PracticeConsultingBusiness Recovery: Same mistakes for dotcoms

Business Recovery: Same mistakes for dotcoms

At least 210 'substantial' internet companies shut down in 2000 with 121 companies going to the wall in the last quarter of the year alone, according to a recent survey by US-based buyers and sellers of web property, webmergers.com.

The report, which covers internet companies globally, said 11% of dotcom failures took place in Western Europe and the number could be higher if smaller dotcoms are included. Experts say that the number is comparable to last year’s figures, suggesting that dotcoms are not learning their lesson from past problems.

But this conclusion may be misleading, according to Malcolm Coen, business recovery expert at BDO Stoy Hayward: ‘I wouldn’t say they’re not learning their lesson, this is still the first wave.’

He added that due to the funding problems these companies are having at the moment, ‘there will be a far greater incidence at the beginning of this year’.

Coen, whose insolvency expertise includes internet and e-commerce companies, has recently looked after high-profile technology failures leisureplanet.com and Callnet. He found one of the prevalent problems was companies were spending too much money building a brand name.

‘Leisureplanet, had a $30m (#20m) contract with CNN to advertise on Hotspots and that was only part of its advertising expenditure,’ he said, explaining that the company had earned only $17m in total revenues since its inception.

There was no budgeting for revenues and the backers finally said they’d had enough, he added.

The key to remaining solvent in the dotcom world is to ensure companies have researched their market and their product is fully developed, according Coen. ‘I think dotcoms need to generate revenues in their first year instead of putting it off like most have done,’ he said.

Coen gives the example of BDO’s successful dotcom clients, like online betting site Sportingbet.com, whose finances are led by Nigel Payne, AIM-listed Mobilefuture plc, a wireless internet company, and techMARK-listed computer hardware company Scipher.

‘The single overriding feature in these companies,’ said Coen, ‘is that they have a planned launch. They researched the market and made sure the product worked and then they launched.’

‘The common denominator is that they’ve got professional managers, good systems, tightly controlled with a market focus,’ he added. ‘Of course, you have to be careful about the monitoring of costs and expenditures, but before you launch, you have to understand what the market wants, test the product and make sure it works.’

In conjunction with Oracle, BDO recently launched ReGeneration, a business recovery tool to help ailing e-businesses. The tool is a combination of software and consultancy material.

Coen told Accountancy Age the package had already been helping companies. He spoke about one company with a high cash-burn rate that could not get second-round funding. ‘Through ReGeneration we conducted a study on finding its strong points and managed to find a source of capital by doing a study on its accounts,’ he said.

For more information visit www.bdo.co.uk

www.webmergers.com

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