Sam Sez

Date: Monday, January 22, 2001

Question: "Why so many dotcom - .com - failures"


Basic economic principles applied to the failures, bankruptcies, and demise of many dotcoms. In attempts to secure market shares, many .coms ignored the realities of marginal economics: benefits versus expenses. Often, proportionally greater increases in expenses relative to revenues were experienced. This only widened the loss abyss and accelerated the demise of many web ventures.

The simple declaration of being profitable within 2, 3, or 5 years was insufficient to transform "destined to lose" business models into profitable enterprises.

The fundamental principles of economics prevail in the new economy as well as they do in the old economy. Substituting equity for revenue can only buy a firm so much time. In fact, it appears that so called "burn-rates" increase at a nonlinear rate rather than at a straight line or linear rate. The bottom line is that as failure looms ever closer, suppliers, creditors, investors and clients - potential and actual - withdraw. They do not want to be caught in the whirlpool of a sinking company.

It should be noted that the transformation by the web of old into new businesses, focuses on the reduction of costs for servicing, marketing, and communicating. It may also open up the revenue opportunity frontier. We will continue this discussion at a later date.

Until then, if you need professional assistance in this important area or other consulting services click here.

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