Is It Too Late to Start a Dot Com?

By Gwen Moran

Not too long ago, affixing "dot com" to your company's name was a means to attract national publicity, top employees and, most of all, big-time funding. Yet, with web businesses dropping like flies, times have certainly changed. Dot com can mean "don't touch" to investors.

"If you're talking about launching a dot com now, the environment couldn't be worse," says Leslie Mayer, president and CEO of the Mayer Leadership Group based in Wayne, PA. Mayer works with start-ups and venture capital firms to assess and develop management teams in emerging companies. "Many companies are looking to drop 'dot com' from their names to make themselves more marketable."

Harry Henry agrees. The co-founder of San Diego-based B2B Data Corporation, a database marketing company that monitors companies that have recently received venture capital, has seen a marked decrease among investing in businesses that are primarily Internet-based.

"During the 'silly money' stage, many companies added dot com to their names thinking it would mean instant money," he explains. "That was a very short-lived strategy. Today, having a dot com attached to your name really isn't good for public relations or marketing, especially to investors."

But some people just don't listen. Among these mavericks are the folks at PropertyRoom.com, San Clemente, CA, which launched in February. CEO Tom Lane was a Long Island police-officer-turned-entrepreneur looking for a business opportunity. It occurred to him that police stations around the country were sitting on property rooms filled with forfeited items, material seized in arrests and unclaimed personal property. Why not auction this unclaimed material, providing a revenue stream for both the company and police departments around the country? The result was a web business that closed its second round of funding to the tune of $2 million in January and, according to company president Chuck Moffitt, saw an operating profit within a month of turning on the switch.

It was Virginia Ginsburg's struggle with finding the perfect baby shower paraphernalia that led her to launch SpecialShowers.com in March. The full-time public relations professional put together the site, which sells all things shower-related, on a shoestring in her spare time. While the handful of sales she's made in her first few weeks aren't going to fund her retirement, Ginsburg says her daily site traffic has doubled in a month and the number of inquiries she's receiving is increasing steadily. Her decision to start small was based partially on the fact that she holds another full-time job and partially on her experience with other dot com start-ups.

"Reading about dot com failures and knowing them personally has allowed me to think about where I'm going," she says. "I'm looking at this as a mom and pop business. By starting small and building, it's a way for me to learn about the business and hopefully have some great success with it."

Mayer thinks that's smart. "In the 'old' environment, there was very little that was in place and the train had already left the station. We were just running along beside it. Systems would get fixed as they became emergencies."

Still, for those who are looking to lose their day jobs, funding is often a key issue. Karen Vellines and her partner, Scott Buelter, found their perfect dot com opportunity while getting their MBAs at the University of California, Irvine. While doing a project on e-commerce models, they came up with the idea of a web business that acted as a clearinghouse for antique dealers, allowing small, regional retailers to reach a global audience. After using the model as a basis for projects in marketing and other classes, they graduated with degrees -- and a solid business plan. The site launched in December 2000.

"At the time we started looking for financing, the market was starting to fall," Vellines recalls. "So we had developed two business plans. One was regional, focusing on dealers in southern California, which didn't need a ton of money. The other was more grandiose where we'd ask for millions and blast it out over the nation."

The pair found more potential backers interested in the smaller model and landed enough funding through private investors to get started, giving up interest in approximately 15 percent of the company. While it's been six months since the launch -- an eternity for some web businesses -- AntiqueParlor.com still maintains its focus on cultivating retailers in the southern California market, but has developed a network of buyers that spans the globe, essentially accomplishing a primary goal of its original, larger plan.

Moffitt also found that the PropertyBureau.com's search for funding, "coincided with the collapse of the e-commerce world."

"While that changed the receptivity of funders, it didn't change our strategy much," he says. Moffitt explains that the backbone to PropertyBureau.com's strategy was a solid business plan that focused on turning a profit. The company secured its first round of funding from friends and family. The second round of funding came primarily from small investment companies and angel investors. According to Moffitt, experience and a few gray hairs helped the process.

"A number of [investors] have said over time that it makes a great deal of difference to them that we've built successful businesses, have experience in law enforcement and that we have a little gray hair," he says.

Henry agrees that having experience in the field and a sustainable business model as well as showing a quick path to profit are the keys for web businesses to attract other people's money these days. He adds that dot com businesses seeking outside financial resources should look at which investors are putting money into their business categories.

"A lot of people approach an investor because a friend got some money from them," he explains. "But if your friend was in biotech and that investor only invests in biotech and you bring him a retail model, it's probably not going to work."

If there's a new buzzword for emerging web businesses, it's 'bootstrapping.' Frugality is in while burning through millions of dollars on lavish parties and prime office space is so year 2000.

"We saw a lot of our friends start businesses, buying these enormous offices without being able to fill them, spending tons on marketing when the value wasn't being returned," Vellines says. "Frankly, I would have been scared to death if someone had given me all of that money to spend."

Moffitt echoes this sentiment. "We've straddled the line between bootstrapping and splurging. We spend money where it has to be spent. We're miserly where we have to be. But we've seen a lot of companies overextend themselves on expansion and advertising and marketing that doesn't make sense."

Instead of dropping big bucks on print advertisements, PropertyBureau.com has focused primarily on public relations as a means of promoting the site. A launch-date appearance by former LA police chief Darryl Gates promoted the site on the CBS Morning News. In addition, the company's property return service got big press when it returned a stolen bass guitar to Kirilo, a member of the Japanese punk rock group The Exgirls.

And nobody's more conscious of boostrapping than shower maven Ginsburg, who has financed her venture out of her own pocket. Using her own expertise in high tech pr, she's been able to generate publicity and lock in prime search engine placement as low-cost ways to drive traffic.

Adds Vellines, "We don't believe that spending a lot on broad advertising campaigns is the right way for us to market ourselves. We use more targeted approaches like direct mail and seminars."

Besides "younger is better" and "market big at all costs," some of the other urban legends of the new economy are ringing false. Mayer believes that being first to market now has less importance that building a sustainable business model that can show a profit over time, especially since many of those "first to market" companies have fallen by the wayside.

"The old days of addressing only one need, like finding the cheapest khakis on the Web, are over. You need to demonstrate that you've got a sustainable business model and that you're willing to get some money on your own, get some traction. And that attracts the attention of bigger investors," she says.

So, while business media play the death march of dot coms, the folks who are actually on the front lines of web businesses are humming a more optimistic tune.

"Today's climate may seem daunting, but there are great opportunities that take much less investment than opening a store or other business," says Ginsburg. "The statistics are showing that more people continue to use the Web, especially in Europe, where Internet usage is growing."

Mayer adds that the key is not to look at your venture solely as a Web business. "Look at the business model in terms of a broader platform. While the climate today may make it more difficult to obtain funding, the basic circumstances are similar for any business, whether web based or not. You need to be sure that you have a solid plan and the resources to sustain your business until it can sustain itself."