Monday, March 05, 2007

When the Dot.Com Bubble Burst

Back in the late 90s, before the economy turned sour for a few years (and plummeted after 9/11), the hype surrounding new businesses was truly something to behold. Investors were pumping millions of their fortunes into these companies, any company, simply because they were web-based, and this was the future. I can recall going back to work for a financial employer for a few weeks, and him crowing about investing a huge chunk of change in various web firms, as this was easy money, part of the seemingly endless financial wave that was the mid-to-late 90s.

Someone with half an ounce of common sense must have got to him, because he never took that route. I could have told him just as much after doing freelance and temp work at a handful of web start-ups, all of which no longer exist, most of which stopped existing by 2001. Then again, had I told him to hold on to his money, he would have scoffed, as I was a low-level employee … obviously for good reason. It’s been my experience that low-level employees often have a clear view of how companies operate if they pay attention to such things. And the stuff I saw going on at web start-ups, or more accurately didn’t see going on, was pretty shocking, a clear “writing on the wall” scenario.

I’ll describe my experience at one of these companies, but understand that for the most part, this description fit the handful I worked for. It was as if they were all operating from the same template, which wasn’t completely outside the realm of the corporate world I had been working in, but was far enough out there to have me thinking, “They can’t possibly go on like this.”

This place had an interesting business plan: not to sell used auto parts on the web, but to act as a sort of clearing house for used auto parts, connecting a network of junkyards across the northeast via their website, which would allow the customer to seek out a certain part for a certain model/year car, and find the best price for it, the concept being the customer who lived in one set place, could have access to used parts miles from his home, for better prices than he could find at home. The customer wouldn’t necessarily be an individual, but more likely auto repair shops and other junkyards who had a need for a certain part.

Sounds cool? It sounded cool to me, too. But then I remembered the dozens of times my father would drag me along to the local junkyards to find used auto parts for him to fix our lousy AMC cars with. (Dad bought used AMCs because there were always a lot of them in junkyards, and their parts were easy to come by. It’s clear to me now that fixing cars was his hobby, he loved doing this, and I had misread him as a boy to think he did this out of some sort of cheapness.)

This was quite an experience that I grew to hate. The junkyards tended to be run by crusty old coots, cantankerous guys who had been in the navy and had faded, blobby forearm tattoos, with attitudes to match. My favorite was an old guy of indeterminate Eastern European origin, who seemed like an old skinny version of Dracula, and conversely his beer-bellied son, who wore some type of used Army coat that looked like a cape, with a wide-brimmed hat and ever-present Tiparillo cigar, that gave him the countenance of a Hammer film vampire hunter. All that was missing was a huge gold crucifix on his bare and hairy chest. Most of the junkyard owners were these gritty bulldog-type guys, wandering around in grease-stained jumpsuits and dirty trucker hats, chewing tobacco, spitting on their one-eyed dogs who followed them through the weed- and hornet-infested dirt roads surrounded by junked cars. The one thing they all had in common: they were all shady as hell.

And these were the guys who were going to jump on the web bandwagon, cataloging all their cars and parts in a timely and organized fashion so that a web firm could take a small cut of each sale made? Right. If you’ve ever been to a junkyard, you know what chaos a project like this would entail, even if you had dedicated, sane, organized individuals running the shows. You’d also know that these guys watched every penny, which may well be how they end up making a profit at the end of the day.

What I didn’t know until I talked to one of the salesmen at the job was that a lot of these guys had a very set and surprisingly effective phone network already in place: an informal way for them to check on parts with each other and make barters/trades/deals for needed parts. It was the intent of this firm to wean the junkyard owners away from their already-in-place phone network and get them hooked into the web instead. Which implied a high level of computer savvy for a bunch of guys who probably thought the phone was too much of a pain in the ass to deal with.

Another issue: try shipping an auto part. If it’s something like a turn signal or radio, not a big deal. A bumper? An axle? A steering column? We’re talking a bulky, heavy piece of equipment that has to be specially shipped, for a price that could be as much as 50% of the entire cost of the part. I gather most of the phone network junkyard owners would deliver the parts themselves to each other, rather than drop $150 on a UPS shipping charge to another junkyard 100 miles away.

So while the idea seemed solvent on the surface – it impressed me when they laid it out for me the first day – the reality of it was a hard, near-impossible sell, to a large network of suppliers who already had a tolerable network in place and most likely didn’t want to cut anyone, much less a bunch of snot-nosed computer kids, in on their action.

That was the impossibility of this particular endeavor. I think you’ll find that most's that failed around the turn of the century had similar M.O.’s, coming up with business plans that purported to fill some sort of service that only the web could fill, while gracefully, maybe hopefully, ignoring the fact that this service was already being filled some other non web-based way. To investors, these plans and presentations must have seemed impressive, the outlooks hopeful, a bunch of young studs taking the bull by the horns, creating a new way of doing business, etc.

If the company had been a handful of employees, I’d have thought, “OK, maybe they can somehow turn the nut on this thing.” It wasn’t. The company had about 30 employees, most with web positions dedicated to site design and content – the sort of jobs that still exist, albeit not in the numbers they once did. They had a handful of salesmen who had the impossible job of visiting junkyards and convincing these crusty old bats that this was the future. They had a receptionist, some marketing people, and assistants for the two or three guys in charge.

None of which would be an issue, save the company hadn’t made a penny. It was all being bank-rolled by investors, who expected a healthy Return on Investment within a year or two. I had come in to help them –cleaning up huge Excel lists of auto parts so that all the names and descriptions would match/fit into their overall system – about six months after their inception. Not one sale had been made. I’d work for these folks off-and-on for six months. In that time, one part would be sold for about $900, not sure what their commission was on that. We’re talking a company of 30 people making anywhere from $30K to well over $100K.

Do the math!

Physically, their set-up was like so many other start-ups. They picked a warehouse space in a seedy part of town, in this case, the lower 40s in Manhattan west of 9th Avenue, past the Port Authority Bus Terminal. There was a pawn shop on the corner, facing an X-rated video store. The rest of the block was made up of all those odd companies you find over there: strange equipment companies, the occasional TV production studio, parking garages and used equipment sellers of various sorts.

Their building had one small elevator for six floors. Two of the floors were an illegal sweatshop. Any given time, you could get on an elevator, the doors would open on the sweat shop floors, and all these shorter South and Central American folks would pile on, smiling, just glad to be working, sometimes a dozen of them. Another floor had some sort of hiphop promotions company, so you’d have these bands of wiggers with cheesy Avirex jackets, size 52 pants and cellphones, blasting away in their idiocy: “Yo, nigga, yo, I’ma pop a cap in that niggaz ass if we can’t get Krystal at this reception, yo.”

It was a no-frills building to work. The actual work space was open, another hallmark. No offices. Just desks situated with laptops or computers, all facing each other at various angles. A real bad idea. There were a few articles in trade magazines around that time about this trend, most of them noting how upper echelon employees wouldn’t tolerate this set-up, mainly because it became painfully obvious how little real work they were doing, not to mention the nature of their work is often to meld their social lives into the job and get business this way. Thus, it’s hard to have a personal conversation about how drunk you got at the party last night with a client while your assistant looks at you from five feet away with no barrier.

I have a pretty good sense of when people are working and when they’re trying to look busy. As a temp worker, I knew how to look busy, often to the point where people would feel guilty for giving me real work. A lot of people don’t have that talent and tend to cover it up by being overly concerned with how busy their underlings are. A lot of this was going on at the junkyard company. A lot of finagling click-click-click computer stuff that didn’t appear to have any end result. A lot of staring at screens. A lot of smoke breaks. A lot of long lunches. A lot of people doing hardly anything. Mainly because once the website was set-up, the sales people assigned their territories and the business plans laid out, the next step to real work was to have the company do its function, broker the sales of auto parts. Which wasn’t happening, at all.

And this happened all over America with other's. A huge chunk of money would be raised to start a company. People would be hired at exorbitant pay rates. They probably would bust their asses getting the website and office in place. And then nothing, for months, while investors slowly realized they’d been had.

What was worse is that most of these people had precious little office experience. The average employee was in his mid-to-late 20s, had some type of computer background, and was of a mind that he was onto a new way of working, and old rules didn’t apply. It was sort of like an advertising agency squared in terms of “wacky” behavior being accepted. It was OK to come in dressed in anything but suits and ties. The concept was “young and free,” so guys would be throwing around nerf footballs and cracking really offensive jokes. I recall one of the salesmen singing the song “Fever Dog” from the Almost Famous soundtrack at his desk, as it played on his computer speakers. We’re young. We’re wacky. We’re rich.

By the time I left, which was just before Christmas 2000, the place was clearly on its last legs. A few people had been laid off, with rumors that this was going to keep on happening, unless someone figured out a way to sell or merge the company, which would have been true magic, as the cat was slowly creeping out of the bag regarding’s and their financial futures. There were daily shouting matches in the conference room in the back, salesmen threatening law suits over their severance packages and such, not quite realizing the place had been running on borrowed time and money from its inception, and they’d be lucky to get even what they’d contractually agreed to. Three days before I left, they had planned a Christmas grab-bag party – everyone bring in something they owned to pass on, throw it in a bag, at the party, we’ll pull everything out and let people take what strikes their fancy. I didn’t hang around for that – nor did about five other full-time staffers, and from what I understand, the place was down to a handful of people in a few months. Not quite sure when it ended, but it surely ended, with a whimper, not a bang.

There were a lot of articles in New York publications at the time about how obnoxious these “kids” were, but the people I was working with were more inexperienced than obnoxious. Most of them were nice guys, who were probably putting two-and-two together the same way I was, but had more at stake and had to play along. A lot of people were obnoxious in the boom days of the 90s. They were obnoxious when the term “yuppie” came into being in the 80s. They’re obnoxious now. Just because magazines aren't writing trend pieces about greed doesn't mean it doesn't exist. I guess because these guys dressed and acted like computer nerds, we were supposed to be more offended that they weren’t wearing Armani suits. Frankly, I liked the informality of their offices, but could see that if you’d never been in a formal office environment, the tendency was to become too low key and undisciplined … which would have happened anyway with the dearth of real work going on in most of these places.

So, by late 2000, a vast majority of’s are going belly up, 2001 doesn’t bode much better, 9/11 happens, and the entire economy nearly tanks and stays down for a long time afterwards. I wouldn’t say’s lead to that recession – people were investing in all sorts of bogus companies circa 1998 – but it became an identifiable trend that you could trace a downward progression with the economy. For every Google or Youtube you read about, guys who started a in a basement or dorm room and became millionaires within months or years, there are thousands of stories like the one above. If a movie ever gets made about that time, this song by Oasis would be perfect for the closing credits.

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