After taking a look at various factors that make up the art of entrepreneurship, today we begin a new series – lessons learnt from the dot com days.
The transition to a knowledge-based economy in the 1990s saw a lot of enthusiasm regarding how this new economic environment would work. Consequently, there was a spike in the number of people who left their well-paying jobs to become entrepreneurs.
A lot of these entrepreneurs, though, can be seen as copycat entrepreneurs: they wanted to create companies not because of a desire to create something great or achieve something significant, but because it was feasible, and seen as a get-rich-quick scheme. It was, in short, the modern equivalent of a gold rush.
Many of the entrepreneurs who emerged during this period were in the internet industry, part of the dot com economy. This was largely due to the fact that these businesses were relatively easy to create, and had low barriers of entry. As a result, it was extremely easy to create a near similar business with a slightly different twist.
It was not just entrepreneurs who got caught up in the excitement of the dot com era. There was also a tremendous surge in investor excitement.
“Many companies and investors entered into partnerships with start-ups and new entrepreneurs. Because of these new partnerships, what we saw was a step function increase in the number of new companies starting up around the world.”
– Mr. Inderjit Singh, The Art and Science of Entrepreneurship
The dot com hype was so well propagated that numerous individuals as well as companies pumped in large amounts of money to take stakes in start-ups at rocketing valuations. These valuations continued to rise, as everyone was under the impression that since the economy had just started out, there was still a long way to go in terms of value creation. Practically every day, groups of founders would come together, announce an idea and decide to start a company, following which they would ask for disproportionately high valuations from potential investors – never mind that there may already have been companies with almost similar ideas in other parts of the world.
In April 2000, the dot com bubble burst.
The crash was so rapid that almost all countries were simultaneously affected. A record number of companies all around the world lost a record amount of money in record time – some companies had spent over hundreds of millions of dollars before they finally gave in.
The world’s economy was drastically affected – there was a loss of confidence which affected not just the dot com companies, but also technology companies all over. It took a long time for the world to come out of it.
While some companies stayed afloat and are still around and successful today (see companies like Amazon and Google), many others failed. Of course, in every failure, there are lessons to be learned, and over the next few weeks we will take a look at what went wrong in the dot com era and how we can learn from it.