Avoiding Common Dotcom Mistakes

Setting up an online business seem a challenging task because unlike a brick and mortar business, the customer’s only way of getting information is by pictures and some written features of the products you are selling. Some make good sales copy so customers are already psychologically ready to buy the items. That is why information technology are the best things to sell on the internet because there is no need to touch or feel the items before convincing the buyers.

We also see many businesses that prosper in the world wide web and we wanted to take our share in the internet market “pie”. But many online businesses in the U.S. also flopped. Like what I’ve read:

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In a recent report, Webmergers found that since January 2000, some 962 internet companies have shut down or declared bankruptcy.

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So to avoid it, below are some reminders before starting one. It’s like a 360 degrees pre-flight inspection done by a pilot to his airplane before flying. Of course, it’s ridiculous if you do that in a jumbo jet because it will take days before you can finish it. What I got blow is from entrepreneur.com.

  • Bad balance-sheet math: At no point did these companies generate financial statements that indicated any reasonable relationship between income and expenses. And yet they spent wildly, renting expensive offices in Silicon Valley and New York’s Silicon Alley, hiring deep staffs (and often paying salaries upwards of six figures for minor positions), and buying fantastic exposure in ads of every medium. No genuinely small startup could long afford these lush business habits.
  • No revenue model: The core question that is supposed to be asked of dotcom startups is, What’s your revenue model? This is shorthand for, How do you envision bringing in income? What will your revenue streams be? In the past, dotcoms have vaguely explained that their revenue model involved a mix of ad dollars and e-commerce, and in most cases, that answer was accepted. It was a mistake because, as the failed dotcoms proved, nobody had ever really put flesh on the revenue models. Never open a business without understanding your source of revenue. This seems so elemental, but in the heady days when vaporous businesses such as Yahoo! and eBay quickly snagged multibillion-dollar market caps, so many people abandoned this axiom.
  • Building market share to the detriment of the business: Market share is not God, although CEOs of the many failed dotcoms who pursued a strategy of building market share at any cost wanted you to believe otherwise. Look through the financial filings of many of the best-known dotcoms, and what’s stunning is that a common practice is selling merchandise for less than they paid for it. Pay $300 to a wholesaler for handheld computers, and no matter how many you sell for $250, you won’t do anything but go broke.
  • Ignoring stakeholders: Who has a stake in your business? Investors, your employees, management, your vendors and your customers. Long debates can explode around attempts to prioritize these stakeholders–whose stake is meatiest or weakest?–but probably the best strategy for most dotcoms is to assume that all stakeholders carry equal weight. To succeed, businesses need to satisfy all stakeholders. That doesn’t mean all will get what they want (stakeholders quite commonly are in conflict with each other, and a management task is seeing that everybody gets enough to feel happy), but it does mean you need to stay aware of your stakeholders, their wants, and what you’re delivering. Failed dotcoms often had little or no awareness that any stakeholders existed (at least any that were not on Wall Street), but stakeholders always exist and will always get their due.
  • Forgetting what industry you’re in: Guess what–your online store is still a store, meaning you’re competing in a retail universe. Yet CEOs of stumbling dotcoms talk as though they’re in any industry but retail, throwing around terms like new media, content and consulting. Never fool yourself about your industry.
  • More ego than profits: Not only did many CEOs of defunct dotcoms forget what industry they were in, some seemed actually to forget that they were in business at all, and that the essence of a business is to make money from revenue–not from bedazzled stock market speculators and frenzied angel investors pouring cash into the till. The sad fact about many failed dotcoms is that they could have been successful–maybe not quite on the lavish scale hoped for by the founders, but profitable nonetheless. And they blew it by forgetting that, in the end, business is business. While it might be fun to make it on the cover of a magazine, it’s ultimately more fun to be on top of a steady stream of black ink (and it’s no fun at all to manage a business that’s dripping red ink).

The message for you: Don’t be discouraged by the stumblings of the name-brand dotcoms. They had it coming. That sounds cruel, but really, they did. You can avoid their mistakes and thereby create a very different outcome for your business.

Ignoring what I posted above might end like what happened before the Wright brothers invented the true airplane. Many people attempted to create flying machines doomed to failure. See video below after the jump.

Just for the info, the Wright brothers are not scientist but entrepreneurs and inventors. They run a bicycle business but and they are passionate about flight which lead the invention of the airplane.