Note to instructors CommunityWeb: an Internet firm's fight to survive.

Introduction

This case focuses on the efforts of an Internet startup firm to survive in light of the "tech wreck" of April 2000. Possible reasons for the firm's struggles, such as mismanagement, insufficient and inadequate fundraising techniques, and flaws in the business model, are pointed out in the text to give the reader an understanding of the underlying problems at CommunityWeb, in addition to the economic and competitive factors that the firm faced. CommunityWeb's business plan appears as an appendix, allowing insight not only into the founders' goals and reasoning but also into their readiness to launch the venture.

Financial information included in the case is incomplete and inadequate for two reasons. First, the financial information provided in the case gives a great deal of insight into the management team's degree of financial understanding. Second, what management provided was the only financial information available to the authors. Because no accounting firm ever audited CommunityWeb's financials, accurate and consistent financial statements were not available. This provides an excellent lesson for students regarding financial responsibility and competency.

This case presents a factual (albeit disguised) account of a dot-com company's experience of optimism, crisis, and impending failure. It is a tale that represents the legacy of so many Internet firms from 1999 to 2001.

Key Issues and Discussion Points

The CommunityWeb case focuses on several critical challenges. First, the company was faced with severe financial problems. Like many Internet firms in the late 1990s, it had to quickly figure out a way to obtain enough capital for short-term survival, and at the same time, it had to reduce its debt significantly to secure second-round funding. Yet the company's initial business model (described in the business plan) had proved unattainable and underwent continuing revision.

The second issue deals with the firm's declining employee morale. Employees started to feel the pinch of the firm's financial troubles, and began to question the overall direction of the company.

The final and most pressing issue involves Pale and Mack considering the proposal from Wall Street Venture Capital, since the two had very little success in obtaining information on this potential capital source. The Wall Street proposal, besides requiring CommunityWeb to give up a significant stake in the company, also required CommunityWeb to pay a $20,000 commitment fee and agree to other short-term fundraising limitations. This case illustrates the dilemma faced by many Internet firms who struggled to survive after the technology market crashed in April of 2000. Specific issues for class discussion include the following:

* The inherent risks of a start-up (especially Internet and/or technology) firm

* The positive and negative consequences of entrepreneurial decisions

* The mistakes of a dot-com company during the 2000- to 2001 era

* The implications of strategic and ethical decisions confronting start-up firms

* The realism of assumptions and projections in a startup's business plan

* The challenges associated with the growth of a start-up firm

* The issues involved with raising equity through a venture capital firm

Potential Audience and Uses

This case should be used to focus on venture start-up challenges as well as the search for venture capital. This case is most appropriate for use in an entrepreneurship or strategic management course at the undergraduate and/or graduate level. This case may also be used in undergraduate or graduate management, marketing, or entrepreneurial finance classes.

Suggested Teaching Approach

While the basic issue is one of an Internet firm's struggle to survive, a discussion regarding the Wall Street Venture Capital deal is an excellent way to open case discussion. This gives the students a perspective on the situation in which CommunityWeb found itself. As this discussion unfolds, students should be encouraged to examine the following issues in the case:

* The company's cash position and financial outlook

* A critical analysis of CommunityWeb's business plan

* The ethical and/or legal concerns raised in this case

* The major reasons that CommunityWeb is now faced with its current dilemma

Role of the Authors

The original version of the case was written by the authors while working as consultants for the corporation. The first author, Dr. Kuratko, served briefly as an advisor during the company's first few months, while the second author, Mr. Mathews, was engaged to develop and refine the business plan for the company. In addition, Mr. Mathews was a friend of the company's president. This friendship and working relationship with the president gave him a unique perspective on the problems and opportunities of the business, a perspective that was reflected in the case itself. Moreover, the synergistic relationship between the first author's advisory role at CommunityWeb and the second author's in-depth efforts on the business plan allowed access to the company's shortcomings.

The majority of the information presented in this case was obtained through both authors' direct observations and first-hand knowledge of the business. The second author also conducted several market research projects for the business. In addition, he collected primary data on competitors through on-site interviews and phone conversations, as well as secondary information on the industry environment and the local conditions.

Donald F. Kuratko is the Stoops Distinguished Professor of Entrepreneurship and executive director of the Midwest Entrepreneurial Education Center in the College of Business at Ball State University.

Robert D. Mathews is the program coordinator for the Midwest Entrepreneurial Education Center at Ball State University.

Please send all correspondence to: Donald F. Kuratko, The Entrepreneurship Program, Miller College of Business, Ball State University, Muncie, IN 47306.