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Was It Really Such a Great Gold Rush?

  It is funny how people are now pining for the “good old times” that took place before the Dot Com stock market melted down in mid-April 2000. Lots of people had started companies who never started them before and hired a lot of people with even less experience. Experienced old-timers left their cushy Fortune 500 jobs to jump into the dot com fray – this seemingly being their last chance at stardom.

But did that many people really strike gold?

Even at the height of the stock market frenzy, the only people who really made money were the principals of the firms, and of course their investors. The average workers never really made more than $15-30,000 off of their options; hardly enough for a down payment on a decent condo in Manhattan. If they looked at the slave hours that they put in for that measly bonus, they would have done better off working as a contractor than getting equity. The VCs made and lost a ton of money, and individual investors did the same. It seemed that only a precious few made money and actually kept it.

The firms were no better. I worked briefly at Avalanche, a new media pioneer, but even at the height of the rush, Razorfish bought them at a fire sale as a result of mismanagement by incompetent management. Razorfish blew it too - their principals resigning in shame due to their refusal to learn the lessons of the past. They waited too long to lay off staff and ran up a huge loss, and their stock price evaporated. Around the same time, IBM Global Services announced layoffs. The press asked them about that, and they simply replied, “What’s the issue? We’re a consulting firm. That’s what we do!” IBM’s stock went up.

According to the US Chamber of Commerce, 90% of startups fail in the first year. Why shouldn’t this apply to dot coms? The simple truth is this: It is really HARD to start a company – any company - and grow it successfully. Most firms fail. That’s a fact of life. Most dot coms were doomed from the start – they either didn’t have enough capital, had bad management or no viable product. I don’t feel sorry for all of those failures. They deserved to die, and they were ultimately sentenced to the form of capital punishment that occurs when investors withhold capital: bankruptcy and liquidation.

Recently, I was at a CEO Breakfast sponsored by New York eComm on the topic of fiscal health. Everyone there discussed managing costs and watching revenue and profitability, if any. At the end, I mentioned that the firms that can survive in today’s business climate and become profitable and grow off of their revenues will look like heroes and will also be the first ones to receive funding when the funding spigot opens again. Organic growth, long pooh-poohed as being a business model too slow for a rapidly growing and changing industry, suddenly sounds good. It is ironic how the tortoises always seem to beat the hares.

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