A – Because Bubble 1.0 wasn’t really a bubble. Or so goes a theory reported by Lee Gomes in today’s Wall Street Journal (free feature).
“While most people recall the colossal flops of the period (Webvan, pets.com, etoys and the rest) the survival rates of the era’s companies turns out to be on a par, if not slightly higher, than those in several other major industries in their formative years.”
The revisionist history is found in a paper analyzing business plans from the dot-com era that suggests the dot-com bust was concentrated in companies that followed the theory that getting big fast is the way to success (and it was, for a few lottery winners). However, dig down into what really happened and you’ll discover lots of dot-com startups that followed the traditional small business approach (small niche, little overhead, and, oh, what’s that?, revenue) that are still thriving companies, but you’ve never heard of them.
Quote that anyone thinking of a Web 2.0 startup should print out and read everyday:
“Most of these survivors, though, aren’t the titans like Amazon or eBay, but much smaller efforts such as wrestlinggear.com, which sells equipment to high-school and college wrestlers, what Prof. Kirsch called precisely the sort of demanding niche market for which Web shopping was invented. The fact that so many dot-com companies survived suggests that even more could have started. But that didn’t happen, says the study. Investors following conventional wisdom of the day were interested only in companies that could dominate an entire industry. In looking for these, they ignored smaller niche opportunities that had the potential to become modest but profitable enterprises. “It turns out there were lots of nooks and crannies for entrepreneurial action,” says Prof. Kirsch. “But those nooks and crannies might have been $5 million or $10 million businesses — well worth doing, though not necessarily for VCs.”
Related: My recent rant regarding myopic VCs who only invest in startups 20 minutes from their offices.
Sidenote discovery: The owner of WrestlingGear.com has a blog.
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