The fallacies of conventional funding requirements
Most of the entrepreneurs who attended the NetPROZ event had gone there with a conventional idea of business startups and the requirements necessary to obtain funding.
The usual starting place for an e-business venture is with an idea. An idea is proposed and, like most ideas in e-business would seem to have great merit with the potential to create much revenue and profit. The idea is fleshed out in outline with sufficient technical detail to provide credibility. A plan of action is described and the anticipated returns summarised.
Backing up this plan would be a list of key personnel who would be responsible for carrying it out. This would include a strong management team who would have a sound previous track record of management, cost control and business organisation.
On the strength of the plan and the pedigree of the key personnel, a sum of money will be allocated. The management team are then left to use this money to bring the project to fruition. This they will do by allocating various sums to the various components of the plan in order to complete the project within the specified time.
It all sounds so reasonable and logical, but, the dotcom boom and bust in the years 2000 and 2001 proved conclusively that good ideas, carefully worked out business plans and strong management in the volatile world of e-business do not produce good results. Although there were several spectacular successes, there were even more spectacular failures.
It wasn't simply that some were doing it right and some were doing it wrong. The problem was that a new and rapidly evolving environment is totally unpredictable. Such dynamic complexity is chaotic and defies all logical attempts to predict or control events. Just like the fashion industry, people follow each other in chasing trends and fashions and when a trend or fashion peters out, it gives rise to a different trend or fashion. Whichever way you look at it, investing in any business venture in the field of e-business can be nothing more than a gamble.
Let's look more pragmatically at the criteria upon which conventional funding is based:
1) Business plans
These cannot be anything other than totally unreliable guides as to the way in which an e-business will progress. There is too much uncertainty involved in the e-business environment, there are too many unknowns and unknowables. Technology is changing at such a fast rate that what seems a sensible plan can be rendered completely useless at any time by a competitor unexpectedly applying some new technology to come up with something cheaper or better.
Isn't it reasonable then, for an astute investor to treat any future plans with extreme caution and heavily discount any projected earnings and profits?
2) Proven strong management
As fully explained in the book "The Ultimate Game of Strategy", conventional managerial methods and techniques are totally inappropriate in a volatile, fast moving environment where the necessity is to take advantage of change, rather than to try to control it. Executives and managers who have established their reputations in the more predictable old world economy are liable to hamper the necessary quick reactions and rapid changes that are needed to compete in a fast changing technological world.
This has been proved time and time again, as can be evidenced by the high proportion of dotcom failures. Despite most of them being funded on the basis of sensible sounding business plans and apparently experienced managers and executives, the failure rate has been unacceptably high.
The fact is that many of the failures resulted from the business plans becoming irrelevant and the managers and executives being put into the position of the blind leading the blind. When things start to go wrong, panic sets in and vast sums of money are thrown to waste in desperate moves to try to regain control of the situation. Typical, was the high expenditures on lavish but totally ineffective Web sites and the vast sums spent on inefficient adverting and marketing campaigns.
As with business plans, wouldn't an investor with the knowledge of the limitations of experienced management teams (to control the unpredictable events that are continuously being thrown up in an e-business environment) heavily discount for the probability of failure?