Do Startup Internet Businesses Have a Prayer?
By Pam Baker
September 9, 2004
"The dot-com bubble burst for the investor community,
not consumers. Investors and startups got creamed because they rushed to
exploit technology they really didn't take the time to understand. Established
businesses were unharmed because they transferred their business
acumen," says Carl Lehmann of Meta Group.
Dot-coms are dead and buried. So says common lore, anyway.
Yet entrepreneurs are still trying to hit the jackpot with the next great
Internet business idea. The odds are daunting, but not impossible, say
"People think that since the dot-com bubble burst,
that means the Internet failed. But that's not true. E-business and the
Internet are wildly successful, way beyond anyone's greatest
expectations," Carl Lehmann, vice president of technical research
services for Meta Group , told NewsFactor.
That is not to say that the money is easy, or that a
startup is a sure thing. "If you start out with just any wild idea, you
don't have a prayer," says Lehmann.
For one thing, venture capitalists look at startup
Web-based businesses as something akin to the bubonic plague. "It used
to be that venture capitalists could be wooed with just a neat idea. Now they
won't even speak to you unless you have a sound business model and lots of
happy, paying customers," Rob Garf, retail analyst for AMR Research told
So what exactly will catch the attention of this
once-burned, twice-shy group? "The same thing that catches their
attention in the brick-and-mortar world: unique and new products or services,
with tried-and-true business practices," says Garf.
"Don't try to sell them on an invention or something
needing heavy research and development. Make your widget in your garage, make
yourself a Web site or put your goods on eBay -- or both -- and call venture capitalists when you have
money in the bank and enough orders to outgrow your garage. Then maybe, just
maybe, they'll entertain the idea," says Lehmann
Startup capital these days come from more traditional
sources: mom, dad, a successful spouse, an angel investor with more money
than sense. In other words, risk-takers who bank more on the person than the
"There will always be startups. But the days when
venture capitalists were throwing money at people with only good PowerPoint slides
is gone. Those days may return in 10 years. But not today," said
Laurence J. Stybel of Board Options, a consultant to venture-capital firms.
It is not just the venture capitalists' equation that has
changed. It is the entire definition of what constitutes an Internet business
in the first place. "It's less about pure e-commerce as a space, and more
about catalog and brick-and-mortar multichanneling," says Garf.
That means first-timers should think of the Internet as
more like a truck than a store. You can sell goods off the tailgate one at a time,
but it is more profitable to load the truck and haul your goods to market.
"Entrepreneurs need to align themselves with more
credible marketplaces like eBay, Yahoo and Amazon . That way customers are more likely to trust -- and buy --
your product," says Garf.
Really Good Idea
Still, some ideas can stand on their own. "Truly
unique ideas that fill specific needs are the best bets -- like something in
the liquidation channels, similar to Overstock.com and SmartBargains, which is going public in a couple of
months. Ideas in the digital-music area that build off the success of
companies like iTunes and Real Networks could be good too," says Garf.
Look for other attributes that can make your product more
attractive than you may have first realized.
"Any local plus can become an international draw.
Silk ties from Milan, watches from Switzerland, whatever your region is known
for, can be a hit with customers from other areas. Even playing international
currency fluctuations can be a big future trend in e-business once people get savvy to the
international currency play," says Stybel.
Learn the lessons from the past to avoid pitfalls along
the way. "Remember the dot-com bubble burst for the investor community,
not consumers. Investors and startups got creamed because they rushed to exploit
technology they really didn't take the time to understand. Established
businesses were unharmed because they transferred their business acumen to the
new channel," says Lehmann.
“Don't skimp on technology and process investments. If a
customer has a bad experience the first time, that customer is probably gone forever,"
In any case, starting an Internet company is not for the
weak of heart. "It's always been hard to be successful. But 'bucking the
odds' has always been a turn-on to real entrepreneurs," says Stybel.