Death of a Dot-Com

I have borne witness recently to the death of a dot-com. As you can imagine, it wasn’t pretty. What went wrong? Well, I’d prefer to start with what went right.

First, the company did a good job of identifying a market with an unmet need. A specific market segment was targeted, a brand identity was created, content partners were recruited, a message was crafted, a sales team was hired, and the company launched the marketing and sales effort. In less than four months, almost 80 customers had signed on as site sponsors – without even seeing the product. By any measure, the marketing and sales effort was hugely successful. That’s the good part.

The problems began in November 1999, soon after the company made its public debut via a live webcast. The site development vendor had promised that by January 18, the site would go live and that the development costs would be around $1.5 million. At that time, late October seemed like a great time to launch the marketing and sales program.

In November, several things became clear: Nobody had accurately scoped the development effort, the site would not be ready by January, and the development partner was unfit for the task at hand.

The company responded to this dilemma by seeking refuge with a nationally recognized web development firm who (at that point in time) refused to give an estimate to build the site since the scope of work had not been clearly defined. For the next eight weeks, the development partner proceeded on a time and materials basis to define the scope of work.

Then, in mid-January (at about the time the first development firm had promised the site would go live), the first blow hit: It would cost about $6 million to build Phase 1 of the site, and it wouldn’t be ready to launch until July. Ouch!

At that point in time, the choices were limited. Promises had been made to customers and potential customers about site functionality. The industry press was buzzing about this “new player” on the scene and the breadth of its offering. And a site was needed – fast. The development firm brought in a team of a dozen or so developers and began cranking out the code.

Meanwhile, the “angel” investor (a company that to date had provided all of the funding) began getting nervous about the “real cost” of this initiative and asked the CEO to begin looking for additional investment partners. The executive summary was written and revised again and again until it was ready for prime time. Then the pitching began.

Reality struck pretty quickly when it was learned that the investor market had gone cold on anything B2C. The plan was actually B2B2C; however, too much emphasis had been placed on the B2C part. So it was back to the drawing board, recreating the plan to emphasize the B2B strategy (sound familiar, anyone?).

The plan was well received. Everyone seemed to think that it was a great idea, and they were impressed with the progress that had been made in a short period of time. BUT there were problems. Among them:

  • The amount of money being sought: $25 million to sustain the next 12 months. Sure, many dot-coms raise this much and more, but today, if you’re looking for that much, you need to be already operational with customers.

  • There was nobody on the management team who had taken a dot-com public before – in fact, no one who had actually worked at a dot-com before.
  • The company was overly dependent on the external web development vendor for both technology strategy and technical skills.
  • Investor psyche with regard to dot-coms took a turn for the worse at a very inopportune time (the real kicker).
  • The parent company regrettably pulled the plug. Even though the site launch was just two months away, it was unable to justify the continued and considerable investments needed. Currently, negotiations are taking place with several interested parties for the sale of the assets.

So what are the lessons learned?

  • Get people on your management team who have been there before. It became evident during the investor presentation process that this is the most important asset investors want to see.

  • Make sure that you have detailed requirements documents, statement of work, timeframes, and budgets established before you begin your marketing and sales effort.
  • Make sure you have a Chief Technology Officer on your team who understands the importance and value of these items and can demonstrate past experience in working through this critical phase.
  • Narrow your focus, narrow your focus, narrow your focus. Aim to get Phase 1 of your site up and running within three months from signoff on statement of work and budget. Six months is too long, too costly, and too fraught with danger.
  • Operate lean and mean. Investors admire and respect frugality. They want to see that you’re stretching every dollar as far as you can.

I share this story in the hope that it may help other dot-coms avoid a similar fate. May you enjoy these prosperous times.

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