Learning the dotcom lesson

The dotcom bubble might have burst, but Ian Cochrane thinks consultancies can learn from their Web-obsessed clients.

While there may be precious little “feel-good” factor around at the moment, what with the foot-and-mouth crisis and the US slow-down, there is one thing we really can celebrate – the end of the dotcom party.

Last year’s celebrations were exciting while they lasted and made a few paper millionaires, but frankly it was a bogus environment to operate in, as many investors found to their cost. This environment was encouraged by over-valued stock prices and easy money from the wallets of venture capitalists.

Thankfully, the world is now returning to normal. The dotcoms are falling like flies, the management consultants are returning to the large consultancies from whence they came and formal dress codes are now returning to the City.

As we start to sober up after such a great party, it is useful for us to consider the lessons:

1. Youthfulness matters

Many companies are run by people whose experience is rooted in the past. They are often the people with most to lose if decisions turn out to be wrong. The dotcoms were run by young people with energy and vision, and little or no experience of failure – something that can often hold more experienced people back.

2. Have unreasonable expectations

In the dotcom world, time was seven times as fast as in the real world. People were in a hurry to build brands and client relationships. The child-like naivety of many of the founders meant that they didn’t know their limitations and they aimed high. But too many businesses are held back by the lack of vision of the man or woman at the top. They set their sights too low and then wonder why they didn’t achieve more.

3. Size doesn’t matter

Having a good idea and the energy and tenacity to develop it is what really matters. No one who saw Ellen MacArthur sail single-handed around the world could be left in any doubt as to whether her size held her back.

So it is with businesses. First, have a great idea. Second, get yourself a great team. Third, get some money behind you.

4. Have a vision

The inflated stock market meant that many businesses were simply focused on selling out, rather than building something to last. Building a business is about having a vision. The greatest teams feel they are fighting for a cause and not simply working to generate money for the shareholders.

5. Add value

The trouble with the Internet is that it reduces corporate profitability, passing the benefit on to the consumer. Too many consultancies have designed websites for a pittance – they have become deliverymen in a new guise. This has pushed prices down and dragged down the profitability of Web businesses.

6. Profit matters

The dotcom businesses were valued on a multiple of revenue and these businesses went helter skelter for growth. Profit wasn’t important since they were backed by cash from the friendly venture capitalist.

But the only measure that really matters is profit, since profit equals cash, which is the lifeblood of any business. Then again, I’m not suggesting that the sole purpose of businesses is to generate profit and cash, since these are only by-products of a higher goal that appeals to the human spirits in your business.

7. Cash matters too

The dotcom party did boost the revenue of many design consultancies and advertising agencies as they sought to build brands in the space of a few months. Design teams had to switch to dotcom timescales to ensure that their wacky new clients felt they were being serviced well.

The trouble with this high work rate is that the time costs build up, probably also enhanced by heavy technology freelance costs – this puts a strain on working capital. The secret is to bill in advance and make sure that you get paid quickly.

Many consultancies got their fingers burnt – some got paid in shares and others were left with large bad debts as the dotcoms perished.

8. Get your pricing right

One of the problems with the Internet is that technology is changing all the time and there is a huge amount of investment in learning. Currently, much of this learning is being funded by design consultancies and the costs are not being passed on to clients.

9. Choose your partners carefully

Many design businesses entered into misguided partnerships with technology companies that knew little about client relationship management. This resulted in a poor quality product and damaged client relationships.

10. Embrace the Internet

Like electricity, the Internet is here to stay and it is a medium you have to be able to think, design and deliver in.

The way forward is to hire digital and print designers and also those who design in both mediums. Your clients are not going to be dotcoms, but traditional businesses which also trade or operate on the Internet.

Ian Cochrane is chairman of Ticegroup

The new commandments

– Listen to the youth in your company and make sure they are well represented in the boardroom

– Aim as high as you can. Ask your team what would be needed to achieve 50 per cent growth this year instead of the normal 20 per cent

– It has never been easier to set up a new business and compete with the incumbents, which are often slower and less well motivated than you are

– Pursue a cause rather than a business plan

– Make sure that all your designs are underpinned by strategic thinking that the client pays for

– Ensure that your revenues exceed your costs

– Do credit checks on all new clients and be especially careful of working with start-ups. If you work with new businesses, be sure to get your cash up front. Remember, you’re not venture capitalists or a bank

– Choose these partnerships with care and ensure that someone in your team understands what the partner company is doing

– Embrace new technology or follow the dotcoms

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