AdSlot1 failures – Sipping from a poison chalice.

With joining the list of casualties, it would seem that the party is finally over for internet start-ups. If we believe what we read, then all CEOs live lavish Lear jet lifestyles without showing a profit and keep burning the cash conned from credulous venture capitalists.

We have the benefit of hindsight, but the cocktail taken by all the failed dot.coms seems to have the same VENOMous ingredients.

V – volume of users – or the speed of acquisition – predicted could never be reached. Subscriber and customer numbers were based on inaccurate forecasts and unknown population.

E – earnings are too low. With too little focus on today’s revenues and less on future earnings the path to profitability is not even on the map.

N – numbers don’t add up. Dot.coms have demonstrated their inexperience in writing plans. The days of the one page business plan are numbered; plans need sufficient detail to demonstrate their rigour.

O – operating costs are too high. Technology has not produced instant savings and a reduction of workforce – dot.coms are the poorest users of e-business in their own organisations.

Going global makes things worse – too many companies have attempted simultaneous launches in different countries without first blooding in one territory.

M – markets are too competitive. There has been low penetration with many new entrants hitting the same sectors in waves. History tells us only a few survive and consolidation is inevitable. With VC money from the past years still in circulation, this phenomenon will continue in the short term.

If running a seems to be a poisoned chalice, what is the antidote?

The downturn is not deterring VCs, money is still available for the right propositions. The new economy is different from the old, but the same rules still apply.

Strong management and a sound business plan that addresses growth are essential. Growth isn’t comfortable and businesses need to deal with growth steps in compressed timescales, that can either propel them into orbit or send them plunging to earth.

– Richard Punt is head of e-Business at Deloitte & Touche.

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