A Dose Of Realistic Optimism
Netpreneurs Learn How To Prevent Startups From Stopping

(McLean, VA -- July 20, 2000)  Starting an Internet business today is not what it was in the heady days when almost everyone thought “if you build it, they will come.”  Omnipresent headlines about astronomical IPOs have been replaced lately with the almost as ubiquitous “crash and burn” or “dot.bomb” stories.  The press’ gloom and doom is certainly overdone¾most analysts agree that the Net remains a phenomenally fertile ground for new business ventures¾but there’s no doubt that VCs are becoming more diligent, markets have shifted and more than a few high flying companies have been brought down to earth.

“Being an entrepreneur today is not for the faint of heart,” remarked Patty Abramson, Managing Director of the Women’s Capital Growth Fund, at this morning's Netpreneur.org Coffee & DoughNets meeting, “It's not just, ‘let's go out and start a business and we are sure to make it.’”

All companies face challenges and market moves. Startups are more fragile, however, less able to weather a long storm, and the storms that Net startups face are faster, more violent, less forgiving and change direction more frequently.  A panel of experts at this morning’s meeting provided some tips for navigating rough waters, or at least for avoiding the eddies that others have suffered before. Joining venture capitalist Abramson were attorney Mike Lincoln, Partner at Cooley Godward; accountant Jon Shames, Partner at Ernst & Young; serial entrepreneur Jamey Harvey, CEO of iKimbo; and publisher, entrepreneur and board member Esther Smith, Principal at investor relations firm The Poretz Group.

According to Lincoln, there are two kinds of factors that cause businesses to fail¾those you can control and those you can’t.  The latter includes things like market trends and the advantages of your competition, which, even if you can’t control, you had better know about and be prepared to respond.  The former includes things like the quality of your execution, company focus and exit strategy failures.  Regardless of which you are facing, and it’s probably both, Shames sees five areas to pay strict attention to if you’re going to have any shot at success or survival:

-     leadership: pay for the best management team and build a strong web of advisors

-     succession: few founders ever bring their companies from idea all the way to IPO, so know when to bring in the people who can take you to the next level

-     cash: take it when you can get it and long before you need it; building a company almost always takes double the capital you anticipated, and requires twice as long to raise

-     revenues: as the Internet space has moved back to basics, revenues are once again the key metric for success¾go for them right away, bring on the best salespeople and listen to your accountant about reporting rules

-     exit strategy: plan for and pay attention to liquidity events; statistics say that it probably won’t be an IPO, despite your plans

How can you tell whether you’re on the right track?  Smith advised finding new and appropriate metrics that show whether or not you’re hitting the mark.  Benchmarks like page impressions won’t replace revenue anymore, but you’ll be okay if you can show that you’re on what she called the P2P¾the Path to Profitability.  For example, are you simply closing deals, or are you maximizing them and leveraging the relationships?  Abramson offered a tool that she uses with portfolio companies¾scenario-building.  Have you asked yourself what you’ll do if you don’t make a certain projected milestone or target number?  These kinds of questions can help you find the balance point in “realistic optimism.”  That’s the catchphrase, all agreed, which has replaced the market’s earlier euphoria.

According to Harvey, who has founded three Net-based businesses, when an idea works, “you usually know it pretty fast.”  He added, however, “At every company that I have started there has been a moment when you realize what you are doing isn't working.  That is the moment of greatest opportunity that an entrepreneur can ever have.  It is in that moment when you get to re-create yourself.”

Whether that’s an opportunity or simply necessity, all panelists agreed that flexibility and adaptability are the keys when facing tough times or changing dynamics.  Lincoln said that it is essential for netpreneurs to be, “decisive and nimble.”  He cited the example of SingleShop, “a company that saw that the B2C space was a challenge and quickly, before the market downturn, repositioned itself into more of a B2B play, and has done very, very well since then.  One problem that founders and entrepreneurs have¾although sometimes it's also a good trait¾is to have blinders on and charge full speed ahead.  It’s bad when they fail to see the point at which you need to scrap your plan or model and move in a different direction.”

That’s the inherent contradiction behind “realistic optimism,” but who ever said that life, entrepreneurship or the Internet was going to be clean and easy?  The right path for a certain market situation may be exactly the wrong one for another, still the panelists offered pointers, advice and examples for a variety of circumstances, all captured in the edited transcript.  Of course, you’ll need more than that to avoid the land mines every entrepreneur faces, so it’s essential to build a network of people who can help with your particular challenges.  “If you are doing it right,” said Harvey, “you have a team, you have a board, you have advisors who can help you, but do not hesitate because things move very fast in this world.”

Copyright © 2000, Morino Institute. All rights reserved.