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Entrepreneur, March, 2001 by Mark Henricks

OK ... WE'VE WEEDED OUT THE WANNA-BES. WHO'S STILL WITH US?

NO QUESTION--THINGS ARE DIFFERENT. SINCE THE STOCK MARKET'S INTERNET START-UP MELTDOWN IN SPRING 2000, ENTREPRENEURS IN THE ONLINE WORLD HAVE SEEN THEIR SOURCES OF FINANCING DRY UP, THEIR EMPLOYEES LOSE HEART AND THEIR OWN PROSPECTS FOR QUICK WEALTH RECEDE. WHAT HAS FOLLOWED ARE SOME MAJOR ADJUSTMENTS IN A LOT OF AREAS, INCLUDING BUSINESS OWNERS' PERSONAL PERSPECTIVES ON BUSINESS AND BEING ENTREPRENEURS.

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"Let's be quite honest," says Neil J. Closner, president and CEO of BabyUniverse.com, a 12-person Fort Lauderdale, Florida, e-tailer of infant products. "Anybody who got involved in this business had their eye on an exit strategy, either to be acquired or go public. That was in our game plan as well." Now that a public offering is unlikely and many potential acquirers are struggling to finance their own operations, the game plan is to stay on and run the company for several more years. How does Closner, 27, feel about that? "Honestly, I don't know," he says. "My mood changes day to day."

Others are more philosophical. "I didn't anticipate it to be a get-rich-quick scheme," says Betsy Burlingame, founder and president of Expatexchange.com, a New York City-based Web service for expatriates. "It's a very long-term focus. You build relationships and a community and then later bring in e-commerce and make money."

Burlingame, 29, met with venture capitalists before the April meltdown to discuss funding for her 2-year-old company. She was told she wasn't asking for enough money and didn't plan to spend it fast enough. "Now you have to have revenues that go to the bottom line," she says, "which we're working on."

That statement sums up the central experience of the post-crash Internet entrepreneur. It has two prongs: Spend less, make more. It's not easy, and it's not as much fun as the spin-and-spend techniques that transferred countless millions of dollars from the pockets of investors and entrepreneurs into the bank accounts of Web site designers, online advertisers and others in the dotcom boom. But it's necessary. And according to early indications, it seems to be working--as evidenced by the fact that not every dotcom is bankrupt, and some are actually healthy and growing.

CONTROLLING ADS

The first way entrepreneurs are bringing their spending under control is by scrutinizing advertising outlays, says H. Albert Napier, a management professor at Rice University in Houston who sits on the boards of two dotcom start-ups. The emphasis is now on focused advertising as opposed to the massmarket campaigns that blanketed the media in 1999 and early 2000. "[In early 2000], I could drive down the freeways and it seemed like every other billboard was a dotcom," says Napier. "I don't see those anymore. They're also cutting back on the TV and the radio."

What's taking the place of mass-market advertising is a better-targeted, more cost-conscious promotion style. "We keep a very tight lid on our advertising budget," says Closner. "We make sure the dollars are spent as effectively as possible." For BabyUniverse, that means purchasing banner ads and featured sponsorships on family and parenting Web sites instead of Super Bowl spots shot-gunning the entire population. "I don't want a 24-year-old single guy coming to my site," he explains. "I spend the dollars to attract the specific user that I need."

Dotcom entrepreneurs are also more careful, testing ads to see which are most effective before committing to full runs. They're emphasizing targeted direct e-mail campaigns to people who have opted to receive them. They're putting more public relations into the promotion mix and replacing expensive outside PR agencies with hi-house communications staffs.

One of the biggest changes has to do with online banner ads. Whereas dotcom entrepreneurs once bought advertising willy-nilly, they're now paying close attention to their banners' performance as a result of high costs and low rates of delivering paying customers. Mike Domek, president of TicketsNow.com, a 24-employee online entertainment ticket broker in Woodstock, Illinois, says he's cut his online banner budget by $330,000 for 2001 and is only pursuing campaigns when tests show double-digit click-through rates. "Anything under 10 percent we're dumping for 2001," he says.

An increasing number of dotcoms favor commission-based referral programs with other Web sites. These marketing arrangements require advertisers to pay for placements only when customers actually make purchases after clicking through to the advertiser's site from the banner ad on the partner's Web site. "It's basically pay-for-performance advertising," explains Domek, 31. "You have no investment, so it's limitless how much you can do."

PURSUING PROFITS

Even while they cut costs, surviving dotcommers are trying to increase revenue in a new-to-them rush to achieve profitability. It's quite a switch from the days when entrepreneurs like Burlingame were told they weren't spending money fast enough. "The investment community and venture capital industry have shifted from growth at any cost to profitability," says Alessandro Isolani, CEO and co-founder of ebates, a 50-person San Francisco online shopping portal. "The only metric to whether a company is doing well or doing poorly today is whether that company is profitable."

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Entrepreneur, March, 2001 by Mark Henricks

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