Dot-Com Bubble: A Cautionary Tale
Today’s virtual business market is thriving (relatively, in this economy of course), but it is doing so under a heightened sense of awareness and caution as compared to preceding eras. As is the case with some technological advancements, forward thinkers and idea guys take off with a concept before the realities necessary to make it work truly come to fruition. Using new business platforms to launch successful, profit turning companies requires a level of patience and thorough planning, with trial by fire businesses often quickly burning to the ground. Rising over the course of the late 90s before crashing down in the year 2000, the dot-com bubble burst epitomizes the dangers of putting caution on the back-burner, prioritizing quick profit margins over detailed strategic planning.
Arguably the height of virtual business optimism, the late 90’s enjoyed unprecedented success for internet based companies whose stock soared based not so much on their company’s platform or numbers, but on the prefix “e-“ or suffix “.com” that attached to their name. So commonplace was it for investors to sink money into the stocks of under-evaluated online operations, the term “prefix investing” made its way into Wall Street vernacular. Mainstay evaluation techniques (i.e. price-to-earnings ratio) were thrown to the wind as stockholders banked on technological advancements to overcome the time tested benchmarks of success.
E-business owners, financed by quick with the wallet venture capitalists, saw online giants Google and Amazon take years to turn initial profits before achieving their superpower status. Thus, when early numbers reported losses, spending continued as normal with too much faith and not enough discretion. The prevailing school of thought believed that if you could expand your consumer base to reach a large quantity quickly, future profits and success were inevitable. Ignorant to the obvious red flags, instant millionaires, made from soaring stocks and internet fortunes, tried to turn all their new found wealth into even more by investing everything back in to even more dot-com upstarts.
When the stock market hit a bumpy road in year 2000, owners and investors with all their money tied up stocks saw their assets quickly dwindle, with millions of dollars disappearing overnight. Once companies quickly burned through their initial venture capital investment thanks to poor planning and exorbitant spending, still unable show signs of turning a profit and with no other outside investors looking to join in, they were forced to shut their doors as quickly as they’d opened.