Bennett Gold LLP Earns Mention In Toronto Life Magazine, April 2005.

Harsh Realities of the e-Conomy

For the last several months, we have reported on some of the most central trends, technologies and strategies shaping business on the Internet. We've done this in three ways:

1. Analyzing on a wealth of professional experience across sectors and industries (See articles such as: 'To Web or not to Web', 'E-Commerce Hits & Myths', 'Pitfalls of E-Commerce' and 'Building Trust on the Internet')

2. Highlighting some of the Internet's newest innovators (See case studies such as 'NetBlazers I', 'NetBlazers II', 'NetBlazers III' and ''NetBlazers IV)

3. Reviewing leading-edge Internet resources (See book reviews including: 'Generations Truly Works', 'Selling Online', and 'Opening Digital Markets')

Over the next months, we will explore some of the critical rules e-businesses must play by in order to grow and survive. Some of these rules are new, emerging from evolving technologies, innovative ways of redesigning work and new ways businesses are working with each other. Some are tried, tested and true - and are equally applicable to 'bricks and mortar' business as well as to businesses in cyberspace.

At the same time, we'll also explore the so-called business truisms and put them to the test. After all, we're talking about the foundations of making good decisions. Whether these rules are easy to take or harsh realities, it's your business.

In this issue, we'll explore a real harsh reality: Money doesn't buy success. Now this may be obvious at first glance. But, over the last three years, the assumption that has driven many e-businesses and their investors to under take an IPO is that dotcoms can survive if enough funds are pumped into them. Well let's take a moment to look over some of the recent cyberwreckage.

In the last six months, some of the Internet's biggest and best funded e-tailers have crashed: petstore.com, reel.com, craftshop.com, newswatch.org, toysmart.com, boo.com, bbq.com, healthshop.com, audiocafe.com and cookexpress.com. Each of these firms had major names behind them including Disney, Nickelodeon, J.P. Morgan, Benetton and Warner Lambert.

This translated into several million dollars propping up values along with public profile. So, with all the resources, expertise and momentum, why did these rich companies fall from grace? It would seem that these dotcoms forgot a number of critical rules.

Here are some of the key ones:

1. As much as we like to think that businesses are only made up of the expertise that visionaries and employees carry around in their collective heads, we still need to recognize that businesses are founded on a banking mentality. That means that there needs to be cold, hard assets. No assets = nothing to collaterize. That makes banks and investors alike very nervous. The only thing that may temporarily appease them is massive cash flow. While all of these e-tailers had much funding, in the end they had far too few assets with appeal to attract further investment. And no sustainable revenue stream.

2. Related to this is the need for strong financial advice, monitoring, planning and control. Boo.com's co-founder admitted after filing for bankruptcy that one of their key mistakes had been not 'having a strong control of costs' and a 'good revenue model'.

3. Each of these Internet pioneers was more concerned with marketing for many targets as opposed to target marketing. This lack of customer focus had the cyberbusinesses developing international linkages, alliances, operations, advertising and web features without having a firm foundation in any one market, regardless of where that foundation was set. For example, features were often so memory-heavy that few prospective clients would likely have the technical equipment to even view the web sites.

4. The 'f-word'. That's right - fulfillment. Regardless of how businesses are built, they inevitably provide value by delivering something. When delivering a hard product, each of these cyberdisappointments sought to contract out fulfillment in order to keep the core business lean and mean. The only problem was that these businesses' core value was fulfillment, even though they did not want to see themselves this way. According to recent Forrester Research and Gartner Group reports, online retailers must have strong in-house control over warehouses and order fulfillment to meet customer demand.

In the coming months, more e-businesses are expected to fall from grace. In fact, Forrester Research reports that because of the types of business practices noted above, as many as 50% of well-funded e-tailers could drop below financial expectations or completely fail within the next year. While money does get businesses off the ground, it takes more to help them thrive on the Net.

Welcome to one of the e-conomy's harsh realities.

If your Internet business has run up against any new, or particularly relevant business reality, drop us a line and we'll put it into a broader context as well as highlight you and the lessons you've learned.

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