Reality Check

The 12 most common myths of Net start-ups-and the realities that will save you from the dotcom graveyard
Magazine Contributor
7 min read

This story appears in the September 2000 issue of . Subscribe »

The Net creates vast fortunes, no doubt about it, but know this: For every new millionaire it mints, it creates even more myths about what's involved in succeeding in cyberspace. That's the harsh reality. Know this, too: The more you know the realities, the better prepared you'll be for doing business on the increasingly competitive battlefield the Web has become. What realities do you need to know? Read on.

Reality Check

Starting Your Site

Customer Service And Advertising

Act Like An E-Commerce Pro

Keep It Traditional Yet Up-To-Date

Starting Your Site

Perception:Venture capitalists are throwing money at Net start-ups.

Reality: Maybe one business plan in 200 gets venture funding, according to Guy Kawasaki, CEO of, a Palo Alto, California, company that helps steer start-ups through the VC process. It's a good bet that only one in every 400 companies that seek VC funding gets any. The smarter way to launch a business is the old-fashioned route-with your own money and cash from family and friends.

Perception:If you build it, they will come.

Reality: "I think many in e-commerce still believe that," says Stan Anapol, 28, the founder of Arlington, Virginia-based, a site that sells political paraphernalia. "You must do much more than go online before anyone will ever see your site. Good promotion and advertising are key to an e-commerce Web site's survival. Finding the right concept is only the beginning of a long road to attracting customers."

Perception:E-commerce is the "people-less" route to building a business-staffs are very lean.

Reality: "For all the talk of the power of technology to transform the marketplace, it's still about people," says Joe Pezzillo, 31, founder of, a Boulder, Colorado, Internet radio network. Worse: Qualified workers are in desperately short supply in most of the country, and the dotcom executives who survive are the ones who are persistent and ingenious in their recruitment efforts.

Perception:Stock options will make everyone involved in a Net start-up rich.

Reality: "Just multiply by zero the number of options you have, and that should give you a reasonable idea of their worth," says Bruce Weinberg, an associate professor of marketing at Bentley College in Waltham, Massachusetts. And the big financial reality is that most stock issued by most start-ups is worthless. Getting rich on the Net happens, but it takes hard work and luck.

Customer Service And Advertising

Perception:E-commerce frees you from the hassles of customer service.

Reality: "Ha!" laughs Anapol. "Responding to customers' needs is a priority for us because it's how we generate repeat business and get word-of-mouth recommendations." Customers may be "virtual," but their money is real. Ignore their concerns, and they'll take their money elsewhere.

Perception: With enough site traffic, you'll get rich just by selling advertising.

Reality: "Advertising cannot be your revenue model. It just won't happen," says Ned Barnett, a partner in Firebaugh Communications, a high-tech PR/marketing agency in Dallas. "Maybe ads work for Dilbert's Scott Adams [his bristles with ads], but most sites cannot generate that sort of brand loyalty or traffic."

Act Like An E-Commerce Pro

Perception:Microsoft says it will back us; we expect a deal within a week or two.

Reality: While dotcom executives often look to big potential partners-and for "Microsoft," freely substitute, IBM, or any of the other affluent, active players in the dotcom world-and readily predict that a deal is impending, the reality is often starker, says Weinberg. "Although the [perception] is that everything is looking great and that life will be grand, in many cases the deal does not get closed-and then the firm dies.

"My sense is that Microsoft begins dialogues with many companies and then never does deals," adds Weinberg. Does that make Microsoft a bad dude? Not necessarily. Often, big names discover that little start-ups don't have much going for them, so conversations dribble into extinction. Microsoft probably has 100 exploratory chats for every actual deal it does.

Perception: Hot buzz words-b2b, robust, and other similar words and phrases-are the ticket for positioning a Net company.

Reality: "That's Pandora's Positioning," snorts Tom Gable, CEO of The Gable Group, a San Diego-based PR and marketing communications firm. Gable says we're hip-deep in worthless start-up buzz words. The big problem: Pandora's Positioning might not fool VCs, but the entrepreneurs themselves think they are poised for success.

But Gable offers a cure for any site suffering from Pandora's Positioning. "The flip side would be [a site] that speaks to the customer, to desired benefits and added value," he says. "Show something of value vs. empty words. And say it in human terms." Don't say your site is robust; say it offers customers a fast, engaging, personal experience.

Keep It Traditional Yet Up-To-Date

Perception:You need the best, hippest technology to succeed on the Net.

Reality: Don't believe it, warns Michael Binko, 30-year-old co-founder and vice president of LaunchFuel Inc., a Reston, Virginia, Net start-up accelerator. "Even though technology is a tremendous enabler, blind faith will quickly drain precious resources," says Binko. What's even worse, a lot of bleeding-edge technology isn't ready for primetime: "Entrepreneurs need experienced guidance to understand which technologies are proven and which are merely hype."

Perception: Traditional business/operation metrics don't apply to me.

Reality: Once upon a time (admittedly not long ago), netpreneurs insisted that yardsticks such as profitability and revenue had no relevance to a Net start-up, and investors believed them. No more. "That's from the Internet's Wild West days," says Binko. Patience with start-ups is now very short, and, at an early stage, companies have got to start producing operational numbers that show the business has long-range potential-or impatient investors just may turn off the life support.

Perception:E-commerce has to cost big bucks.

Reality: Do it smart, and it can be done on the cheap. "When we created in 1999, it only cost the company about $5,000 out-of-pocket," says serial entrepreneur Tom Traeger. "I created an 'earn-in' relationship with our webmaster, who maintains the site as part of his 'sweat equity.' We are now generating approximately $1,000 per day."

Perception: My idea is unique, and I have no competitors because I'm using the Net to accelerate my business plan.

Reality: These entrepreneurs need a wake-up call-fast," Binko concludes. "Although the Internet certainly does allow a first-mover entrepreneur the opportunity to change an industry under the feet of established larger competitors, he/she can rest assured that a handful of like-minded entrepreneurs are kicking the tires on the same concept. The harsh reality is that the Internet-the same medium that offers first-mover advantages-also helps subsequent competitors that may be able to take market share if the entrepreneur missteps."

The only cure is to keep striving to improve. While that prescription may sound tough, in this age, continuous improvement is the only protection.

Perception:All the good Web niches have been taken; there's no more room for start-ups.

Reality: New Web sites sprout every day, and in just about no categories are there real leaders with insurmountable leads. would be tough to dislodge from its hold on books-but try naming other category leaders with similarly strong positions. It's tough to think of any. What's more, many established e-companies are now showing all the signs of artery-hardening that made the brick-and-mortars easy prey. Everywhere, companies are setting up legal departments and doing all the stuff that shouts bureaucracy. The more they do that, the more they're like dinosaurs marching closer to their own funerals-and the greater the reason for optimism among start-up entrepreneurs.


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