Let’s roll the clock back to 2001 and the year of Enron’s collapse, Harry Potter’s film debut and the infamous Dot Com crash… In a daring move of staggering greed venture capitalists jumped on the Internet bandwagon and created a stock market bubble which then burst to near devastating economic effect.
What’s astonishing is that most of the companies which crashed all made obvious and fundamental errors of judgement. Errors which are so simple to spot it’s hard to imagine that they were overlooked by such highly intelligent people in the first place. Or was it simply that hubris and the high–life blinded them?
Let’s take a look at two staggering Internet catastrophes:
Flooz.com
Total Spend $35–50 million
The founders of Flooz (the Arabic for money) had the breathtakingly daft idea that people would buy Flooz credits which could be redeemed at any participating online store. In other words you would hand over your money to a company who gave you credits which you could then use to buy things over the Internet. Incredibly, they failed to spot that there was already something which we were all happily using to buy things over the Internet called “money”.
Really, why would you want to use that pesky money stuff (which everyone accepts) in place of Flooz credits which you could spend in up to, erm, a few stores?
Whoopi Goldburg headed up their television advertising campaign. A decision she must have almost instantly regretted after Flooz became embroiled in a crime syndicate and money laundering scheme uncovered by the FBI.
Flooz and, its competitor, Beenz.com were simultaneously declared bankrupt in 2001.
LESSON: If an idea doesn’t work in the real world it stands little chance of success on the Internet.
Pets.com
Total Spend $82.5 million
A simple idea, buy your pet supplies online.
Imagine spending $11.8 million dollars on advertising before you’ve done any research to see if a market exists for your product. Well, Pets.com did just that. Oddly, the warning sign that the market was just not as large as they thought was clearly evidenced by its total revenue of just $619,000 despite $11.8 million on advertising. Let’s put that another way, for every $1 revenue they generated they lost $19!
What’s more absurd is that in order to win the customers over they were selling their products at a loss. I honestly can’t imagine how that one got past the board as it seems to be the short route to commercial suicide. And it was!
Pets.com collapsed nine months after it was launched but despite overseeing a business disaster of Biblical proportions the CEO still managed to walk away with a $235,000 severance package.
LESSON: Testing and measuring is the essence of success. If you know what your Return on Investment is month–by–month you can adjust your marketing accordingly. This allows you to expand quickly on your successes and kill off any failures before it’s too late.
Next week 2 more mind numbing Internet disasters for us to learn from!
