Originally published in the June 2001 issue (almost 97% certainty, or it was July issue) of Wasatch Digital iQ Magazine (under entirely different ownership today) this story I'm about to relate garnered a lot of attention when it was originally published.
It's the three-year anniversary of its publication and I had been thinking alot about authenticity, transparency, trust, integrity, intuition, resentment and forgiveness within the business context. It seemed fitting to share this story anew for a broader audience as it's still relevant today. Don't be fooled, it's not merely about the dot-com era. I'll also add a fresh brand-new section exploring how the lessons have unfolded in the unensuing years.
In the spirit of Mark Cuban's Success and Motivation series, I'll be publishing this over the next few days and the final part(s) - the all new material - next week. Here is the first installment of the original article. The only alteration I've made is to change the company name (as it still shows up on Google searches) to the fictional SmallBiz Commerce. Although I'm into transparency - for myself - I don't want to impose it on others referenced in the story. The elements and lessons from the experience are what I'd like to focus on, not the gritty details.
“A la Recherche du Mon Dot.com Perdu” (“Remembrance of My Dot.com Past”)
Reflections of an e-Commerce Survivor
At the Sundance Film Festival this January, I couldn’t get any of my start-up compadres to join me in seeing the documentary “Start-up.com.” Uneasy feelings of deja vu, I suspect. I ended up seeing over 25 films at the film festival—I had the luxury of plenty of time.
In the last few months I’ve been privy to many intimate start-up stories (how does that saying go: misery loves company) shared by friends and acquaintances because we are now in the same club. Many of these stories share commonality and valuable lessons that are for the most part rarely revealed in public.
The first scene of this Utah version of Start-up.com begins when the author bumps into a group of previous co-workers (the company I work for had acquired their start-up company) at a Schmoozefest industry party, a gathering of the local Net crowd in October 1999. I am the only person still involved with the parent company. The start-up founder vaguely mentions he is working on a new start-up named SmallBiz Commerce.
Fast-forward to December 1999. I interview for the Chief Technology Officer position (no employees, no office, no VC money in the bank as of yet). The founder informs me he will be involved in an advisory and fund-raising role part-time and his younger brother, a co-founder, will be CEO. Also, SmallBiz has gone ahead and acquired a niche business operation, which sells electronic kits to schools and hobbyists as its first micro-business. The business was partly owned by the co-founders’ father, and they buy out the other partner.
In a nutshell, the business model is to own and operate potentially hundreds of niche category e-commerce sites. Each of them will have its own domain name, but they will share the same underlying infrastructure—technology, warehouse, operations, and even staff where applicable. The niche category sites will have to meet certain criteria, including high profit margins and difficulty finding the products in malls.
Individually, creating and operating a high-quality e-commerce operation for even a niche site can cost millions of dollars—a cost that a $10-50 million revenue business cannot justify. In essence, SmallBiz Commerce is to act as an Application Service Provider (ASP) to all our niche micro-businesses—thus facilitating sharing of a multi-million dollar infrastructure.
Immediately after the interview, I read an Upside editorial that validates the SmallBiz Commerce business model, and I take it as a positive sign. I am ecstatic to join a promising start-up at an early stage and eagerly accept the 50 percent pay cut (with Littlefish stock options to compensate).
Bad news. I personally can’t start full-time until early April because I need to stick around until my stock options vest on March 31 to afford the pay cut. History quiz: do you remember what event happened in mid-March 2000? Hint: It wasn’t worth sticking around until March 31.
By the time I join SmallBiz full-time in April, we have at least 10 more people on board—many in marketing roles—and two micro-businesses in tow. The whole team is involved in a team-building painting party for the new office that we move into about two weeks before I join. A new micro-business was created based on research showing that the term “science fair projects” was a hot keyword on search engines, as well as easily finding a qualified educational science buyer.
Although we never have more than a 3-page executive summary and some financial projections by May, the VC money is in the bank, as well as angel money from a prominent Silicon Valley VC and some of the founder’s own money.
An easy and extremely familiar interim solution—but not scalable long-term—is used for the two e-commerce sites. Everyone is busily working getting the sites launched when I arrive. One of my jobs is to come up with the long-term technology infrastructure solution.
By summer, it seems that analysts and Wall Street are sounding the death knell for e-commerce. We will need to raise our next round of financing in the fall. Although we think our niche e-tail aggregator model is a unique twist, we realize that no investor will care to read or listen past the word e-commerce.
We also realize that investors will raise red flags with the micro-business acquisition strategy. Economies of scale aren’t present in some areas—such as anything that requires specific domain knowledge, which is different for each niche. Plus, all that inventory is a risk, too.
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