Get a Grip

Be Slow to Spend Money

Chris MacAskill, founder and CEO of Santa Clara, California-based Mightywords, an online content provider spun off in March 2000 from Fatbrain.com, raised $36 million in venture capital and partner investments-after the crash. That accomplishment suggests he knows how to be a survivor. "Sometimes when companies get bigger, they can afford bigger corporate offices that have bamboo in the lobby," says MacAskill, 47. "But if you're a start-up, you'd better be lean and mean."

Mightywords has avoided dotcom excesses, such as giving every employee $1,000 chairs; failing to scrutinize executive travel costs; and, in particular, spending too much money advertising to mass consumers when more focused and more profitable alternatives were available by allying with strategic partners.

Survivors' frugality extends to their computer software, the furniture in their offices and the style in which their execs travel on business. They don't throw away money on unproven marketing opportunities. "When Netscape came up with the idea of charging $5 million to be on their home page, Yahoo! wouldn't pay it," says MacAskill. "Other companies did pay, and they've disappeared."

Be Able to Turn on a Dime

Doing business at Internet speed requires small firms to be flexible. At AHA! Interactive Inc., a provider of online learning products for the K-12 market, co-founder and COO Todd Carter says his firm makes a virtue out of necessity. "We're a small company, [so we're able] to listen to our customers and change our strategy on a dime," says Carter, 30, whose Chicago company has six employees. "We still make changes on a monthly or bimonthly basis."

Partner Well

One of AHA! Interactive's earliest shifts involved dropping its initial plan of emphasizing direct sales to end users. "Now we're going with partnerships with larger publishers," says Carter. "It's taken the sales out of the sales process and made it a business-to-business arrangement." Established customers go with established names, so sales occur faster and in larger volume. "We're getting publishers to pass us some of the fees upfront and the rest on the back end," he says.


46%
of B2B sites in business at least three years are profitable (compared with just 32% of all B2B sites).
SOURCE: ActivMedia Research LLC

Strategic partners can provide dotcoms with important resources, such as distribution channels and brand recognition. Some even invest cash, and they tend to take a longer-term view than venture capitalists. That's why dotcoms that effectively partner with larger, usually offline, companies are likelier to survive than their go-it-alone brethren.

For example, Mightywords gets more than just funding from Barnes & Noble Inc. It gets promoted in many Barnes & Noble and B. Dalton bookstores nationwide. If you want to find a strategic partner, MacAskill recommends you get to know people in your industry and make sure they know you. "Big strategic partners," he says, "are always looking for the next big things." For more on partnering, see "What Now?"

Find a Way to Raise Money When Nobody Else Can

You can't convince anybody to invest in a dotcom these days, right? Wrong. Just ask Nirav Tolia, 29-year-old CEO and co-founder of Epinions Inc., a 65-person online distributor of product reviews written by consumers. In February 2001, the Brisbane, California-based company raised $12 million from new and existing venture capitalists in its third round of financing. What does your company need to accomplish the same thing? Tolia says what you need is a solid value proposition and a business model that delivers revenue at low cost. "Epinions is the place where consumers go before they buy anything-that's a very large, specific value proposition," he says. "And we have a scalable business model, similar to eBay, where our users provide the labor for us. In the last six months of 2000, we grew our revenues 375 percent, while simultaneously reducing our costs 50 percent."

Epinions generates revenue by charging retailers for shopper referrals, reselling its reviews as content to other online companies and licensing its technology. The combination of low costs for generating revenue and multiple revenue sources makes Tolia optimistic that Epinions can become profitable by the end of 2001, two-and-a-half years after start-up.

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This article was originally published in the June 2001 print edition of Entrepreneur with the headline: Get a Grip.

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