For every dotcom filing Chapter 11 or laying off employees in
packs of 20, a few newcomers arrive on the scene. Will they ever
learn, you ask? Well, they think they have. And with Internet
start-ups to thank for past wages, many are that much higher on the
learning curve.
"We're not blinded," says Manvinder Saraon,
co-founder and CEO of Palo Alto, California, media darling
(everyone from CNN to InStyle has touted the venture)
Surprise.com Inc., an online community sharing gift ideas in an
array of categories. "After the Nasdaq market crash last
March, people thought it would be time to quit, but we're a
close-knit group that's passionate about this project,"
says Saraon, 37. "And we're very realistic about the
opportunity."
Realism is the key this time around, and to fully embrace it,
entrepreneurs have analyzed industry failures rather than
successes. "In the early days [of an industry], when resources
are fat, people are doing well and think everything they're
doing is a good idea, but it's not," says Anne Miner,
professor of management and human resources at the University of
Wisconsin, Madison School of Business and co-author of the research
study "The Fruits of Failure." "They're living
through this grace, and when [money] becomes tight or there's a
threat, it's difficult to figure out what things were helpful
or not. That will be the main challenge for the third generation
[of Internet entrepreneurs]."
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One lesson Saraon learned from his experience as a lead investor
in NetPharmacy.com, which
became PlanetRx.com, is how
following in the footsteps of competitors (as PlanetRx.com did in
changing its focus from targeting consumers with chronic illnesses
to selling toiletries like Drugstore.com does) can hurt.
"Listen to your customers and follow them," he says.
"Using your competitors as proxy for customers is a fatal
flaw."
Saraon is sticking to his game plan, hoping service gifts like
dinner for two will become as big as sending flowers. He also vows
to avoid PlanetRx.com's other mistake: spending more to attract
customers than he'll make back in profits.
The lesson Jan Andersen, founder and CEO of Saint Paul,
Minnesota, home lighting and accessories site Bellacor.com, has
learned is not to bet the farm on traffic metrics like "time
on site." Formerly senior vice president of sales and
marketing at NetRadio.com,
Andersen, 48, has found conversion rates-how many visitors turn
into paying or active customers-to be more relevant. "Bellacor
has relatively low traffic because we've not spent a lot on
marketing, but we have more important things such as revenue,"
he says. Sales for the site, launched in September 2000, are
undisclosed, but Andersen says it's generating "more per
head" than other companies that have made their sales
public.
Saraon relies on the originality of Surprise.com and revenue from
merchants to whom the site directs customers. Andersen rejects the
dead-end models of Furniture.com and Living.com, which
offered a limited range of "touch and feel"-type products
at roughly the same prices found in brick-and-mortar locations, by
selling impulse-driven items, like candle holders and mirrors, that
are easy to ship. Kevin Nakao, founder of MusicBlitz Inc., puts his faith in
a diversified business model. The Culver City, California, music
company funds and develops recordings for artists ranging from
unknowns to Grammy-winners, then offers them as exclusive free
downloads. Most revenues are generated by licensing popular singles
to TV and film studios.
Nakao, 39, left his stint as general manager for music content
company Launch.com (he
developed Launch's first
Web strategy) to launch MusicBlitz on Grammy night in February
2000. The lessons he took from his time at Launch were primarily
good ones. He admired the company's ability to filter and
aggregate the music that major and independent labels provided, but
he saw even more promise in picking up established artists who
weren't part of the major-label system. Without marrying the
offline business (recording) with the Internet, none of it would be
possible.
For each company, keeping the infrastructure small has been
integral. MusicBlitz has 12 full-time employees, while Surprise.com
and Bellacor.com have six and
15, respectively. MusicBlitz keeps burn rates to a minimum, grounds
financial expectations in reality and bases its brand on customers
and revenue. The obstacles of running a dotcom still exist, but the
company meets them head-on.
Most important, technology is viewed as an aid to, not the
reason for, business. "In technology, as long as you make it
smaller, faster and cheaper, [customers] will come," says
Andersen. "It doesn't happen like that with consumer
marketing. We all assumed [selling] on the Web would create a
completely new dynamic, but now we know that's not
enough."