Nine lessons from the first Internet bubble

Unwary businesses can still make some stupid decisions if they lack guidance.

A decade ago I was working for Bay Networks in Santa Clara, California. Bay Networks was number two in the internetworking hardware market, with annual revenue of about US$2 billion. Bay was bought in 1999 for $9 billion by Nortel Networks, a telecom hardware manufacturer on an acquisition spree. Faced with a very different corporate culture, I chose in 2000 to accept the position of Director of Vertical Marketing at a small e-commerce startup named Enigma in Boston, Massachusetts.

At the time the stock market seemed possessed with an ever upward climb, but that was soon to end. My company was focused on aerospace and telecommunications markets, but by the end of 2000, companies were calling to let us know that orders were delayed, or that they were no longer needed.

And then, like many others, I was hit by the massive burst of the dot-com bubble, and the restructuring that followed in its wake. But I learned some lessons in the process. Here are nine of them, in no particular order:

1. Don't hire quickly to deal with growth that may not happen, and make sure that your existing staff are used effectively. Nortel once employed 90,000, and now gets by with less that one third of that.

2. Stock price alone is not a valid business indicator. Balance sheets and profit and loss statements are still the best way to determine the health of a company.

3. Market share is important, but eyeballs don't pay the bills. Make sure you have a revenue strategy.

4. High burn rates, without offsetting revenue, often lead to fire sales.

5. Just because people can shop on the Internet, that doesn't mean that they will. Online grocery retailer Webvan learned this the hard way.

6. Magazines that become arrogant as a result of ridiculously high dot com advertising sales eventually get their comeuppance.

7. Don't spend millions on marketing unless you have measurable targets to work with. If you don't hit the targets, cut your losses.

8. Faster to market is usually better; the product doesn't have to be perfect at first. Sometimes good is good enough. Just plan to make constant incremental improvements.

9. Failure is OK, as long as you learn something from it. Everyone deserves a second chance. Even the Pets.com sock puppet.

You expected ten lessons? Do I look like Guy Kawasaki?

It seems to me that Google applied many of these lessons very effectively. They built a good product and got it out there, constantly making slight improvements, and grew their audience while introducing unobtrusive advertising to monetize those eyeballs. They spent little on marketing, controlled cashflow, and hired as necessary to build out the infrastructure. And they have been handsomely rewarded for it.

Actually I wasn't entirely truthful about the "no particular order" part. Lesson 9 -- that failure is OK -- is actually my favorite. That's because after a failure or two, success is just that much sweeter. And everybody loves sock puppets.

Larry Borsato has been a software developer, marketer, consultant, public speaker, and entrepreneur, among other things. For more of his unpredictable, yet often entertaining thoughts you can read his blog at larryborsato.com.

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