Red has long been the color of choice for companies venturing into the digital domain; that’s red as in ink, and that choice has been by necessity.
For a while, it looked as if U.S. investors, notorious for focusing on the next quarter, were ready to play along and look for the long-term payoff. But those heady days are gone and investment horizons are shrinking again as the Nasdaq returns to earth. It might be a temporary bout of sanity or it could be the beginning of a shakeout, but the easy money has dried up, New Economy companies are struggling to make ends meet and there are some interesting new numbers to contemplate.
As a result, cyberspace has taken on a decidedly lighter hue in the last few weeks. The more subtle shade is courtesy of the growing number of pink slips that are being mixed into the froth of red ink. As of June 15, 55 dot-coms had laid off approximately 4,650 employees, and the impact is being felt across the entire spectrum of digital economy companies. J. D. Edwards software has let 800 workers go, Corel has released 320. MedicaLogic/Medscape, a health-care company, has let 110 employees go. PlanetRx, an online drugstore, has laid off 70 workers, about 15 percent of its workforce. Epidemic Marketing has laid off its 60-person staff, Emusic.com has laid off 40 employees. Even Amazon.com has let 150 people go.
Reorganizing is tough, but it is better than closing shop — which is what a number of other firms are being forced to do. Boo.com, a high-profile European online sportswear retailer that typified the new wave of dot-coms, collapsed; so did Violet.com, ToyTime, ToysMart.com and Red Rocket, a children’s Net retailer. PetStore.com, Reel.com, Brandwise.com and Digital Entertainment Network are also casualties of the new outlook in the market: Most folded because they couldn’t find enough funding to stay in business.
In some cases, the schadenfreude comes awfully close to glee. Take the The Industry Standard’s two new indexes: TheStandard.com Lay-off Tracker and TheStandard.Com Flop Tracker. Kind of like Mortician.com.
Of course, it’s hard to feel too much pain for some of the failures. Epidemic Marketing burned through $7.6 million in capital it raised in one round of venture-capital financing. It may be best remembered for the $1.6 million it spent on an ad in this year’s Super Bowl.
The news media have been ambivalent about the collapse of APBNews.com, which closed its doors earlier this month when it couldn’t obtain a third round of financing. Sure, they were new-media upstarts, but they got good reviews all around and no one on this side of the newsprint likes to see the reaper strike so close to home.
There are a couple of interesting points to be culled from all this. They are especially important here in Japan, as the country embarks on its own little burst of Net mania with this week’s launch of Nasdaq-Japan. There isn’t much of a culture of this kind of market capitalism and the bumpkins — and the greedy — are ripe to be plucked. So get smart and remember a couple of fundamentals.
First, there is risk involved in all businesses. In the U.S., 40 percent of all startups fail within the first six years, reports the Small Business Administration. That number is probably going to look puny when the dot-com tide starts its surge.
The particularities of the Japanese market — namely, few companies listing and those that do having few stocks to trade — mean that liquidity will be hard to come by and big swings are likely. Prepare for the roller coaster.
The second point is more generic, but more crucial. Wannabe entrepreneurs need to rethink their approach to business. I am not talking about business models. God knows, there is a new one every week, and it’s best to leave the serious critiques to the pros.
Rather, I mean that people contemplating a stroll on the cyberside should go back to first principles. They should focus on answering needs. There seems to be precious little of that going on.
Instead, it seems as if people are just thinking up nifty concepts and then trying to sell them. That is gratifying and sometimes profitable, but it depends to a large extent on adventurous consumers. There are early adapters — people who are always eager to be the first on the block with the newest toy. The penetration of digital devices is reaching the point where novelty is no longer the chief attraction: Adaptation and efficiency are. Most of us want to be convinced that we need something and then, when we have it, we don’t want to waste any time getting it to do what it is supposed to do. When we have to accommodate the technology, then priorities are backward and something is wrong.
Some of the failing dot-coms are based on good ideas. It’s just that they are ahead of their time. We’re still years away from the infrastructure that will allow these companies to really serve consumers well. Unless they’re willing to tread water till then, they will just bleed funds.
The point is that the real business opportunities are not in conjuring up ideas, but in solving problems. Put technology to work for real people.
For example, I’d put my money on Startupfailures.com. Its founder calls it “something of an online group therapy session.” It sounds like an industry with a future. Buy now.
Brad Glosserman, (firstname.lastname@example.org )