Internet companies, or dot coms, were supposed to be the next wave in business. We all heard how these new companies with new ways of doing things would change how we live and work, but dot com became “dot bomb” because high-flying Internet companies couldn't turn a profit. In a few short years, dot coms went from the wave of the future to yesterday’s news, and today many see them as a symbol of how not to run a business.
But there are still dot-com companies out there. New ones are launching almost every day. If an Internet startup came knocking on your door, would you answer it?
That’s not an easy question to answer. Internet startups haven’t entirely lost their luster. There are still plenty of attractions to working for a dot com, even if the decision is a bit more complicated than it used to be.
What is a dot-com startup these days, anyway?
Just what constitutes dot-com startups these days? It used to be that any new company that ended in .com was a dot-com startup. They certainly still exist, and new ones are still being created, but they only represent part of the total pool.
A friend recently took a job with a large Internet hosting startup that, believe it or not, doesn’t have .com as part of its title. For me, the simplest definition of what used to be called a dot-com startup is any new company or venture that uses the Internet as its principal delivery mechanism or the basis of its operations.
Evaluating a new company
Before you take a job with an Internet startup, you should carefully evaluate the company and its prospects. The following are some common-sense criteria for evaluating your potential new dot-com employer. You can find answers to these questions in the public record or by simply asking the company.
In the glory days of the dot-com boom, funding was bountiful. These days, well-funded dot-com startups are few and far between. You should ask:
- Does the company have venture funding? If so, how much, and how long will it last?
- If the company is privately funded, what are the founder’s resources?
- Does the source of financing have a track record in Internet ventures? If so, what’s it like?
As a bare minimum, you want a company that has enough funds to meet its commitments for at least six months. Optimistically, it would be great if it had funding for 18 months.
“Cash burn rate” was a common term in the high-flying days of Internet startups. Today, a new economy company is measured by the same metrics as an old economy “brick-and-mortar” company.
Before accepting a dot-com job, ask if the company is currently profitable. If not, ask when it’s expected to turn a profit.
Simply stated, an unprofitable company, or one that will not be able to turn a profit in six to 18 months, is probably one you’re better off not working for. Possible exceptions are biotech and heavy engineering ventures that have long product development cycles.
Performance index to sales
Once upon a time, everyone was developing portals that would capture “eyeballs.” Unfortunately, eyeballs only translate into profitable ad revenue for very few dot-com companies. You should find out if a prospective employer has a product or service that is currently available—something more concrete than the prospect of future revenue from eyeballs and impressions. You’ll want to find out how the company measures its success. In the end, a dot-com’s success is almost always a function of a strong sales organization.
Flameouts, wanna-bes, and has-beens litter the dot-com landscape. You want to work for management that has a good track record. Does the management of the company you’re considering have a successful track record? Do it even have a track record?
A potential employer’s solvency can be measured in a number of ways. The way a company pays its employees can be a clear indicator of its financial health. You have bills to pay. Options and equity are no substitute for a stable, solid salary with good future prospects.
Ask how you’ll be paid. Will your salary be paid via direct deposit or simply with a check? It’s a lot harder for a direct deposit payment to bounce. Is your compensation package loaded up with potentially worthless stock options or deferred payment schemes? What happens to the company’s promises if it goes belly-up?
There are still good opportunities in the online business world. The dot-com startup is far from dead; it’s just taking on a different form. Do your homework. Make sure that the company can meet its obligations—specifically to you. You don’t want to work for free or be left holding an empty bag. The rewards of starting something new range from personal satisfaction to rapid career advancement. The period of “irrational exuberance” may be over, but the time of rational expectations may be just beginning. Good luck, and I’ll see you at the finish line.