Why Most DOT.COMS Will Fail

“It’s the business model, stupid.” You can hear the venture capitalists all the way from where they are to wherever you are. Their problems: stashing their cash, in an era of lemming-like pursuit of faddish investment in technology-based enterprises. For them, only the model seems to matter, despite their blather about the ‘quality of the founding team.’ But the model is for cynics, who know the cost of everything and the value of nothing.

Many VCs have ridden the dot.com fad-phenom to huge (paper) wealth, while admitting that nine out of ten will fail. Together they have supported scores, hundreds of marginal players. This does not worry them, flush as they are: the one in ten succeeding at 5-10,000:1 appreciation will more than compensate for the nine disasters that lose 100 cents on the dollar.

They think, believe, hope they’re betting on a sure thing, the near certainty that the Internet will change the world. They’re probably right. So did the car, phone, airplane and computer. But the Internet has moved far faster, in what William Gibson calls ‘consensual hallucination.’ Today the market weeds out weaker participants that much faster, too. It is no longer a matter of fooling enough of the people enough of the time. None can now be fooled long enough.

Look beyond 2005, beyond the giddy present, when the Internet will be as ordinary as radio and TV, just another (albeit interesting) ‘instant’ communications channel. The VCs are riding for a fall. So are tens of millions of investors. And hundreds of millions of employees. The equation is the usual mix of head, heart and snake-oil. The root causes lie, as usual, in human nature, not in the business models, which must be fundamentally correct as business concepts. Ideas are cheap; every business idea has a thousand imitators. In context, the NASDAQ Spring ’00 Swoon warned of future, more serious ‘adjustments.’

The problem: though many dot.coms offer business models that seem viable, even potentially important in world business, under the surface they are the same old shuck and jive. Many are based on glibness and greed, characterizing the individuals involved, hiding behind technical skills.

The real measure beyond model mania: human behavior and character, based on qualities that seem passé—not just education, ambition and focused expertise (obvious), but quality and integrity, experience and values (seemingly irrelevant). Why? The actions of others control the world markets many dot.coms seek. Success demands customer mind-heart links.

Current impetus stresses branding, establishing a name through adept communications. Much of that effort, despite billions in advertising, PR and promotion, is like chrome-plating excrement—outside bright and shiny, inside same old stuff. That thin shell of superficial shine will not withstand the pressure of the real business world. Once the hype and hysteria subside, by 2002, the professionals will come in and clean up.

They are cold-hearted execs: executives, executors, executioners. They report to the money men; the Golden Rule applies: “The man with the gold makes the rules.” They will kill the losers before those disasters hemorrhage more costly capital. They will instill discipline without mercy, causing the undisciplined founders—if they survive under reorganization—to adopt boring but effective procedures that work in the real world. The losers will still know not that they knew not.

The professionals learned from decades of pain and scar tissue that real customers are people who buy not just once but again. Keeping customers is harder than the initial con. First-time buyers are just enjoying a learning experience, scratching an itch.

Brand loyalty is won in the trenches of daily performance, not in spectacular newspaper articles that are tomorrow’s garbage wrappers. Every detail must work, against relentless customer and competitive pressures. Real users are betting their business or personal lives on these products and systems. It’s not easy and never will be, testing not only ephemeral dot.coms but established giants whose failure to sustain customer satisfaction may doom them regardless of size.

Repeat customers spending hard-earned cash become picky. They have moved the old Coleridge theatrical goal—“willing suspension of disbelief”—into a new reality the dot.coms face, as any innovators must: the “unwilling suspension of disbelief.” Those customers, whose trust is vital for long-term success, rightly view on-line promises through muck-colored glasses of skepticism.

Prefer ‘old’ economy participants? Today, at least two major world auto companies court disaster, pumping junk to customers who will soon find out and vanish, failing the test of ‘buying again.’ Bad luck? Bad management? Irrelevant. How many makers of big airplanes for the world’s major airlines survive? Two. Auto manufacturers? Ten remain, maybe. Tire companies? How many phone companies, then? PC makers? Of software for PCs? Well? Do tell!

Meantime, the dot.coms grind on with sprayed-on smiles and paltry promises, unable to dig down to create the foundations of real enterprise because they’ve squandered their fortunes on hip hype. Every edifice rising above ground level needs foundations, based on bedrock values, or it will fall. That criterion applies to people as well as enterprises. Life is even handed in these matters.

How’s your portfolio today?