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In October of 1999, investors were salivating over the Internet and throwing money at startups left, right and center. If you were looking for cash for an online project, it wasn't hard to find backing. Just 6 months later, the dotcom bubble would burst. The old saying goes that those who forget the lessons of history are doomed to repeat them. While there's certainly no bubble at the moment, as a whole new generation of online entrepreneurs have emerged since that time, I thought it would be useful to take a brief retrospective look at what happened and the lessons that small online businesses can learn from it.
Back in the late 90's I was still somewhat dabbling at the edges of online business. Like a lot of people, I was captivated by the stories of guys working out of their garages becoming millionaires practically overnight. It wasn't the lure of millions that caught my attention so much, but I thought the Internet might allow me the privilege of working from home. In the late 90's the online population wasn't anything like it was today. So how were all these guys making so much cash and building empires out of thin air? The early days of ecommerce were all about expansion and "potential". The goal was to acquire as many customers or subscribers as possible, as fast as possible and at any cost. While businesses commonly don't make a profit in their early years, the big dotcoms made it a point not to in their pursuit of expansion. Many launched on the stock market without having demonstrated any ability to make a profit - yet the investors lapped it up because of the "potential". This concept of potential saw stocks for online companies go through the roof and many millionaires were made - but on paper only. The problem with potential is, there can only be so many winners - and the sorting was yet to eventuate. With all this money floating around, companies spent lavishly, not just on their own non-essential infrastructure, but also by investing in other dotcoms. The dotcom bubble burstsIn late 1999 and early 2000, the NASDAQ soared to levels never seen since. But trouble was brewing.
After every boom, there's a bust and while this pattern has repeated itself
time and again in various sectors, we never seem to learn. A major, but purely coincidental, simultaneous sell off of
stocks in what were seen as solid companies triggered a chain reaction of sell offs. Investors panicked. Values tumbled and billions of dollars in company values were wiped off the slate. For example, in March 2000 Infospace reached a price of over $1300 a share, but by April of the following year, its value was a comparatively measly $22.
Dotcom bubble lessonsI think one of the biggest lessons I observed from the dotcom bubble bursting that is applicable to small business owners is the understanding that in some ways, we are not in control of our businesses. As we're often dealing with a global market, there are just so many factors that can impact negatively on our own ventures. Here's an example; currency exchange. It's an ill wind that blows nobody any good they say and financial crises have actually served me well. I got into online business and ecommerce in a serious way just as the dotcom shakeout was in full swing. I decided to focus on the US market. Back then, around 50 cents US was worth 1 dollar Australian. As the global economy started to improve and in particular, Australia's; the AU dollar nearly hit parity with the US greenback. I had to earn twice as much in US bucks in 2008 than I did in 2001. Then when the global financial crisis hit in late September 2008, a similar situation occurred. The US dollar gained value against the AU buck. Suddenly, I was making 30% more. But in the last couple of months, the AU dollar has gained rapidly again. It can really drive you nuts. Imagine if I had gone into debt recently or spent based on earnings from late last year, thinking that the situation would continue. I'd be in a whole world of hurt right now. There's been other times when I've been running campaigns that have been great earners and running rock solid for sometimes years, then suddenly they drop off for any number of reasons - technology changes, search engine rankings shuffle or a competitor product takes the world by storm. Online business can be a white knuckle ride at times and stability a very elusive beastie indeed. In summary, the dotcom bubble and hiccups since have taught me the following:
That last point might seem a little pessimistic - but it's when everything seems hunky-dory that we tend to take the eye off the ball. When problems invariably sneak up and then smack us around the face, it can leave us too stunned to act or to run around like chickens with our heads cut off; losing valuable time and incurring even more damage.
Michael Bloch Copyright information.... This article is free for reproduction but must be reproduced in its entirety, including live links & this copyright statement must be included. Visit http://www.tamingthebeast.net for free Internet marketing and web development articles, tutorials and tools! Subscribe to our popular ecommerce/web design ezine! Click here to view article index
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