CPM. (If your site anticipates the need to grow advertising income in 2001, read the brief companion article, "How to Find Advertisers for Your E-Zine and Website," Web Marketing Today, January 15, 2001. http://wilsonweb.com/wmt6/selling-ads.htm )

Re-evaluate the information and services you are giving away free, since we're seeing a trend -- finally -- towards asking users to pay for the online information and services they are receiving.

As a company that gives away bucket-loads of free information, I am constantly looking at the bottom line. In August 1997, I was convinced that I couldn't turn my free Web Marketing Today e-zine into a for-pay publication. So I began a paid subscription e-commerce newsletter Web Commerce Today http://wilsonweb.com/wct/ that was praised in Business Week as "bar none the best e-commerce resource out there." It has been a win-win proposition for my subscribers and for my business. I'm not saying this is easy to do. It's not. But perhaps you can find some new ways to repackage (and charge for) services and products.

If your company's online website isn't making you any net income, then consider adding some revenue-producing aspects to your business, or emphasizing the ones that ARE making money, and backing off on those that aren't producing. Read my recent article, "Devise an Adequate Revenue Plan," Web Marketing Today, November 14, 2000. http://wilsonweb.com/wmt6/start-revenue.htm

Whatever you do, don't sit still. Make the changes you need now to bring up your revenue.

5. Obtain expert advice

If you were to walk into the average Dot-Com in the Silicon Valley, you'd see a lot of people in their twenties. This start-up may have been their first experience with a national business. Some of the few managers with gray hair didn't understand the Internet well and tried to patch traditional structures onto a new type of company. Inexperience sometimes resulted in serious planning and execution errors.

To succeed, you need to get expert advice in areas that you aren't sure of. Consider taking community college or adult education classes on website design, e-commerce, Web marketing, and small business development. For general business know-how , why don't you draw on the vast experience of retired businesspeople from SCORE (Service Corps of Retired Executives). http://www.score.org Contact your local office of the US Small Business Administration http://www.sba.gov or your country's equivalent agency.

I offer a single hour of telephone consulting that may help you over a strategy hump, though I strictly limit telephone consulting to a single hour so I don't become the de facto "VP of Marketing" for multiple companies. :-) http://wilsonweb.com/consult/ Check the Yahoo! directory for your city, and look for e-businesses in your area. Then phone the CEO to see if she can be a helpful resource or knows someone else local who can assist you.

6. Plan an aggressive marketing budget with realistic goals

One of the chief errors committed by failed Dot-Coms was based on the belief that they could "buy" a national brand. Dan Janal, in his e-book Branding On the Internet, cites estimates that it can cost $50 million to build a national brand. http://www.roibot.com/bn.cgi?R26822_wwbn Even if it costs only a fraction of that, consider how much of a Dot-Com's start-up capital has to be spent primarily on branding -- to develop widespread familiarity with its name and confidence in its products or services.

Many company names were just too similar to distinguish from each other -- Pets.com, PetStore.com, Petopia.com, PetsMart.com. During SuperBowl 2000, a majority of the ads, costing $2.5 million or more, were from Dot-Coms desperate to build national recognition -- as if you could build a brand with a single 30 second TV ad! Advertising may provide name recognition and positioning in the consumer's mind, but part of developing a strong brand is building up a series of good experiences with a company or product. That only takes place over time and demands excellence in customer service, product fulfillment, and product quality.

Differentiate between "branding advertising" and "direct marketing advertising." The purpose of branding ads is to familiarize your target market with your company's name and offerings. The goal is not necessarily click-throughs but name identity. Banner ads, site sponsorships, and e-zine ads are all good for building brand identity. The narrower your niche, the more you can concentrate your brand-building ads on your target audience.

Direct marketing ads, however, aim primarily at generating immediate sales -- not high click-through, necessarily, but actual sales at a low customer acquisition cost. Your best direct marketing return will be from e-mailing your offers to your existing house list. (If you haven't begun collecting e-mail addresses of your site visitors and existing customers, begin at once! You'll find some details in my e-book, "Guide to E-Mail Newsletters." http://wilsonweb.com/ebooks/email-newsletters.htm ) In addition, find e-mail newsletters that reach your target demographic and experiment with purchasing text ads there. Also look for opt-in e-mail lists where you can send stand-alone e-mails to individuals who are interested in your type of product or service. http://wilsonweb.com/webmarket/lists.htm You'll find some excellent advice in Sterne and Priore, Email Marketing (Wiley, 2000). http://amazon.com/exec/obidos/ASIN/0471383090/wilsoninternetse

In my "Web Marketing Checklist" you'll discover a fairly complete list of ways to promote your website -- both free and fee. http://wilsonweb.com/articles/checklist.htm Set some realistic but aggressive goals, determine how much money you can set aside each month for marketing, and then plan a year's marketing calendar with an marketing/advertising activity each month of the year, concentrated just prior to your business's natural peak seasons. Even if you can't afford much money each month, do business a favor and allocate at least some money. You can have a great product or service, but if you don't market it relentlessly, you'll never succeed.

7. Maintain an unremitting customer focus

Many Dot-Coms began with brilliant ideas, but ideas unrelated to real customer demand. Rather, they sprang from creative minds that didn't bother pilot testing thoroughly with customer feedback. When there isn't a real felt need, demand is light, and companies' hopes for profits wither. The dictum, "Find a need and fill it," requires someone else sensing the need besides the merchant.

Jay Abraham, marketing genius and author of Getting Everything You Can Out of All You've Got, says, "Test everything! I would never rely on conjecture for making a major direction change for my business." He shares how once he failed to test, and it cost him more than $1 million. http://amazon.com/exec/obidos/ASIN/0312204655/wilsoninternetse

See what the customer responds to. Learn what your customers desire by e-mailing a simple survey to your house list and asking for suggestions on how you can better meet their needs. Ask your customer service personnel what customers are asking for. Build a "make a suggestion" link on your website. Pick up the telephone and call up some of your best customers and ask, "What could we do in this coming year to make life easier for you?" Don't make excuses for your mistakes, but listen and take notes. When you take time to listen to your customers, you may come up with some wonderful ideas that will propel your business forward.

These seven strategies are vital to future success.

Don't Quit

You may have taken some knocks this year. Your website revenue may be meager. The obstacles you face may seem huge. But, my friend, don't quit. Pray about your business and ask God for wisdom about the direction you should take. I certainly do. Find a good book on Web marketing that will stimulate your thinking, such as Susan Sweeney's 101 Ways to Promote Your Website (Maximum Press, 2000). http://amazon.com/exec/obidos/ASIN/188506845X/wilsoninternetse Read through back issues of my weekly Doctor Ebiz column to find new approaches to tackling your problems. http://doctorebiz.com/backissues/backissues.htm

Here in the US, as we are about to inaugurate a new president, I think back to one of our greatest presidents, Abraham Lincoln. If you think you've run up against a stone wall, realize that Lincoln's life was pockmarked with failure. Here's a brief chronology:

Don't quit!

Set aside some time this week to write down a fresh strategy for your company's online business. With some persistence and drive and intelligence gained from what doesn't work and what does, you're better positioned for online success that you have ever been before. Here's to Dot-Com success in 2001!