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Easy.Com, Easy.Go OK . . . we've weeded out the wanna-bes. Who's still with us?

By Mark Henricks

Opinions expressed by Entrepreneur contributors are their own.

"Let's be quite honest," says Neil J. Closner,president and CEO of BabyUniverse.com, a 12-person Fort Lauderdale,Florida, e-tailer of infant products. "Anybody who gotinvolved in this business had their eye on an exit strategy, eitherto be acquired or go public. That was in our game plan aswell." Now that a public offering is unlikely and manypotential acquirers are struggling to finance their own operations,the game plan is to stay on and run the company for several moreyears. How does Closner, 27, feel about that? "Honestly, Idon't know," he says. "My mood changes day today."

Others are more philosophical. "I didn't anticipate itto be a get-rich-quick scheme," says Betsy Burlingame, founderand president of Expatexchange.com, a New York City-based Web servicefor expatriates. "It's a very long-term focus. You buildrelationships and a community and then later bring in e-commerceand make money."

Burlingame, 29, met with venture capitalists before the Aprilmeltdown to discuss funding for her 2-year-old company. She wastold she wasn't asking for enough money and didn't plan tospend it fast enough. "Now you have to have revenues that goto the bottom line," she says, "which we're workingon."

That statement sums up the central experience of the post-crashInternet entrepreneur. It has two prongs: Spend less, make more.It's not easy, and it's not as much fun as thespin-and-spend techniques that transferred countless millions ofdollars from the pockets of investors and entrepreneurs into thebank accounts of Web site designers, online advertisers and othersin the dot-com boom. But it's necessary. And according to earlyindications, it seems to be working-as evidenced by the factthat not every dotcom is bankrupt, and some are actually healthyand growing.

Cutting Back on Advertising

The first way entrepreneurs are bringing their spending undercontrol is by scrutinizing advertising outlays, says H. AlbertNapier, a management professor at Rice University in Houston whosits on the boards of two dotcom start-ups. The emphasis is now onfocused advertising as opposed to the mass-market campaigns thatblanketed the media in 1999 and early 2000. "[In early 2000],I could drive down the freeways and it seemed like every otherbillboard was a dotcom," says Napier. "I don't seethose anymore. They're also cutting back on the TV and theradio."

What's taking the place of mass-market advertising is abetter-targeted, more cost-conscious promotion style. "We keepa very tight lid on our advertising budget," says Closner."We make sure the dollars are spent as effectively aspossible." For BabyUniverse, that means purchasing banner adsand featured sponsorships on family and parenting Web sites insteadof Super Bowl spots shot-gunning the entire population. "Idon't want a 24-year-old single guy coming to my site," heexplains. "I spend the dollars to attract the specific userthat I need."

Dotcom entrepreneurs are also more careful, testing ads to seewhich are most effective before committing to full runs.They're emphasizing targeted direct e-mail campaigns to peoplewho have opted to receive them. They're putting more publicrelations into the promotion mix and replacing expensive outside PRagencies with in-house communications staffs.

One of the biggest changes has to do with online banner ads.Whereas dotcom entrepreneurs once bought advertising willy-nilly,they're now paying close attention to their banners'performance as a result of high costs and low rates of deliveringpaying customers. Mike Domek, president of TicketsNow.com, a24-employee online entertainment ticket broker in Woodstock,Illinois, says he's cut his online banner budget by $330,000for 2001 and is only pursuing campaigns when tests showdouble-digit click-through rates. "Anything under 10 percentwe're dumping for 2001," he says.

An increasing number of dotcoms favor commission-based referralprograms with other Web sites. These marketing arrangements requireadvertisers to pay for placements only when customers actually makepurchases after clicking through to the advertiser's site fromthe banner ad on the partner's Web site. "It'sbasically pay-for-performance advertising," explains Domek,31. "You have no investment, so it's limitless how muchyou can do."

Focusing on Profitability

Even while they cut costs, surviving dotcommers are trying toincrease revenue in a new-to-them rush to achieve profitability.It's quite a switch from the days when entrepreneurs likeBurlingame were told they weren't spending money fast enough."The investment community and venture capital industry haveshifted from growth at any cost to profitability," saysAlessandro Isolani, CEO and co-founder of ebates, a 50-personSan Francisco online shopping portal. "The only metric towhether a company is doing well or doing poorly today is whetherthat company is profitable."

"Monetization" is the term you hear dot-commers use totalk about profits today. Basically, monetization refers to findinga way to make money off all the visitors to your Web site. That hasmeant a push to sell ad space to companies eager to exposethemselves to millions of surfers and site members. While manydotcoms have been laying off staff, Isolani, 34, has actuallyincreased his sales force from one rep to four.

Pursuing profits has also meant, in many cases, hiking prices.Closner breathes a sigh of relief as he recounts this trend."A lot of companies have started raising prices to decreaselosses," he reports. "That's allowed us to act likeany retailer in the world and start selling products to make money,as opposed to simply attracting customers."

The hikes aren't always large or easy. "If we'regetting a 10 percent commission from a merchant, we're tryingto get it to 11 or 12 percent," says Isolani. "But wedon't want to be perceived as a leech. So we'll try to tieincreased payments to increased performance."

In a trend counter to Internet tradition, dotcom freebies arealso drying up. Closner once offered free shipping on everypurchase. Now he only ships free on orders of more than $25."And we're going to be raising that to $75," hesays.

Similar trimming is going on at OpenAir.com, a 43-person Bostoncompany that offers an online service for handling payroll andother business management and reporting tasks. The company onceoffered free subscriptions to its service to as many as five peopleat any one company, but it has now trimmed that to a 30-day demoaccount for only one user, says William O'Farrell, CEO andco-founder. "We found that having one user was as good asfive, and we were leaving a lot of money on the table," hesays.

The first reaction to the bust for many companies was to backaway from the troublesome consumer market and start selling toother businesses. Burlingame is one of those; she has acceleratedExpat-exchange's efforts to offer online communities tailoredto the expatriate employees of large companies, charging thecompanies for the service.

And while they develop their new B2B clients, dotcoms arebenefiting from less intense competition and lower costs formarketing and attracting customers. Weaker and fewer rivals aresome of the tastiest fruits of the bust. "A year ago, wherethere might have been six national companies in my space, now thereare probably four," Closner says. That's done more thanallow him to cherry-pick customers and raise prices. Feweradvertisers in a given category has meant falling costs foradvertising.

Despite all this, few dotcoms are actually profitable."We're very close," Closner says, reporting thatBaby-Universe's sales have been going up despite a shrinkingbudget.

At ebates, too, "all the key metrics have been climbing ata healthy rate," says Isolani, who, however, declines todescribe the company's profit stance.

Domek, whose online venture is a spinoff of a traditionalticket-seller he started in 1991, is hoping to be well into theblack early this year, largely due to cost-cutting. Says Domek,"I anticipate doing the same amount of business next year,with at least half a million dollars less in expenses."

Eliminating Outrageous Perks

If there was one icon of dotcom excess, it was the outrageousemployee perks. Foosball tables in break rooms, cappuccino machineson every floor, new BMWs for just-hired marketingrepresentatives-take your pick-it seemed as if everydotcom included an impressive, if sometimes quirky, array offrivolous-sounding perks as part of its offer to prospectiveworkers. Interestingly, surviving dotcoms report having offered fewof those delicious add-ons.

Closner says BabyUniverse employees never signed on to theInternet gravy train. "It comes down to what you prefer,"he says. "Would you rather have those creature comforts andsee 15 of your friends laid off, or buckle down and savemoney?"

Today, given that thousands of dotcom workers have lost theirjobs, fantastic benefits are not as necessary. There are moreemployees available, and they're easier to hire, says Isolani."The questions people ask are different now. A year ago, itwas 'What is your exit strategy?' Now it's 'Whatare your long-term plans?'"

Experts warn, however, that remaining dotcoms should notoverreact and expect employees to suddenly be happy working inSpartan environments for low pay. It's still a tight labormarket overall, reminds Napier. Entrepreneurs may turn off thewaterfalls in their office lobbies, but they shouldn't trim toomany employee comforts. "In terms of saving expenses, some ofthat is penny-wise and pound-foolish," Napier says. "Youwant employees to stay." If a firm has issued key employeesstock options that are now valueless, the company should considerrepricing the options to make them more appealing, he says.

Perhaps it shouldn't be shocking that survivors tend to belocated in modest quarters where the main attraction is low rent.Closner snorts at the suggestion BabyUniverse is putting on airswith its address. "We rent some excess space from a lawfirm," he says. Burlingame, even more economically, runs hercompany out of her brownstone apartment on New York's UpperWest Side.

Betting on the Bust

And, as the survivors of the boom are finding, busts can alsohave upsides. In addition to fewer rivals, lower costs and anexpanded employee pool, some dotcom start-ups are finding thatdemand for their offerings is on the rise. Jeff DeCoux, chair andfounder of Internet software and services firm eCustomers Inc. inAustin, Texas, provides online retailers with the ability to tailortheir offerings to respond to customers' interests andpreferences. The technology fits well with the increasing onlinepresence of traditional brick-and-mortar retailers who are used totailoring their stores based on their geographical locations, andalso with the desire of all e-tailers to do more than attracteyeballs.

"Online businesses are realizing that just driving moretraffic to a site can actually reduce their sales," saysDeCoux, 29. "We focus on attention and retention extensively.And with this transition, that became the number-one point that thecustomer base we're going after was receptive to. It looks likeeverybody's budgeting for this type of solution."

What Does the Future Hold?

One feeling shared by survivors is thankfulness that theydidn't bag a pocketful of venture capital when it was there forthe taking. Given that venture capitalists typically only offeredtheir backing if the entrepreneurs committed to a growth plan thatwould likely have bankrupted them by now, it makes sense.

"We never raised venture capital, so we didn't feelpressure," Burlingame says. She found the crash "kind ofreassuring," she adds, speaking for those who failed to secureventure backing while the getting was, seemingly, good. Those whodid get venture money unfailingly raised it, as ebates did, beforethe crash. But Isolani and other survivors report benefiting fromunusually sensible and patient venture backers who didn't pushthem to chase unsustainable market share goals.

Of course, being thankful for still being in businessdoesn't preclude them from hoping that their long-term goals ofexiting in a blaze of millions will still come true."It'll be a steady growing business, and we could stillpotentially be bought out," figures Burlingame.

Closner reports being in frequent contact with potential buyersof Baby-Universe, but none have made an attractive offer.Meanwhile, he's looking at the day-to-day job of running acompany. "I've definitely climbed a very steep cliff andcome a long way," Closner says. "But basically my mindsetnow is that I'm settling in to grow a business."


Mark Henricks is Entrepreneur's "CuttingEdge" columnist.

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