Some dot coms deserved to fail

As I was reading yet another story about how an Internet company went belly up, I realized that many of the dot-com companies simply deserved to fail. The founders may have had a good idea, but they had neither the intelligence nor the stamina to develop a growing business that would make money. That assessment also holds true for the venture capitalists and other investors who sank money into such "black hole" businesses.

If you look at some of the entrepreneurs who found a measure of success over the last century—Edison, Hewlett and Packard, Dell, Gates, and Jobs and Wozniak—you find common themes. All their efforts started small, the founders had a clear vision of where they wanted to go, and at least initially, they all relied on their own wits. You can argue that today such a vision of the inventor or entrepreneur appears simplistic. But future inventions and innovations will still originate in individuals who know what they want to accomplish.

Almost anyone who followed the accelerating expansion of the Web bubble should have spotted the differences between entrepreneurs who stood a chance of success and those whose businesses were headed for failure. Take, for example, Quokka Sports, a company that "produced" a Web site devoted to sports. The company employed over 280 people, and many occupied a lavishly furnished office that included executive chairs ($675) for each worker and 20-in. TV sets placed above their desks. After burning through $200 million put up by investors, the company died.

What I have read about good entrepreneurial ventures shows they start in basements, run-down mills, or any other cheap space. Employees work at card tables and 8-ft banquet tables (often borrowed), and they may use tools and equipment picked up at auctions or loaned by other companies. Secondhand office equipment gets bought from companies that use classified ads.

Start-up money comes—at least initially—from credit-card advances, second mortgages, and relatives. Venture capital, if any, comes much later. Oh yes, these small ventures target customers who pay for a product or a service, and their business plan provides a realistic timeline that shows when the company's founders expect to see a profit. Successful entrepreneurs are a penurious lot, and they don't think much of bragging about high burn rates.

So, when you hear about the next big idea that seems too good to be true, keep your feet firmly on the ground. It's easier to run from an expanding bubble when you have some traction.