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New Year, New Vision
The arrival of the New Year is always a time for reflection. And so, in this most quiet week of the year, I would like to reflect briefly on a question that is surely on the minds of the small band of survivors from the dot-com salad days. Specifically: what makes an Internet company successful?
I have had the good fortune over the past half dozen years to watch a number of Internet companies from close range. Many are long since gone, some are limping to an almost certain demise, but others are thriving. What is the distinction? Why do some succeed and others do not? Although many readers of this column will have had rich experience with the dot-com sector, I would humbly like to offer my own perspective on the five key factors that I believe make an Internet company successful.
1. Humility. It has been long and widely noted that arrogance on the part of both dot-com executives and investors has been an important factor in the failure of a great many Internet firms. To my mind, it is more than important-it is the most important. Whether because of the participants' relative youth, the Internet's frontier mentality, or the easy money of the late 1990s, a distressing proportion of the Internet executives whom I have encountered have exhibited behaviors suggesting that the normal rules of business did not apply to them. While these behaviors were most obvious in public pronouncements concerning projected revenue and site traffic, they were also manifested in more subtle ways, such through the inattention paid to customer relationships ("we can always get more"), product performance, and pricing.
Correspondingly, I believe that an appropriate degree of humility has proven itself as one of the vital-if not the most vital-ingredients in Internet success. Note, however, that humility is not the same thing as self-doubt. As management gurus frequently insist, self-confidence is crucial to any commercial undertaking. But humility strikes me as even more important than self-confidence in the current instance because-while the retail, manufacturing, and related commercial worlds are well understood-the Internet remains a very large black box. Executives and investors who were convinced that they had "solved" the Internet or, worse, who thought that they could rewrite the laws of economics and human behavior are no doubt spending a lot more time these days rewriting their resumes. On the other hand, dot-com entrepreneurs who faced the Internet as the uncertain if promising territory that it was tended to act much more prudently and as a result, quite often, were more successful. A key reason: with an unexplored territory like the Internet, much more usually needs to be learned than is already known. An attitude of humility imbues one with much greater willingness to learn.
2. Experience. As the old saying goes, "there is no substitute for experience." Nowhere is that principle more relevant in the commercial world, I believe, than on the Internet. Experience is helpful in any business setting, of course, but its value is heightened on the Internet because Internet firms generally must move quickly in order to remain competitive, and because-unlike small restaurants, CPA firms, or business consultancies-small Internet companies have no "local" market, but instead must compete instantly with companies throughout the world, many of which are orders of magnitude larger than they are. Experience is also useful because, as noted, Internet executives have so much to learn about their new, undefined market that they do not have the time to learn good management and decision-making skills on the job.
Unfortunately, peopled as they often are by young, eager technologists, far too many Internet companies have lacked the fundamental business savvy to master such corporate fundamentals. Perhaps most damaging to their fortunes, these firms have not always understood how to analyze and approach a market. While the notion that "the technology will sell itself" did pan out in a few instances, it is no denigration of technologists to say that asking an engineer or code writer to run a company, design its marketing materials, or lead the sales effort is likely to be just as effective as asking a public relations manager to write Java applets or http protocols. Even in cases in which young Internet companies brought in the proverbial "gray hairs," these individuals often were asked to operate in roles that were outside of their primary areas of expertise. By contrast, the Internet companies that have succeeded typically boasted executives with rich experience in areas closely related to their current assignment-a trait, as it happens, that successful online companies share with their equally successful offline counterparts.
3. Flexibility. Operating in the lightspeed world of Internet time, Internet companies usually have not been able to afford the long deliberations and months-long exploratory projects that are common in Global 2000 enterprises. The dot-com firms that have adapted to this demanding, fast-changing environment have done so, in large part, by being able to make "good enough" decisions quickly. But being decisive in the face of the Internet's rapid pace of change is only one of the aspects of flexibility that, in my experience, has proven necessary to a successful Internet company. Another is a willingness, in timely fashion, to abandon sometimes valued strategies, programs, or markets that are simply not working. Yet another-perhaps the most important-is the ability to move forward across a landscape of great uncertainty, operating without the security of clear rules and a clear view of what lies ahead.
But flexibility, for all of its importance, does not mean chaos. Desperate for quick success, a great many Internet companies have changed their markets, missions, and even whole identities on a regular basis, an act of slow suicide that not only winds up confusing their customers and the media, but that also squanders sometimes millions of dollars' worth of development and marketing work. Similarly, in embracing flexibility internally, far too many Internet firms have abandoned proven operational practices like formal job definitions and clearly delineated organizational structures, bringing corporate progress to a standstill as employees either fought with one another for turf or else were so confused about what they should be doing that they did nothing. By comparison, the most successful Internet companies that I have encountered have built a relatively conventional corporate infrastructure-with clear job responsibilities, clear reporting relationships, and pervasive accountability-but they have seasoned this base of tradition with enough flexibility that the company can respond rapidly to new information or opportunities as they arise.
4. Business sense. One of the Internet's indisputable accomplishments is its spawning of a whole array of intriguing new technologies. Some of these, like online auctions and online payments, have not only made a lot of money for some very fortunate people, but they have fundamentally altered the American commercial landscape. Most such technologies, however, have wound up as little more than digital museum pieces-interesting to look at, but of little day-to-day use. The inability to distinguish between these two possibilities-that is, to be able to forecast, with reasonable accuracy, what will be marketable and what will not be-has been one of the major downfalls of the Internet startups of the past few years.
That hasn't been Internet firms' only predictive shortcoming, though. In other cases, commercially sensible concepts like online grocery and pet food shopping no doubt sounded promising on first pass, but were not thought all the way through-an analysis that, if soberly done, might have counseled more caution than was often applied. In still other circumstances, otherwise reasonable business models, like online advertising and generic e-commerce sites, were so plagued by wildly overestimated sales projections that they encouraged financial recklessness whereas, if their management had been more fiscally prudent, many such firms would have gone on to become modest successes rather than the spectacular failures that they became.
In contrast, most of the Internet companies that have succeeded chose business models, products, and pricing strategies that made sense first in the offline world, and then merely adapted these models for the Internet in a way that took unique advantage of the domain's real-time interactivity and anytime/anywhere access in a way that mattered to potential customers. Such firms also made sure that their business models were based on markets and human behavior as they existed in reality, rather than only in an overly optimistic executive imagination. And, most importantly, the leaders of these successful companies diligently listened and responded to the criticisms and cautions presented to them, regarding them as fodder for learning rather than as so many annoying flies that needed to be quickly swatted away.
5. A bold vision. All of today's great companies were once somebody's outlandish idea. But their founders had the strength of vision that helped to convince others that theirs was an idea worth listening to, a product worth trying, a benefit worth having. Such boldness of vision continues to be important, especially on the Internet, because it helps a nascent firm or idea to stand far above an often very crowded field. Even more essential, a bold vision is a rudder in turbulent waters (as the Internet economy surely is), helping a company and its employees to remain on track when so many other opportunities and crises are competing for attention.
Companies lacking a bold vision not only fail to stand out from the crowd; they often prove unable to create an impression of any kind in potential customers' minds. Firms with such a vision, however, prove attractive to customers, investors, and the media alike, in large part because they create a desire for association (in much the same way that a bold public personality inspires admiration and attention). However, such boldness must be sufficiently tempered with humility (as discussed above) lest it morph into arrogance, and the whole cycle of problems outlined above begins to take hold.
To be sure, this is a very fine line to walk. But those companies that do will be rewarded with more than temporary success. They will be able to leave the Internet fringes to become part of the mainstream economy and, more importantly, to build a foundation for longevity that will keep them in business for years, if not decades, to come.
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