The Marketplace Returns To Sanity
There was a period of time when I felt sorry for small business owners trying to create a business plan. During the last five years of the 20th century, it seemed all the things we had learned about creating a plan, which demonstrated we knew how to play by the rules of the marketplace, were no longer valid.Millions of small business owners had worked hard serving their customers, creating opportunity for themselves and others, and growing their businesses the way it had been done for generations:
• Identify an opportunity
• Develop a market strategy and carve out a market niche
• Deliver products and services to paying customers
• Operate for profit
• Acquire working capital from a combination of debt, investment, and operating profits
• Grow incrementally as capital and market penetration permitted
The business plan was a management tool used to operate the business, and it was the platform from which the incremental growth strategy was launched. It was also the document used to tell bankers and investors about how the company would employ the rules - combined with the owner's own management style and vision - to accomplish the operating performance necessary to justify a loan or investment capital.
Whether 10 pages or 100, the plan had to flow logically from vision to substance, from theory to operating reality, from research to implementation, and from financial projections to cash flow and profit performance. Any business with a plan that didn't demonstrate these fundamental components would not only fail to get funding, but would probably just fail.
The New Economy Mania
Then around the mid-90s, something emerged that was being called "The New Economy", and its associated rules, if you could call them that, flew in the face of traditional business modeling and planning. For example:
• Hundreds of what came to be known as dot com entrepreneurs disregarded the fundamental rules of building an organization, did a quantum leap right over the concept of incremental grown, and within months (in some cases, weeks) made a bee-line with their plans to the capital markets for funding - first from venture capital coffers, and ultimately to the entrepreneurial brass ring, the initial public offering (IPO).
• Many of the New Economy geniuses were in their twenties - by traditional marketplace standards, virtually children. These techno-babies, few of which had paid any dues in the marketplace, were having cash thrown at their feet at levels few of us, whose dues were paid in full, could comprehend.
• Companies that had no tangible product, no customers in the traditional sense, and sometimes, incredibly, had yet to file the first tax return, were achieving a market capitalization of hundreds of millions of dollars (some over $1 billion) within days, weeks, or months of their IPO. One dot com company, which I consider to be the poster child for this era, even went public before their web site was up. You could buy their stock, but YOU COULDN'T DO BUSINESS WITH THEM!
• A business plan projecting a cash burn of tens-of-millions in a quarter without ever mentioning the word profit, was seen as not only acceptable, but even desirable. Meanwhile, a traditional plan designed for maximum cash efficiency and ultimate profitability was looked upon as something between an aberration and a fossilized relic.
• Stratospheric price-to-earnings ratios of the dot com stocks were based on little more than web site unique visits and page views. These stock valuations were the antithesis of traditional value indicators like organizational critical mass, delivering value to paying customers, and achieving profitability at some point in our lifetime.
For the millions who had been, and continued to play by the rules (especially those of us dues-payers who are perhaps a little long-in-the-tooth), seeing all of the twenty-something overnight multi-millionaires made us question whether we were doing something wrong. Why were we drudging around in relative obscurity, struggling to fund our growth with precious profits and hard-earned credit, while the new economy whippersnappers were getting all the attention AND cash?
It's Not So Much The Fall - It's The Sudden Stop That Hurts
Most small business owners weren't really jealous of our dot com cousins. But we often had the same feeling about them as golfing great, Bobby Jones, had when he made the following remark about a young prodigy, Jack Nicklaus, back in the early 1960s, "He plays a game I am not familiar with." We may not have been familiar with their game, but as we observed the dot com craze in awe, instinctively we knew that the bloom on this rose was not sustainable.
Sure enough, the beginning of the end of the ride for many soon-to-be dot bombs started March 10, 2000, as the Nasdaq bubble burst, ultimately deflating by over two-thirds off of its highest level, as dot com carnage metastasized across the marketplace. Oh, and that poster child company I mentioned? It filed for bankruptcy within 2 months of the bubble bursting, which was within nine months of its IPO.
Headline: Small Business Survives The New Economy
So, here we are on the other side of the dot com meltdown, a lot smarter, and with a renewed appreciation for the traditional and fundamental rules of the marketplace. Like the little engine that could, our traditional small businesses are still chugging along. Our stock may not be traded on the Nasdaq, but neither are we out of business.
Looking back now, we see that most of the new economy hype was just that. And while we no longer feel deficient because we didn't tilt at the page view windmill, dot com mania did provide some valuable lessons:
• The classic laws of economics have not been suspended.
• The Internet is creating significant changes, but in reality it's just a platform for new tools that are best deployed in concert with traditional business models.
• We must aggressively incorporate the best of technology and the Internet in our business planning.
• Adding value for our customers now means the traditional brick-and-mortar operation must morph into the brick-and-click model, where the best of both the old and new economies are combined, resulting in operating efficiencies and increased capability that will help us gain and maintain a competitive advantage.
Write this on a rock... The new economy is real, but it's more about new tools than new rules. Use the new tools, but don't lose the old rules.
