Struggling Dot-Coms Can Pass the Torch

Before the end came, the people who founded Boo.com spent a few weeks scrambling from investor to investor, trying to find a way to keep the trendy fashion company from collapsing. The search was unsuccessful, though, and Boo was forced to call in a team of liquidators to put the firm’s assets on the block.

Boo spent nearly $200 million (US$) transforming a gee-whiz Web site into a high-tech, multi-lingual portal — with solid customer support backing up the bells and whistles — but it was only after the company’s stock price plummeted that Fashionmall.com decided to gather the bare bones left behind.

Lessons for Everyone

Analysts have predicted that a wave of consolidations will halve the number of e-tailers by the end of the year. With news of a buyout or bankruptcy coming almost every day, it seems that the dot-com shakeout is cranking into high gear. While the Boo story contains valuable lessons for firms that will survive, it offers invaluable lessons for those destined to fall.

Because its portal was so heavily focused on using innovative technology, Boo is something of a special case, but not all of the company’s problems stemmed from the misfortune of being technically ahead of the times. Boo executives acknowledged that the venture suffered from a lack of financial planning and foresight. And as the final days unfolded, there was clearly panic in the Boo camp.

Still, the fact that Fashionmall.com was able to get the best part of Boo’s assets for relatively small change — the phrase “pennies on the dollar” is bandied about — should be sobering to all the struggling dot-coms that may soon face a similar fate.

While failure may be unavoidable, there are degrees of disaster. For example, take the recent purchase of Petstore.com’s assets by Pets.com for a little more than $10 million in stock (*correction). Not a huge sum, to be sure, but at least Petstore got out with something.

Accepting the Obvious

The difference, it seems to me, lies in planning. The firms that continue to burn cash — even after the writing has appeared on the wall — are the ones most likely to wind up pitching desperate pleas to one venture capitalist after another.

Before long, their woes will become well-known within the industry and the day of reckoning will come when they find themselves unable to keep employees in the building a minute longer. When the death knell sounds, their more successful competitors — who have been patiently circling overhead — will simply swoop in like high-tech vultures.

It is astonishing that outfits such as Apbnews.com and Toysmart.com did not see the end coming until it was too late. Someone must have been watching the cash accounts as they dwindled to nothing.

Weather Reports

Did they see the oncoming storm and simply ignore the signs? It seems that denial is rampant among companies clinging to life in the dot-com world. Perhaps it comes from putting too much stake in the power of the numbers that ruled the earliest days of e-commerce — such as page views and unique users.

Surely it is fueled by the stubborn belief that months of unprofitable operations can be turned around with just one more advertising campaign, one more holiday season.

Of course, tenacity is a good quality in a business executive. Making it in any field — let alone in the lightning-fast online world — requires single-minded determination that often challenges conventional wisdom.

Living in Denial

But refusing to accept reality is another matter. The significant difference between companies that shop themselves to competitors when they are still breathing and those that have their bones picked white in the graveyard is the ability to accept the harsh and obvious truth.

Even casual observers of e-commerce know that a shakeout is at hand. Analysts have created lists of the companies most likely to fail. Executives who think it’s a secret that their dot-coms are running out of dough should think again.

While there is no simple formula for determining the value of assets such as domain names and customer lists, it is clear that any company is worth more as a working, striving enterprise than as empty leased office space.

The domain name of a firm that did its best to dominate its market before making the decision to sell out to a rival is likely to be worth more than the domain name of a company that filed for bankruptcy.

Taking the Hard Road

It may simply be that their timing is off, and the time to stop running the race for survival may be sooner than many dot-com execs think. Petstore certainly cushioned the blow for its investors and employees by selling out before all the cash dried up leaving bankruptcy as the only option. I expect that the Boo and Toysmart employees who were shuffled out the door before the asset sales began, would agree.

In the end, there will be fewer e-commerce companies. But rather than making undignified exits and leaving the industry without a trace, companies have the option of leaving a legacy.

If they face the facts and deal honestly with their investors, their employees, their competitors and themselves — they will leave behind evidence that once a group of hardy souls worked tirelessly to build something out of a dream.

Otherwise, a large part of this awesome effort to create the world of e-commerce from scratch will have been for naught.

*Editor’s Correction Note: In the original version of this article, we incorrectly reported that Petsmart.com’s assets had been acquired by Pets.com. Actually, Pets.com acquired the assets of Petstore.com.

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

CRM Buyer Channels