WEB INSIGHTS
MISTAKES MADE ON INTERNET VENTURES

By Marc Kramer
"Web Sight"
marc@kramercommunications.com

I recently attended the Reginald H. Jones Center of The Wharton School’s seminar on the future of the Internet. By the number and business level of the people who attended compared to when I attended a similar seminar six years ago at the Philadelphia Convention Center, you would think the Internet was a fad similar to the CB radio of the 1970s.

I would estimate that there were slightly more than 100 attendees. Very few of them were from the corporate world. Most were students, Wharton faculty and a few were from the United Nations. The speakers were interesting in their rear view mirror assessment of the history and future of the Internet.

The three main corporate speakers were new Safeguard Scientifics boss, Anthony Craig; Matthew Kissner, Group President of Pitney Bowes; and Hal Rosenbluth, chairman/CEO of Rosenbluth International. All three men spent a lot of time, money and effort in developing successful e-commerce ventures. I thought their comments about why theirs and others failed were very interesting.

Here are the top reasons that I heard for why companies failed.

1. Poor concepts and models - The business models were not thought through such as selling postage stamps online. The idea that you wouldn’t have to stand in line to buy stamps appeals to many of us, but people aren’t losing sleep about standing in line.
2. Rush to be first - The goal was to buy all the real estate one could regardless of price.
3. No focus on profitability - Many companies didn’t set targets for being profitable and assumed the flow of cash would continue.
4. Willing to give away products/services for attracting buyers - Selling products for below cost in order to cross sell other products or sell advertising.
5. Poor management - A lot of people inexperienced at building businesses and corporate infrastructures.
6. Over spending on marketing - Companies with no profits buying ads during the Super Bowl.
7. Selling to customers who couldn’t afford to buy products/services - Selling to new companies whose only cash was venture capital or individual investor money.
8. No cost controls - Many companies never established budgets that they had to adhere to.
9. No integration into existing profitable businesses - Old line companies didn’t think about how they would integrate the businesses they were incubating into their current businesses.
10. Poor technology coordination - Surprisingly, large companies let their incubating companies use multiple platforms and when it came time to tie all of the various ventures together with the parent company it couldn’t be done.

I worked with over 20 e-commerce companies and I run two at this time. All of the problems these very seasoned executive listed are typical of what happens with a new hot industry that no one wants to miss. If it wasn’t for reckless entrepreneurs who ignored traditional business practices you wouldn’t have Microsoft, Ford, IBM or any other business. It is rare that people like former General Electric Chairman/CEO Jack Welsh take existing giants to a higher level.

I doubt that any of the founders of the great companies of the last century would even get an interview for a job with the companies they founded. The upstart companies push the old companies into action. Regardless of the carnage, new businesses and industries develop and you will see many strong survivors.

The spending on marketing was in some cases reckless, but if you are trying to overcome the 80 year multi-billion in revenue head start of companies like Pitney Bowes, then you better pull out all of the stops and pray that revenue comes in. I have to agree with speakers on the lack of discipline many entrepreneurs showed, but I could understand why they felt they needed to put the accelerator down at mach speed. The venture capitalist wants to get their money out and the competition was fierce.

The lessons these CEO’s shared are worth noting and anyone who starts a business should write them down and think about them. The saying that the race isn’t won by the fastest, but by the surest always holds true because the person who is running the fastest doesn’t always think everything through.