» uk-netmarketing: roundup: 08-09-2000

Tough time for start-ups
UK-Netmarketing Weekly Round-up - September 8, 2000

The news of ClickMango's demise closely followed by Nutravida's difficulties in raising second round funding highlights the difficulties facing business-to-consumer start-ups in the current market conditions. Many subscribers to the list are either working in or working with start-ups, so this type of news is always guaranteed to stir up a bee's nest of debate.

Robin Edwards asked, "Funk me - £80k income since November '99, and this was apparently one of the best? Where did the £1m investment go? What did the incubators do to help it out?"

Neil Morgan responded, "All of a sudden those 'dinosaurs'; - the pre-Boo view of many traditional retailers - are beginning to look sensible. The view that the web is just one of the channels to market for a retailer is being accepted. Meanwhile those who rely on the web as the only channel are suffering. If they had looked at the low margins that many traditional retailers have to work off and the massive investment in logistics needed to run a profitable outfit they may never have started. Only the best online operations will get bought by the traditional players."

Duncan Clubb added, "I think that another factor that most people forget when dreaming up their business plan (I've been guilty of this myself in the past) is that retail is a very unusual industry, and one that requires experience that is not gained in any other field. ... Most e-retailers seem to have very little real retail experience in their mgmt teams, but blithely assume that it is a simple nut to crack. We can be such arrogant fools, sometimes!"

Trevor Millett, CEO of Nutravida, who is not a subscriber to the list, kindly took the time to respond to some of the comments on the list, "Firstly we have not spent money either excessively or imprudently. We raised circa £1M, a large proportion of which went on creating a fully transactional web site and the support services needed to operate a retail site. The balance has gone on operational losses supporting the business in its early few months. Our business model forecast a break into profitability in the Autumn of 2001, our performance to date has supported this as being realistic, if not prudent."

Commenting on the harsh market conditions facing online retailers, he continued, "Unfortunately, to achieve this we need additional funds to finance the short-term losses and such funding has proved very difficult to find. Despite the almost hysterical comments of one of your contributors, this is not an unusual business scenario. Venture Capitalists, Bankers etc would not exist if all businesses made a profit from day one. Believe it or not most of today's huge business concerns made losses in their early days and relied on the faith of their financial backers to support them through to solvency. Unfortunately, in our case as in several others, the market climate to support pure online B2C plays has moved so radically that investors are extremely nervous. I understand that even though I think they are now being too cautious and their caution might sound the death knell for my business. None of this is 'little children playing at business' or any other such rubbish. For the record I am 41 and have spent a lifetime running 'real world' companies. It is just part of the cycle of a free market. Very few 'dotcoms' were founded or managed by lunatics and many investors will yet see a very healthy return as the market returns to normal, as it will."

Finally, he threw down the gauntlet, writing, "There is a saying about those who 'do' and those who 'watch' - my fellow investors, my staff and me had the courage to get up and do something. It was always fairly high risk and everyone involved knew that. Some of [UKNM's subscribers] might be less bitter and better able to pass comments if they had the courage do the same."

Mike Parry replied, "Trevor ...this is the first time i have written to this site. Your last paragraph is the best thing I have ever read here you are exactly right in what you said...I too am with a start up that is experiencing financial difficulties because of the market place not because of the way we have run the business. Too many people have their 'two pennies worth' when they themselves haven't the balls to stand up and be counted.... every one in this business has taken a risk to do this but at least we have done it and not been some philosophical pratt who claims to know everything about the dotcoms world while hiding behind a glass wall in a trendy office."

Duncan Clubb addressed some of Trevor's points, emailing, "Assuming that I am one of the 'philosophical pratts' referred to below, you should know that an awful lot of the contributors to this list are what you term dotcom pioneers and ARE in a position to discuss these matters with a degree of authority. A lot of us, myself included, work for start-ups, have a great Deal at stake, and have been through the mill on more than one occasion. If we can't take criticism on the chin, then we are doomed to repeat the mistakes made by others. This list serves as a very useful forum for all involved in this industry and, personally, I think most of the views aired in the thread in question were valid and not aimed at any one company. Handbags away, now."

Sean Kyne added, "Well done to Tim for responding like this - as a member of a team that is working very hard to develop and launch an 'Internet start-up' it is at times galling in the extreme to read the comments from those that assume to know best. From what experience? We believe in what we are doing, so do our investors. We have been given the opportunity to make a successful business - if for whatever reason it is not at least we will be in a better position for the next time through the experience and be in a position to comment on others abilities, mistakes etc. ... If you think you have a business plan in you and the initiative to go for it then good luck to you - in the meantime take time to consider those out there who are doing it and need the support - we could be spending money with you one day!"

Another online retailer gaining a lot of attention from the list was Jungle.com, whose much-hyped £10m launch campaign drew much criticism when the free software offer was overwhelmed by demand, just announced their acquisition by GUS. Steve Johnston wrote, "Oh, how the dot com ambitions have fallen. Jungle.com sold to Great Universal Stores for £37 million. Against a hoped-for float value of £750 million."

Michael Reidy responded, "Are people actually starting to realize that only products have value and not brands?". James Closs, clearly took umbrage, writing, "What absolute rubbish. Coke. Pokémon. Nike. The value of all these is in the brand, not the product, and there are many more."

Michael Reidy disagreed, writing, "If Coke sold motor oil, the brand would have no value. Coke sells less drink now than when it sold only what is now called Classic Coke. It's heresy in today's madness, I know, but the product makes the brand, not the other way round. Otherwise, it's just the emperor's new clothes."

Unsurprisingly, many leapt to the 'brand's define, with Tim Moore, saying, "Perrier. The stuff comes out of a tap, Michael. So why do people pay for it in a bottle. For brands read emotional attachments. Ask a lover of classic cars why he drives a Sunbeam Tiger or a knackered out old Riley. Believe me, it's not because it's a great way of getting to B, it's simply because it is a Sun Beam Tiger i.e. they drive the brand, not the rusty pile of nuts and bolts that make up the product."

Steve Johnston questioned which GUS valued more highly, the brand or the product. He said, "Jungle's 'Bailout' has nothing to do with the brand, it has to do with the impossibility of shops trying to compete with shops if they are not offering anything better. ...The only role of the brand here is was that it actually WAS worth something, and was probably writ large on the balance sheet. You don't spend millions (what was their launch strategy now: '£10 million pound giveaway') and it be worthless, au contraire."

Tim Moore had a stab at defining what a brand means in this context. He said, "I think we have a crossed wire here in what the definition of a brand is. If one describes a brand as all of the physical and emotional attachments that a thing has, then the product - what the thing actually does and is made of is only part of the brand. I go back to classic cars. The product, a heap of old rusting nuts and bolts that will probably break down before it gets you down to the shops, does not score great points in the getting you from A to B column. But because it's a D Type Jag it scores massive points on the style and emotional attachment front. Result, Jaguar is a very strong brand. Brand = emotional plus physical (product) attributes It is possible (although only under certain circumstances) for the product to be crap (clapped out old motor), but the brand to be extremely strong. IMHO"

Paul Shalet brought things back to reality. He wrote, "I strongly suspect that Jungle will be overjoyed with £37m. The vast majority of their product range was PC's and other low margin tech product. Their key point of difference was brand and the values , standout and awareness created. Don't be fooled by the IPO hype price, these guys are drinking champagne right now..."

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