Letâ€™s roll the clock back to 2001 and the year of Enronâ€™s collapse, Harry Potterâ€™s film debut and the infamous Dot Com crashâ€¦ In a daring move of staggering greed venture capitalists jumped on the Internet bandwagon and created a stock market bubble which then burst to near devastating economic effect.
Whatâ€™s astonishing is that most of the companies which crashed all made obvious and fundamental errors of judgement. Â Errors which are so simple to spot itâ€™s hard to imagine that they were overlooked by such highly intelligent people in the first place. Â Or was it simply that hubris and the highâ€“life blinded them?
Letâ€™s take a look at two staggering Internet catastrophes:
Total Spend $35â€“50 million
The founders of Flooz (the Arabic for money) had the breathtakingly daft idea that people would buy Flooz credits which could be redeemed at any participating online store. Â In other words you would hand over your money to a company who gave you credits which you could then use to buy things over the Internet. Â Incredibly, they failed to spot that there was already something which we were all happily using to buy things over the Internet called â€śmoneyâ€ť.
Really, why would you want to use that pesky money stuff (which everyone accepts) in place of Flooz credits which you could spend in up to, erm, a few stores?
Whoopi Goldburg headed up their television advertising campaign. Â A decision she must have almost instantly regretted after Flooz became embroiled in a crime syndicate and money laundering scheme uncovered by the FBI.
Flooz and, its competitor, Beenz.com were simultaneously declared bankrupt in 2001.
LESSON: If an idea doesnâ€™t work in the real world it stands little chance of success on the Internet.
Total Spend $82.5 million
A simple idea, buy your pet supplies online.
Imagine spending $11.8 million dollars on advertising before youâ€™ve done any research to see if a market exists for your product. Â Well, Pets.com did just that. Â Oddly, the warning sign that the market was just not as large as they thought was clearly evidenced by its total revenue of just $619,000 despite $11.8 million on advertising. Â Letâ€™s put that another way, for every $1 revenue they generated they lost $19!
Whatâ€™s more absurd is that in order to win the customers over they were selling their products at a loss. Â I honestly canâ€™t imagine how that one got past the board as it seems to be the short route to commercial suicide. Â And it was!
Pets.com collapsed nine months after it was launched but despite overseeing a business disaster of Biblical proportions the CEO still managed to walk away with a $235,000 severance package.
LESSON: Testing and measuring is the essence of success. Â If you know what your Return on Investment is monthâ€“byâ€“month you can adjust your marketing accordingly. Â This allows you to expand quickly on your successes and kill off any failures before itâ€™s too late.
Next week 2 more mind numbing Internet disasters for us to learn from!