Just Managing: The Monty Python Syndrome
For a window into the predicted shakeout of e-everything, check
out that managerial primer known as Monty Python and the Holy
Grail. In the opening scene, a man in a black hood pushes a
cart through town calling, "Bring out your dead." As the townspeople
deliver their dearly departed, one man (referred to as the Large
Man in the film's script) has a problem - his corpse won't die.
The Cart Driver points to the would-be cadaver and says, "'Ere.
He says he's not dead."
Large Man: "Yes, he is."
Body: "I'm not!"
Cart Driver: "He isn't."
Large Man: "He will be soon. He's very ill."
Body: "I'm getting better!"
Large Man: "You're not. You'll be stone dead in a few minutes."
And so the argument continues until the Large Man, eager to seal
the deal, finally persuades the Cart Driver to send the Body to
his maker with a bonk on the head.
Substitute e-retailers for that ailing corpse-to-be, journalists
and analysts for the Large Man, and the money crowd for the Cart
Driver - and you've got a pretty good depiction of today's e-retailing
sector. Many e-retailers are facing imminence, yet they aren't giving
up the ghost.
There are several reasons that many high-tech firms linger with
the irritating resiliency of the Body in the cart. Most companies
actually fold a lot slower, and far more unpredictably, than the
vulture-like critics hovering overhead imagine. Despite the growth
business in predicting apocalypse, it's excruciatingly hard to find
companies that have completely tanked.
I asked Amar Bhide, who wrote the definitive book on startups,
The Origin and Evolution of New Business, and he e-mailed
me with examples like Peapod.com, Iridium.com and Drkoop.com.
Troubled companies to be sure - but in the words of Monty Python,
not dead yet. (In fact, with the recent capital infusion from Royal
Ahold, Peapod just might "go for a walk.")
Certainly the surplus of venture money propping up firms that
deserve to be cadavers has played a role in the Monty Python Syndrome.
When nobody has to make money, it kind of makes sense that the traditional
cause of death no longer results in death. This makes failure in
the Internet economy difficult to define. Most people are still
so smitten with visions of Amazon.com that they consider
anything less than IPO-associated billions a disappointment.
One smart contact of mine (Professor Robert Merges at the University
of California at Berkeley School of Law) referred me to his
friend Nat Goldhaber, whose "failure" consisted of recently agreeing
to sell his company, Cybergold, for only $157 million worth
of stock in MyPoints.com. Another well-connected friend,
Adam Honig, had sold his company, Open Environment, to Borland Software
four years ago for a mere $100 million in what also also considered
Honig points out that many promising companies fail to crash and
burn spectacularly. "It's really, really hard to kill a technology
company that has an intellectual asset," Honig says. "They don't
really fold. They just go down that long asymptote."
Silicon Valley has a long-cherished tradition of embracing failure,
of placing value on learning from risk. The belief is that there's
more to be learned from a good company that fails for reasons beyond
its control than from a mediocre one that endures despite all good
sense and reason. The challenge of a failed company is to learn
from the experience and apply it to the next venture.
Such was the case with a recently folded company called HipO.com,
based in Atlanta, Ga. In spring 1999, Tim Cobb, who cofounded Web-traffic
tracker Relevant Knowledge, sold his company to Media Metrix
before starting HipO. The company was planned as an online destination
for the group of 12- to 19-year-old consumers dubbed Generation
Y. Armed with $4 million in private backing, the company designed
a cool site, hired 50 employees and launched in August of that year
in hopes of blending community with commerce.
Cobb says that at the time, he didn't believe an advertising-driven
site would be significantly profitable, so he based the company's
fiscal health on its ability to sell goods, primarily apparel. The
challenges were significant. According to Seema Williams of Forrester
Research, HipO was targeting a market of consumers who don't
have much money to spend and who rarely have access to credit cards
to make online purchases.
Earlier this year, HipO shut down its site, let go half of its
employees and watched much of its top management defect. Cobb says
the tragic flaw in the HipO business model was an assumption that
major apparel companies would be willing to partner up with an online
vendor. They weren't, and HipO was forced to offer apparel from
But Cobb found opportunity in the ordeal. As he worked with smaller
apparel manufacturers, he discovered that most of them were seeking
help in conducting business online. "We were spending a considerable
amount of time with the manufacturers, helping them to solve their
Internet problems," Cobb says. A light bulb went on for him, one
that culminated in what he calls a "come to Jesus" moment at the
end of the year. "Our experience as a small retailer made it clear
that there was a huge opportunity to create a business-to-business
site, a trading hub for huge manufacturers and their partners,"
Cobb shut down HipO and earlier this year launched Edaflow.com,
an online marketplace for apparel manufacturers. The site allows
clients to browse through customized 3-D showrooms online and to
track order life cycles. In essence, it gives companies the ability
to manage their orders on the Net. Earlier this month, the company
announced a $7 million investment led by Harbinger, a publicly
held company that supplies b-to-b software.
"I wouldn't say we went out of business," says Russell Griffin,
VP of Edaflow. "I'd say we transferred our knowledge base to a new
venture." A positive spin, to be sure. But it's spin that's now
backed with $7 million and a handful of partners.
So even though the man in the black hood came calling for HipO,
he left empty-handed. Whether Edaflow might one day rest in his
cart is a story for the next reel.
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