November 27, 2000
11:37 AM   Subscribe

Is this what's often reffered to as shit hitting the fan?
posted by tiaka (11 comments total)
The layoffs have come from 383 companies, of which 20 percent have gone out of business.

20%? That's insane.
posted by pnevares at 11:53 AM on November 27, 2000

That's 20% of companies that have made layoffs, not 20% of all dot-coms. That's not so insane.
posted by grimmelm at 12:09 PM on November 27, 2000

Color me corrected!
posted by pnevares at 12:10 PM on November 27, 2000

Of course, they don't count how many of those people immediately got rehired somewhere else.
posted by john at 12:46 PM on November 27, 2000

Well, in the sense that the companies going under or making layoffs are "shit" businesses, yes. As peterme said:

"it seems quite clear -- companies hired too many people.
A year ago this time, every startup was obsessed with ramping up and swelling their staff numbers. This lead to an extremely tight market, inflated salaries, and, frankly, a lack of focus. (It's hard to get your job done when you're recruiting all day.) But the companies hadn't figured out what to do with all these people. I mean, what on earth was Evite doing with 69 employees? Evite should be 5 folks with some PHP and a MySQL database. Evite is a glorified web page maker. It's a useful one, but not 69-employees useful."

Now that there's not a ready supply of VC money or IPO funds to support companies riding on a wing, a prayer and a one-page business model, things can get back to normal, meaning that companies recruit when they can afford to do so. And that can only be good for the credibility of the sector.
posted by holgate at 12:51 PM on November 27, 2000

This should surprise no one. Most of these companies had no plan for making money, and from what I have read, most of the VCs didn't encourage them to do so. And peterme is 100% right: even those companies that had a decent plan grew much too quickly.

The new business death rate is pretty well known: 80% in the first three years. Main reason: lack of cash. When all is said and done, I would expect the rate to be higher than that, given some of the advertiser-driven revenue models and the like.

Some well known names are going to go down, and rather needlessly, I think. should have been okay, but they spent too much, too quickly on branding and customer acquisition. Anything that works in mail order should work on the Web; it isn't rocket science. is going to be the big test. They should be able to turn a profit by increasing margins, and not by that much, I think. But if you read Camworld and the financial press you know there is that rip-off feeling around Amazon, and one has to worry about whether the company ever intends to be profitable. Yahoo, I think, is at the opposite extreme: a very well-run, profitable company, but without enough revenue streams.
posted by tranquileye at 1:17 PM on November 27, 2000

A large percentage of businesses as a whole die within three years. Most are lucky to keep their doors open for that long, much less ever expand and grow. When you look at the business world as a whole, the dotcoms are simply following suit with general routine. We don't even hear about most of the "mom and pop" organizations that in hindsight are seen as "fly by night."

I can remember when friends of mine years ago recommended I get into dotcoms. I told them they were full of shit then, and I tell them they're full of shit now. And it's not because dotcom sucks. It's inevitable. What we're seeing is the building of an infrastructure for ecommerce. It's also simply high risk, but most any business venture is high risk. Who can keep their bridges from falling? Who can keep their roads from crumbling? All this is crap one could learn in Economics 101 in college. And I got a C in that. This is nothing new.
posted by ZachsMind at 2:53 PM on November 27, 2000

Tranquileye: I thought's business model was doomed, doomed, doomed from the very beginning. Either they were going to have to eat the shipping costs on 20-lb. bags of dog food or they weren't going to be price-competitive with driving down to the local supermarket, Walmart, or PetCo. And pet food and supplies have gotta be a fairly low-margin business to begin with. How do you build a billion-dollar company out of that? Answer: You don't; in fact, you don't build any kind of company at all.

And I'm totally in agreement with Holgate re: overstaffing. Some friends of mine and I did some back-of-the-cuff calculations about an online greeting-card business that one was dealing with, and the only way we could see it being profitable was as a 15-people-in-a-warehouse-in-San-Mateo sort of deal. Not a 40-people-in-an-office-in-San-Francisco company. I have no idea if it's still around now that the dumb VC money has dried up.
posted by snarkout at 3:26 PM on November 27, 2000

Yeah, laid off 60 percent off their employees on November 9th.
posted by waxpancake at 3:45 PM on November 27, 2000 was the only online supplier of the pee pads my parents use for their dog, and they were huge fans of the company. They were just delighted to buy the pads in huge bulk quantities online and have them delivered -- it was a lot better than buying the smallish packs that the local pet supply places carried.
posted by grimmelm at 4:31 PM on November 27, 2000

In traditional markets four out of five small businesses fail within their first year. This statistic is often quoted again and again by financial institutions who give small business loans. When the Internet came around, people saw how successful everyone seemed to be and venture capitalists poured millions into the market, inflating salaries, raising rents in hip urban areas (where the dot-com yuppies lived) and causing the stock market to rise beyond any expectable limit. What people forgot in this unexpected rush for "Internet gold" is that four out five of these companies will likely fail. Not because the idea is bad, or because the management is stupid, or because the programmers are idiots, but probably because of a combination of any of these reasons plus or minus any of dozens more. My experience at a large American corporation who made bad decisions about the Internet prepared me to work for a fast-growing startup with management who makes good decisions. It doesn't mean that we'll succeed or that we'll become a huge company, because there are plenty of things that could cause us to fail, but it does make me happy to see smart people make smart decisions about the web and then to see venture capital money back those decisions. This, I think, is what today's investors need to look for: not how many employees a company has, or how many people visit their site/portal, or how much advertising they've managed to sell. Find the truly smart people working on the web today and follow them, not the clueless ivy-league MBAs who jumped into the Internet market because that's where the money happened to be...
posted by camworld at 9:33 PM on November 27, 2000

« Older   |   Everquest guide suicides. Or maybe not. Newer »

This thread has been archived and is closed to new comments