Dot dot Dot

Entrepreneur, April, 2000 by ROBERT McGARVEY

START A DOT.COM ...TWIDDLE YOUR THUMBS...THE MONEY ROLLS IN--THERE'S A HELL OF A LOT LEFT OUT OF THAT STORY.

IT SEEMS SO SIMPLE. BUY A $100 WEB-AUTHORING PROGRAM, PAY A FEW MORE BUCKS FOR A DOMAIN NAME AND SPACE TO PUT UP YOUR SITE, THEN WATCH OUT-YOU ARE ON THE FAST TRACK TO A COOL BILLION DOLLARS ... OR AT LEAST A COUPLE MILLION. IT HAPPENED AT AMAZON.COM, ETOYS, AUTOBYTEL, AND MORE E-BUSINESSES THAN YOU COULD CLICK A MOUSE AT. EXCEPT IT'S NOT THAT EASY. "I'D SAY 75 PERCENT OF WEB SITES ARE INADEQUATE; THEY WON'T SUCCEED" SAYS JANET ASTEROFF, DIRECTOR OF E-BUSINESS SERVICES WITH THE CONCOURS GROUP, A KINGWOOD, TEXAS-BASED E-BUSINESS CONSULTING COMPANY.

TOO PESSIMISTIC? NOT ACCORDING TO SOME EXPERTS. "AT LEAST 70 PERCENT OF WEB SITES ARE JUST UP THERE AND DON'T DO MUCH AT ALL," SAYS WALLY BOCK, A WILMINGTON, NORTH CAROLINA, E-COMMERCE CONSULTANT.

Keep talking to experts, and the general guesstimate is that at minimum, two in three e-businesses are doomed. And that's because it's just not as simple as it seems to erect a smoothly functioning Web site that makes money, too.

THE HARD TRUTH

Chew on this: Beyond.com, one of the real superstars of cyberspace, logged sales of $36.6 million for the fiscal quarter ending September 30, 1999--and $25.9 million in net losses. For the six months ending September 30, 1999, eToys notched sales of $23.3 million and a net loss of $82.3 million.

Swallow on those losses, then inhale this sobering reality: "It's easier to lose $1 million overnight with a Web site than to make it," says Stephan Moen, a vice president at Aspen Consulting, a Rolling Meadows, Illinois, e-business consulting and research firm.

"It is hard to do a Web site right," adds Phil Terry, CEO of New York City-based Creative Good, a Web strategy consulting and research firm. "And there are so many ways to do one wrong."

For instance?

Undercapitalization. "This is a chief reason why e-businesses fail," says Moen. "They don't budget enough money to build a site that can succeed."

The days are long gone when a few kids in a dorm room could put up a Web site and have it become an instant hit. Big money is needed to get a site off the ground today because the technology bar has been raised dramatically higher. That's upped the ante in site design and hardware necessary to operate the site. How much? "Anywhere from $300,000 up to $1 million," Moen estimates. That amount would cover hardware, software and initial site design.

Some sites targeting well-defined niches can get by on less. But just as often, much more cash will be required, particularly when the goal is creating a national brand. "We're budgeting $20 million to build our brand," says Andrew Brooks, 37-year-old CEO of Furniture.com (www.furniture.com), a Framingham, Massachusetts-based online furniture start-up. "Building a national brand is essential."

And getting a hold of the money needed to create national brand recognition--despite what you read about venture capitalists--isn't easy. "Raising the first money is tough," says Kathy Morell, 26, co-owner of MakeUsAnOffer.com (www.makeusanoffer.com), an online haggling site based in Lawrenceville, New Jersey. So many tech start-ups are now seeking investors' cash, says Morell, it's difficult to rise above the noise level. While she managed to raise about $1 million in first-round angel funding and currently is closing a larger venture funding round, she reports, "this takes a lot of hard work."

And don't count the money until it's in your pocket, says Andy Oldham, 36, co-founder and CEO of eHome (www.ehome.com), a Web site where real estate sellers pay lower fees than are charged by conventional Realtors. Once he'd put together a business plan, Oldham shopped it around and quickly found a large escrow company that wanted to be the sole investor for eHome: "They agreed to put up $4 million," he says.

Oldham thought he was home free until... "At the 11th hour, they pulled the plug," says Oldham. "Right there, we lost three months--that's how much time and energy we had put into that deal." Oldham eventually bounced back and got start-up funding from Garage.com (www.garage.com), which matches good ideas with money sources, but the sobering moral is: Internet funding can vanish, and until a deal is signed, never start spending any investor's money.

Security alert. "Security remains a key issue, maybe the critical issue, and it's where many e-businesses fall down," says Jeff Johnson, president and CEO of Meta Security Group, an Atlanta technology security consulting firm.

How can that be when most Web browsers and e-business server computers use encryption technology that scrambles a customer's credit-card information? Johnson laughs: "That's not the problem. The problem is that hackers break into the Web site's computers and steal the whole credit-card database. It happens more often than you'll ever read about."

When he tells that to clients, many scoff. "[But then] we look through their access records and show them when and how hackers already have broken into their system," says Johnson. "Maybe they haven't accessed the credit-card database, but they've been inside and looked around. Probably, they'll be back, too."