Lessons Learned

Believe it or not, you can start an e-biz without going down in flames. Our special report will help you start wisely.
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8 min read

This story appears in the June 2001 issue of . Subscribe »

When David Tanguay, 28, walks into his Quebec City office in the morning, he isn't worrying about layoffs or plunging stock prices. The CEO, president and co-founder of Wanted Technologies thinks more about working with his 45 employees, meeting his five VPs and keeping his investors up-to-date. Founded in 1997 and launched in 1998, the data management company has weathered the fallout by avoiding the dotcom stigma and sticking to sound fundamentals.

If the heaps of high-profile dotcom failures and horror stories haven't deterred you from wanting to start your own company, then congratulations-you already have the gumption to get started. Since we know you don't want to jump straight from start-up to cyberscrap, however, we're going to help you sort out how to get your Web business launched on the right foot. For advice along the way, we tracked down one Internet survivor, one start-up and two experts who've seen it all.

What's in a Dotcom?

"To me, 'dotcom' means a company that relies on eyeball traffic to the Web site in order to generate revenues and be viable. That model has not proven to be very effective . . . "

The best way to start a dotcom, in fact, may be to not start one at all. "Lots of people saw us as a dotcom in the first years," says Tanguay, "but when they saw our business plan, it was, 'Oh, it's just a , so you guys are boring.' Today it's kind of different because we're saying, 'Aha, we told you.' " The Internet is an important component of Wanted, but it isn't the be-all and end-all of the young company.

Todd Defren, managing director of high-tech public relations firm Sterling Hager's San Francisco office, tries to sort out this dotcom quagmire. "To me, 'dotcom' means a company that relies on eyeball traffic to the Web site in order to generate revenues and be viable," he says. "That model has not proven to be very effective, except for maybe the early pioneers like the s of the world that themselves are facing trouble."

Don't abandon your dotcom dreams just yet, though. "There are plenty of companies being started up or funded that aren't specifically dotcom but do use Internet technology to create a viable ," Defren concludes. Free your dotcom definition, and the rest will follow.

You Can Manage

While picking through the tangled dotcom wreckage, Janice Reynolds, author of Logistics & Fulfillment in E-Business: A Practical Guide to Mastering Back Office Functions for Online Commerce, has seen some common mistakes and distilled them into lessons learned. "You can learn not to be all over the place," she says. "You can learn that you have to have seasoned management. Some of them had really good ideas, but they forgot that at the end of the day, business is still business."

Reynolds recommends assembling an advisory board with an eye toward hiring one or two of the board members for your executive team once funding comes through. Having a solid advisory board from the get-go shows you're serious about bringing in seasoned expertise, and you'll be able to avoid immediately putting out the cash to pay high-level salaries.

When selecting executives, shore up your weak areas, and don't be afraid to rely on more experienced managers. Tanguay knows all about bringing in the right people. "Even as a CEO, you have to find management that really complements you," he says. "If you're weak in finance, you have to hire a good finance guy and let him drive the show." Pay special attention to your weaknesses before you solicit funding.

Indeed, a strong business plan (that old brick-and-mortar holdover) is now back en vogue for dotcom start-ups. The days of scribbling your idea on a napkin and fending off salivating venture capitalists are over. Market research, seasoned management and, yes, profitability are all back in the equation in a big way when it comes to cornering funding.

Reynolds sees it all coming back to basics. "[Funding] hasn't dried up, but venture capitalists have changed," she explains. "They've gone back to the old established way of dealing out capital. They want the real business plan. They want financials. They want to know that you've done your research, that you've got marketability. You've got to show them they can get probably a 40 percent return on investment."

Find out what not to do in those presentations in "7 Investor Presentation Pitfalls."

Lee Mikles' advertising agency start-up, Insight Interactive Group, didn't go after the VCs at all. "We investigated venture capital," says the 33-year-old co-founder (with Mike Russell, 39, and Karen Warth, 34) and partner, "but we couldn't have gotten a meaningful amount without giving up significant equity."

It's a typical start-up dilemma: Get VC; lose a portion of the company. Don't get VC; fend for yourself. As it turns out, Insight Interactive, which opened its cyberdoors in early 2000 and is now a profitable venture, did just fine on its own. "One of the things that really helped us grow and made us survive the first year was a strong focus on financials," says Mikles. "We were able to do debt financing as opposed to equity financing. Our personal property was going to be on the line, so we brought in a rent-a-CFO. The banks commented that the work we did on that made it very easy for them to understand the viability of our business."

Whether you go to a bank or a VC for funding, get ready to be interrogated, and prepare accordingly. Reynolds has spent time gearing entrepreneurs up to go into battle with their business presentations. "I would have somebody grill me as if I was on trial for murder," she says. If you've done your legwork and fortified your responses, you run a much better shot of squeezing out funding from skeptical investors.

In Focus

Don't let "Easy.com, Easy.go" be your mantra. Be a survivor instead.

OK, you've got your plan. You've figured out your funding. You're bringing good people on board. Now you're ready to really get down to the business of starting up. This is where Reynolds has seen more than her share of businesses trip up by losing their focus. "You've got to have the business plan, and you need to stick to it," she says. "Don't be all over the place. For start-ups, that's the biggest problem-most of the time, the reason you got the money, the reason you started this, was you already proved the idea was a good one."

With an e-tailing reach spanning books and toys to housewares, Amazon.com may glow like the Holy Grail of dotcom-dom, but don't do as Amazon does. "You try to offer too many things to too many people, and you're bound to diffuse your business model, your focus on quality and your focus on customers," says Defren. Amazon's rocky road toward profitability is a living testimonial to the problems of such ambitious e-tailing. It's a lesson that applies to any Web business.

Insight Interactive is well aware of what has befallen companies before them. "There's a focus on what we know we can [and can't] do," Mikles says. "I heard somebody say that more companies die of indigestion than they do of starvation. They [bite off] more than they can chew."


Get started on your own money-making Web site with How to Dotcom by Robert McGarvey.
Don't let "Dotcom Overload" get you down. You can stand apart from your dotcom competitors.
Need some inspiration? We weeded out the "Spun Gold" to bring you the 100 top Web sites for small business.

Keep your start-up's head up above water by sticking to your area of expertise and knowing your niche market backward and forward. As Reynolds says, if your business is selling Barbie clothes, don't suddenly start selling matchbox cars.

Wrap It Up

A well-researched business plan. Strong financials. Seasoned management. Market focus. Does this all sound awfully familiar? Gee, you might as well be starting up a corner grocery store or pet-grooming parlor. And that's a good way to look at your new dotcom. The Web is the bricks. The Internet is the mortar. At the end of the day, business is business, whether you're selling Web services or serving up hamburgers.

So let's bid a fond adieu to such former Internet luminaries as Boo.com, Furniture.com and Pets.com. Go ahead and wave a long good-bye to loose VC pockets. Thank them for taking the tumble first so you don't have to follow the same road, and let the flames of the dotcom failures light your path to a successful Internet company.

From the Hip
Here are some closing words of wisdom from our experts and entrepreneurs:

Todd Defren: "Take the Internet out of the equation all together, and then consider whether it's still a viable plan. The Internet should be looked at as a direct-marketing channel."

Janice Reynolds: "Don't panic. A lot of these small dotcoms have been very, very smart. They found their niche market. They didn't go after the get-rich-quick model. They're still in business and making money."

David Tanguay: "You can't just build an Internet company that's a pure dotcom, portal or community. That's not going to pick up anymore. You're better off starting a company based on an old-fashioned business model, but just using the Internet to enable it and make it move faster."

Lee Mikles: "If you can see a real opportunity to do something superior, not just the same as someone else, that's what you need to build your whole business around."


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