DING!

Entrepreneur,  Jan, 2001  by ROBERT McGARVEY

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TIME'S UP FOR THE ILLUSION THAT DOTCOM GUARANTEES SUCCESS. IF YOU'RE STILL IN THE GAME, LUCKY YOU. IF YOU'RE NOT, TAKE SOLACE IN KNOWING THE REST OF US ARE LEARNING FROM YOUR MISTAKES.

GAIL KLEIN BENTLEY WAS ON TOP OF THE WORLD--ACTUALLY, WAY HIGHER THAN THAT. THE 30-YEAR-OLD CHARLOTTESVILLE, VIRGINIA, ENTREPRENEUR HAD ZOOMED OUT OF NOWHERE TO LAND $1.2 MILLION IN ANGEL FUNDING IN THE FALL OF 1999, AND HER WEB SITE, WORKINGWEEKLY.COM, WAS THE SUBJECT OF HEAVY BUZZ. IT HAD QUICKLY GROWN TO 60 EMPLOYEES AND HAD A POTENTIALLY HUGE CUSTOMER BASE BECAUSE ITS FOCUS WAS ON THE CHANGING WORKPLACE--ON HELPING PEOPLE FIND MEANING AND FULLFILLMENT IN THEIR WORKING LIVES. HOW COULD IT FAIL?

Then one day the bottom fell out. "I had a commitment for $2 million in additional funding. The day they were supposed to put in the money, they withdrew the offer," recalls Bentley. Not good--and the ride became stomach-turning bumpy. "Of course I went to other funders, but nobody else would invest," says Bentley, who served as chair, president and publisher. "I had to lay off all 60 employees. I had never failed in my life. That was just a terrible time."

As we've all seen in the news, Bentley's pain isn't all that unique. Last year, the talk was about the mushrooming number of dotcom millionaires. These days you hear more about all the dotcom disasters. Even big names are among the casualties: Living.com, Boo.com (although Fashionmall.com did buy and reopen it), Pets.com and even ToySmart.com, a onetime Disney subsidiary. But countless lesser-known companies went under, too. Entire Web sites have sprouted to do nothing but maintain death watches on sputtering dotcoms. The upshot is that what had seemed a no-brainer route to riches suddenly looks more like a dead end. But is it? Is dotcomming only for kamikazes determined to flame out? Is there still money to be made online?

THE LEARNING CURVE

You bet there's money--and you can say that loud and proud. But the game has changed: The ones who'll prosper are the ones who've learned from the failures of first-round dotcom pioneers. And there are lessons aplenty to digest. "I made so many mistakes," admits Bentley, whose story is one that dozens of dotcommers can relate to. "Nobody thought we could fail until we did, and this has taught me many lessons."

In the words of early-20th-century philosopher George Santayana, "Those who cannot remember the past are condemned to repeat it." That's why it's so crucial to dig into the mistakes committed by the first generation of dotcoms. Here's a sampling of their biggest flubs:

* They did stupid things. "How smart is it for a start--up to run Super Bowl ads? Is that stupid, or what?" asks Brian Farrar, president and COO of Xpedior (www.xpedior.com), an e-business consulting firm in Chicago. He says the many millions of dollars companies spent on high-profile advertising (such as Super Bowl minutes) produced little on their bottom lines.

"Many dotcoms say they want branding, but they don't know what that means," adds Rena Kilgannon, a cofounder and principal of The Ad Incubator, an Atlanta marketing firm that works with start-up tech companies. "Bright people are running these companies, but they're clueless about lowcost ways to market, the kinds of strategies start-ups should be implementing."

* They underestimated the importance of real-world know-how. "Much vertical know-how is needed to succeed in retailing, and e-tailing is no different," says Ron Dayan, CEO of Net consulting firm Complete-e Strategies in New York City. "You need to be good at sourcing and pricing products, for instance. Failed dotcoms never developed that expertise." You also can't outsell an established brick-and-mortar player if you know nothing whatsoever about the industry. "But," he continues, "many dotcoms thought they could do just that."

* They overestimated consumer demand. "Consumers have been slower to adopt the new technologies than many entrepreneurs predicted," says Rohit Shukla, president and CEO of Larta (formerly Los Angeles Regional Technology Alliance). A byproduct: "Many dotcoms incurred horrific expenses simply trying to persuade con sumers to shop online," says Shukla. A start-up doesn't have to spend one dime explaining to consumers how to shop at a local mall. But it's different online, where most consumers still haven't made substantial purchases. Most dotcom entrepreneurs never factored that into their thinking, says Shukia, and the result is that they haven't made a convincing case for consumers to change their long-standing habit--that is, shopping at brick-and-mortar malls--in favor of buying online.

* They never achieved a business model that covered the costs of customer acquisition. "And they weren't getting repeat business," says MarkMcDonald, a partner at Andersen Consulting and a co-author with Peter G. Keen of eProcess Edge: Creating Customer Value and Business Wealth in the Intern et Era (Osborne/ McGraw-Hill). Many dotcoms managed to eke out some sales--by offering free shipping and/or extraordinary discounts that priced merchandise at or near wholesale cost--but none of this developed an iota of loyalty on the part of buyers, who quickly moved on to whatever site offered the lowest price the next time they wanted to buy. Just as bad, continues McDonald, many of these dotcoms shot themselves in the foot: "With the ones that did make sales, many faltered when it came to customer fulfillment," meaning they shipped merchandise late or not at all, or they shipped the wrong merchandise. Says McDonald, "Few dotcoms have made any progress in terms of developing economical ways to build repeat business."