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WHY DID THE DOT-COM ERA GET BUSTED?
by the editor




Twenty years have gone by and, almost daily, I still meet 'professionals' who struggle with understanding that doing business online requires a dedicated budget. So, in another attempt to difuse the put-it-online-and-it-will-make-me-money belief, I am going to get back in time and try to remind us where the internet business was in 1999 and why at that point everything needed to be shaken up in order to bring order to an out-of-control e-conomy that was operating on concepts, rather than purpuse.

Let me begin with this overview.

The dot-com businesses were, what today is properly defined, as concept companies. Although the general idea was that these companies were being created to generate profits, their actual business plans weren't exactly following any rational economic models. Their business entities were reduced to cool websites and their exact purposes were unknown, for the most part, even to their creators. The mission was simple: get these companies an IPO (an Initial Public Offering) as early as possible in their existance and, from there on, everything else would (just) fall in place. That was the point at which a new business theory was born - "If you build it, they will come" - the 'idiocy-at-work' that eventually brought those companies down (well, there were a few exceptions) and that era to an end. Still, from those failed experiments greater things were about to be born. They were, and they changed the way we now do business, and our lives and lifestyles forever.

So, exactly, how did it all started and why that business concept collapsed under its own weight?

In order to get an IPO, certain conditions had to be met. For example, hiring a large number of employees and opening nation-wide branches simultaneously. And all these before having the slightest idea whether the proposed "business concepts" would even work... This approach not only permitted dot-coms to create the image of "BIG" companies, but it was also a prerequisite to recruiting investors, task which, ironically, represented the least of their worries... The large required investments were almost invariably made available on the promise to act BIG and FAST. The general accepted assumption here was that the faster a company would get "big", the more solid guarantees to make profits there will be. Big profits, might I add, the "understanding" was. So investors - some of whom even understood the process - were lining up begging to throw their truck-loads of money at these companies.

Now that the money was ready to go to work, there was also the need for some kind of blue print that would illustrate the company's market value. No problem! There was no shortage of creativity either. To my knowledge, (some) dot-companies were also among the first operations which had the businesses plans written (entirely?) by their accounting departments. The better the chief accounting engineers and their marketing plans could "grease" the perception of what these companies "were worth", the higher those outlets' stocks would rise. (Whoever invented, in the first place, this practice by which we are blindly putting all out trust and, sometimes, our entire future in companies' financial statements...? Sadly enough, this is not an issue limited to just dot-coms).

For the investors, again, although "sooner" was the preferred time frame, a later "BIG cash in" on their initial investments, was also an accepted term. Their adopted position was - an old business reality - that some businesses, if not most of them, do not necessarily generate profits right away. (Can you argue with that?) However, in the dot-com scenario the three-to-four year proposed incubation period was also a concept, a perception of progress and value where business feasibility did not have anything to do with reality. (Remember, although some dot-coms were created by very bright people who were probably the only ones who understood what their businesses were about, at some point in their existence it was the money 'who' started to do the thinking...) Eventually, some investors did cash in BIG too, but don't let their number be confused with that of those who were, literally, wiped out from the markets and even the business world altogether. And, we're not even counting here the tens of thousands of well-trained, high-performing x-employees whose stocks, which at one time were "worth" millions of dollars, were also wiped out. (Sadly enough, today recruiters are telling them that "they're worth nothing since their current salaries are ZERO!" ...)

Anyway, if you understand that this business concept was applied to hundreds of companies, than you also understand why businesses with real market value were caught up in this time-skip, domino effect when they got stuck with overwhelming volumes of cancelled orders which were initially "projected" by the dot-coms' "strategists". When the dot-coms were, finally, relabeled as "dot-downs", the internet equipment makers - for example - which have established themselves as strong, respected, market players and, which have earned every credit by working hard and generating REAL money, had found themselves motionless on thin ice. At that time, and by no fault of theirs, they were forced to reposition themselves, unfortunately, on lower levels of a new and turbulent stock market.






Still, in fairness to all and everything, we should understand everything that has happened correctly.

(1) The dot-com era was NOT a dirty, economical plot engineered in advance by anyone who may have been caught up in their natural drive to make more money easier and faster, while sizing some opportunity in what was a high-tech-favorable-market scenario. No, the people who took part in creating the dot-com era - and the bases of a new economy - were very well intended in their actions. Except that they were operating on a new economic scenario where speculation prevailed logic. So, in the end, they did learn, sorted things out, and set the grounds for a true new e-conomy. Without them, their efforts, and their failure we would not have the knowledge we have today, we sould not be where we are today.

So, when the dot-com-mania started, for anyone with at least a vision for the future, those decisions seemed to have been the "proper course of action". For the most part, the people who helped make it all happen were some of the best and brights at what they were doing and knew very well their jobs. What they didn't know was that when looking at the future one can only jump so far ahead of reality. And, how could they have known it? They weren't taught that in business schools. That kind of knowledge one only gets at the school of hard knocks. Probably, the best school on which progress has always been made.

(2) Not ALL dot-coms failed. You know which ones, not only are still around, but are in fact, the biggeste companies that have ever been build and shaped our lives.

The Bottom Line

The dot-com melt-down which wiped out billions of dollars in stocks was the result of a faulty transfer and application of old business rules, habits and assumptions to new market configurations. It WAS NOT the web sites (behind those businesses) that created the mess.

Well, this is pretty much it. Of course, you don't have to agree with me, but this is not the point. The point is that today, your website and all its online supporting operations ARE your business. Twenty years ago we didn't know how to make this work; today, we take it for granted. And, if you still have any doubts about how all this works, ask any twelve year old kid. S/he'll show. Still, be nice and buy them an ice cream and a baloon, or something, for their help.