Why Dot-coms Fail
By Stephen Schleicher
Producer
stephens@digitalmedianet.com

Open the business section of your local paper, and you are sure to find numerous stories talking about the latest Internet company failure. Amazon reports they will lay of 1,300 people, Psuedo.com closed their doors, only to be bought out of debt by INTV, and right after merging, AOL TIME WARNER lays off a fair number of their employees. From these reports it would seem that dot-coms have turned into dot-bombs and the Internet boom is over. Are e-commerce companies drying up and becoming virtual ghost towns on the Internet range? Despite a slowing economy, and constant threat of recession, Internet growth will continue as more companies stake their claim in electronic territory. If Internet growth will continue, it brings up the question: why do dot-coms fail?

Growth
Some of the most popular print magazines today did not start with a 10 million-reader subscription base. They started small, often distributing their early issues as a stack of stapled papers. Only after they established themselves as great sources of information, did they expand to larger circulations, better layout, and glossy covers. Later still they began purchasing cable and television networks, adding to their reach, and later extending to the Internet.

A tree does not spring up overnight, full size, baring fruit. It starts out as a seed, grows into a sapling, and only after it matures does it reach its majesty. During its growth, a tree needs to be pruned at times; dead branches fall off. A dot-com company can learn from the tree. Instead of trying to be everything for everyone at one time, start out slow, establish yourself, let your roots take hold, and then expand your Internet Empire. Some pruning will need to happen, but only where necessary. Don't take out the whole tree.

Allowance
What is surprising in the dot-com world, is how a company will receive millions of dollars in investment monies, only to be bankrupt or out of business a year later. How does this happen? I would like to think that it is the fault of some nefarious accountant who is shuffling numbers around and making secret deposits into his Swiss bank account. I would also like to think that it is the result of higher than expected costs brought on by the company's ISP, who claims costs have risen because of the increased traffic. While there may be any number of legitimate reasons these companies are burning through their investment capital, often the cause can be traced back to poor handling of money. Not the nefarious accountant, but someone who let the amount of money go to their head.

As a child, I was given a weekly allowance based on work I did. I had to decide if I wanted to spend it all that week, or save it for something bigger and better down the road (like that Tandy TSR-80 personal computer). It always amazed me how other kids my age who had an allowance would get it, go to the store and blow it all on candy in one hour, leaving them with empty pockets (and growing cavities) for the rest of the week. I see the same thing happening with dot-coms. Instead of planning how to spread their investment out for as long as possible, they blow it on candy… eye-candy. They deck the office with designer furniture; kitchens with on-call master chefs, free jolt cola and food (not snacks, real food) for everyone, and spend as much as they can on interior design to make their company look prettier than the dot-com across the hallway.

While having pretty surroundings may keep the employees happy and encourage them to work harder, in the long run, the dot-commers who don't know how to handle their money will soon be wishing they could eat all that eye-candy as their belts will be pulled very tight. Instead, buy practical, buy the equipment you need to get the job done, lease or rent what you can in case the company does collapse so you are not stuck with 50 $800 designer chairs that will have to be sold at auction to cover bankruptcy.

I'm not buying toilet paper online
Why do people want to come to your site? Is it because you are the leading pimento distributor for the western hemisphere? For most, they come to your site because they perceive some value in your business. They are there because you are providing a service or information that they can't find (or get) anywhere else. Yes, there are companies that don't belong on the Internet. Why would I want to go to a site dedicated to purchasing dog food and pet supplies when I can purchase them from an Internet grocery store, or have the satisfaction of walking to the local grocer and buying the stuff immediately. I can wait a few days to receive my software, book, DVD, and miscellaneous toys, but some items people need right away.

If you build it they will come
The Field of Dreams Theory doesn't work in the Internet world like it might in the real world. In addition to building a great value-added site, with the best information and deals for readers, the site needs to be advertised; the word needs to get out. Four years ago, it was great to have your domain be what the site is about; www.time.com, www.etrade.com, www.videosystems.com, etc. With so many domain names being snatched up by squatters, getting a simple site name has become more difficult. To solve this problem, a dot-com company needs to submit information to search engines. But the company can't submit just any set of words, they need to be specific. Key words of just digital video will not cut it. Do a search; see for yourself how many results you get. This may mean that the dot-com company needs to take the time and truly define what they are about, submitting the key words and phrases in such a way that their site comes up higher on the search results than any of the competitors. Perhaps by taking the time to define themselves, they will discover if the business will succeed or fail early on.

Don't run off in fear
Just like every industry, the Internet will have its cycles of ups and down, better years than others. Dot-bombs will continue to fail, not because of the economy, or trends, but because dot-bombs are treating the Internet like a land rush, trying to snatch up as much as they can before they have decided what they want to do with it. Fear not dot-commers, find your little plot, plant your sapling, treat it with care, use good judgment, and watch it grow.