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Friday, January 30, 2009

5 Survival Lessons From The Dot Com Bubble

from Andrew Warner





Andrew Warner is founder of Mixergy, which runs a popular series of technology networking events in Los Angeles. Andrew has recently been interviewing interesting entrepreneurs and thought leaders. This interview is with David Kirsch of the Dot Com Archive. Andrew's given us permission to cross post his interviews here.

What can you learn from the first wave of Internet companies?

In the late 1990’s, irrational exuberance led to a bubble in the values of internet companies. After that bubble burst, Professor David Kirsch of the University of Maryland studied what happened so future entrepreneurs can learn from the mistakes of the first wave of dot-coms.

As the founder of the Dot Com Archive, he has amassed a collection of 6.4 million email messages, memos, slide presentations, photographs, marketing materials and databases representing thousands of companies from the bubble days.

I interviewed him for Mixergy about his project. Here are 5 lessons I drew from the conversation:

Know how investors identify the clueless

Ever notice how venture capital investors’ web sites have forms to let you submit your business plan online? Prof Kirsch says, in his research, not a single startup got funded that way. They’re used to weed out entrepreneurs who don’t know that getting funded is about relationships.

Avoid the trap of failing big

Webvan failed because they raised $1 billion and bet it on a single home grocery delivery format–small trucks, large distribution centers, etc–which turned out to be too expensive to maintain. Had they tried 10 different formats and bet $100 million on each, they would have increased their chance of finding the right way. To keep from failing big, startups should make many small bets, instead of one large one.

Learn how to profit from a failure

Scient might have been one of the biggest bombs of its time, but its founder, Eric Greenberg earned $250 million from the business because he sold his shares before the company went bankrupt. Meanwhile, some of Scient’s employees held on to their shares as the company sank into bankruptcy. As important is it is to know when to start a company, it can be even more important to know when to get out of it.

Know that you get many chances

The venture business is forgiving. Even if you make mistakes and your company goes bankrupt, you can get another chance. In many cases, the same investors who lost money on a startup, will give the founder another chance and reinvest in her next business.

Realize that nobody knows if your idea will succeed

When Prof Kirsch’s students told him about an idea for a tshirt company, he thought it was “silly.” 6 months later, he saw a similar tshirt company that someone else launched and realized it was “kind of cool.” If a professor who’s studied more startups than almost anyone living can’t predict which ideas will succeed, then, as an entrepreneur, you can’t let anyone tell you that your idea will fail.

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