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January 10, 2001 Event
Internet 2001: Year of Real Opportunity or Year of the
Not-Com?
Alas, the bubble finally has burst. The incredible gold rush of the
past five years has given way to a bloodbath as extreme as the instant
wealth-creation of 1999. No one believed it would last forever, but who
could predict this rapid a fall, and to these depths? Each new day brings
more tales of ugly bankruptcies, massive layoffs, and precipitous stock
declines. There seemingly has never been a worse time to be an Internet
company. Yet a growing faction believes that the recent correction is
nothing more than a return to sanity, and furthermore, that now is the
absolute best time to build a lasting and sustainable enterprise. As we
enter the first year of the millennium, the stage is set for either more
dot-com carnage or the emergence of truly great Internet companies.
One certainty about 2001 is that there will be fewer companies, period.
In the latter part of 2000, 210 dot-coms shut their doors, taking down
with them $1.5 billion in invested capital. Since only the cash-flow
positive will survive, remaining entities have curbed excess spending and
focused squarely on revenue. Layoffs and cost control are necessary steps
on the path to profitability. The difficult times clearly have affected
the people playing the game. The uncertainty of the stock market (and job
market) has many second-guessing Internet careers. Promises of lucrative
exits and early retirement have all but disappeared. But lots of heavy
lifting is needed to turn struggling startups into booming businesses.
Perhaps the only ones left will be true entrepreneurs.
Can the environment get any worse? In the last year, companies even
remotely connected with the Internet or technology in general already have
lost between 50-90% of their market caps. From a big picture perspective,
the country may be on the verge of a recession. However, there is a silver
lining to this ominous cloud. The Internet still represents an enormous
opportunity. Companies with sound business models, proven management
teams, and strong value propositions (the same elements that historically
determine success) not only will survive, but thrive. It is quite possible
that the bubble’s biggest flaw is that it didn’t burst sooner. While the
year 2001 won’t relive the heyday of the late 90’s, it will mark the
beginning of a more mature Internet industry.
A Great
Time for Building Great Companies
It’s
A Good Time to Launch Your Company Key Learnings
THE PENDULUM HAS SWUNG TO THE OPPOSITE EXTREME
Much like the hype that contributed to the Internet's golden era, the current depressed market climate is a polar opposite that stems from trailing indicators such as the press and Wall Street, and does not accurately reflect market opportunities today. To the extent that press and share prices create a feedback loop, both media and markets stand to contribute to an over expressed slide in morale, funding, and valuations. True opportunity in the Internet marketplace lies somewhere in between the ends where the pendulum has swung.
ASHES TO ASHES, DUST TO DUST
The recent “bloodbath” is actually a healthy “bloodletting” and the truly great companies will rise up from the dot-bomb ashes. With an excess of VC cash to throw at start-up companies came a pressure to spend it. Poorly planned business strategy, misaligned employee compensation, frivolous advertising expenditure, and a dearth of real business models were a result of this rush to fund the next big thing, regardless of whether it contradicted sound business principals. Many believe the current bloodbath will spread to venture capital, with younger VC firms closing and established firms shrinking. VC's that remain will have deep technical knowledge and/or domain expertise to guide them through turbulent times.
RECIPES FOR SUCCESS IN 2001
The "Internet Land-Grab" was only an illusion. First-mover status was overstated both a need and position of power. The real success indicator is in how companies deploy resources and execute in the marketplace. Companies that wish to survive a turbulent market climate in 2001 must embrace traditional survival tactics including cash conservation, customer focus, sound hiring practices, efficiently designed products with a razor-sharp focus, aggressive sales and marketing practices, and proving concepts before delivering a product. Strength of management and defensible technology will play critical roles moving forward. The correlation of exceptional management to strong success is real and management will create the strongest companies going into 2001. Finally, the 2001 market will reward individuals with a passion for an idea or technology, not untamed entrepreneurial passion for starting a business.
THE "E" STANDS FOR EXPERIENCE
A few years ago, a company needed to show five consecutive quarters of profitability and growth to go public. Internet companies have been pressed to show five consecutive quarters, let alone five of profitability. The 800 pound gorillas have been the more obvious choices for companies that can rely on their experience to help them survive the recent downturn. However there is a business maxim that no leader in one wave of technical innovation has a lead in another. For example, the leaders of the mainframe revolution did not lead the minicomputer wave. Likewise, DEC and other minicomputer companies were passed by the PC leaders (and Compaq in fact acquired DEC). Therefore, the 800 pound gorillas are expected to atrophy and the first wave of leaders, such as Yahoo, Amazon, and eBay will be no exceptions. Contrary to Internet time, whether traditional business maxims ring true in the new era will be revealed over the coming years, not months.
QUOTES OF THE NIGHT
"Capitalism Happens"
"The walking dead are still out there."
"Real money has always been hard to make."
