Why some startups fail

A couple of years ago. high-profile disaster Boo.com exemplifies everything that went dead wrong for dot-coms and the showy London-based urban sportswear site had to fire its employees and liquidate its assets. In a year and a half, Boo’s two Swedish founders had blown through roughly $250 million in venture capital. The spending spree resulted in lots of high technology but no sales.

Boo spent more than $25 million on a pre-launch advertising campaign, then hit the Web six months late. It set up distribution centers in the States and Germany, sprinkled offices around the globe, launched the Website in seven languages, and prayed that its pan-linguistic brand would catch on. It didn’t.

By the summer that followed, New York-based fashion portal fashionmall.com and British technology company Bright Station ultimately came to the rescue. Boo.com never lived again.

Resolution: Just because we can do it, doesn’t mean we will. Make a Website intuitive and easy for shoppers to use before spending millions on technology that doesn’t work. “Boo’s an example of runaway development,” says IDC e-commerce research director Barry Parr. “Making a big investment in technology development probably is not as valuable as a nuts-and-bolts retail strategy.”

School Daze

Another example from over a decade ago. The idea was to build online “private label” universities, a movement dubbed “eduCommerce.” One entrant, Austin, Texas-based notHarvard.com, looked so promising that a couple of years ago, barnesandnoble.com decided to buy a minority stake in the company to create Barnes & Noble University, a section of its Website that offered free distance-learning classes.

Not even half a year later, the company was in deep trouble in a very public way. David Kahn, the company’s first investor, sent a memo to shareholders and members of the staff outlining the company’s problems. The memo was promptly leaked to the press.

The memo stated that the company had registered no sales for months, that there was no management team in place, and that the company was suffering a burn rate of nearly $2 million a month. It also spent $400,000 on a McKinsey & Company research report that concluded the company had a sales problem.

The organization changed its name to Powered in 2000 (as in wired power-education) and switched its focus from dot-coms to companies that can afford its service. “The business was never off track,” CEO Judy Bitterli said, and more lies were to follow like “We’re planning for profitability in the first quarter of next year.” Now, many years later, we know this kind of rhetoric doesn’t work either. They also said the car salesman would disappear, but that also didn’t prove to be true!

Resolution: “Control your growth,” says Powered dean Bob LeVitus. “You can’t do too much too fast no matter how much money you have in the bank.”