Make or Break: Lessons From the Dot-Com Bubble
We all remember the dot-com bubble. A new century and endless possibilities promised a new and exciting market with tremendous economic growth, only to burst at the seams as several companies collapsed and the Federal Reserve increased rates. But from the ashes, sound examples of what not to do in business planning emerged.
Inspired by CNN’s article “10 Big Dot.Com Flops,” we picked our favorite three bust examples with lessons that transcend time and business market.
The snack Uber of its time, Kozmo.com allowed customers to order a range of small purchases that were guaranteed to be delivered within the hour. Founded in 1998, Kozmo was available in nine cities and was once thought to eventually be a direct competitor to UPS and FedEx. But the lack of minimum charge coupled with free delivery was the Achilles heal of this promising plan, and Kozmo.com closed shop in April of 2001.
Lesson learned: Don’t sell yourself short! You have a something that people want, so don’t be afraid to ask for fair compensation in return.
Remember Webvan? Yeah, neither do we. This grocery delivery service website was undoubtedly the largest of the dot.com’s busts, a victim of growing too fast too quick. At the peak of its success, Webvan.com expanded to eight cities in under 18 months and was valued at $1.2 billion in November of 1999. But the steep downfall put them out of business by July 2001. The culprit? Investors quickly discovered that the customer base and margins were not large enough to sustain projected growth.
The lesson? Only grow as large as your base allows. Make projections optimistic but real or the surprise could kill you.
Before bitcoin and PayPal was Flooz.com, a site that strictly sold online currency for customers to use instead of credit cards. While the concept may have been questionable to begin with, large investors like Cisco and Delta Air Lines still contributed $35 million. The website spent a pretty penny with its cushioned pockets ($8 million to be exact) with an ad campaign that featured Whoopi Goldberg. But in under two years, the company went bankrupt. Surprised? We weren’t.
The lesson here: While good marketing is definitely worth the investment, no amount of razzle dazzle can make up for a poor business model.
David Chase, Managing Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader. With 17 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience. Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $450 million.