Introduction

 

Lessons learned from the dotcom bubble

The paradox of the Internet is that it offers so many opportunities to create wealth yet so many e-business pioneers lost money. What went wrong?

It is easy to criticise the pioneers of the Information Age. Although they made every kind of mistake possible, these were only seen as mistakes in retrospect. The truth is that throughout the dotcom bubble nobody really knew what would work and what wouldn't.

I first started to write about e-business in 1999, just as the dotcom bubble was approaching its zenith. The publication of the first book in this trilogy – The Entrepreneurial Web – coincided with the time the bubble burst. Although this first book explained many of the reasons for the dotcom failures, it hadn't been written because I understood e-business: quite the opposite, it had been written because I didn't understand e-business.

The book was simply a way of trying to wrap my head around the problems and implications of a massively connected world. This I managed to do not by creating an e-business myself, but by being in constant touch with developers and programmers who were at the cutting edge.

I'd been cautious about joining the enthusiastic rush into e-business ventures because I'd already been burned in one technology bubble: the CD-ROM bubble in 1993. At that time, I'd plunged in, confident that my past entrepreneurial experiences would put me ahead of the game. I was sadly disillusioned. I failed miserably and lost not only all of my capital, but, my house as well. It was a very sobering experience.

From 1995 to 1999, determined to get back into the game, I plunged deep into the black arts of computer programming. My aim had not been to become an expert programmer, but, to understand and appreciate the full potential of what the world of digital communication had to offer. I was surprised and delighted with what I found. I discovered a spectacular array of possibilities, matched only by the complexities found in the biological world. This four year exploration, into the world of lists, objects and intelligent agents is written about in the two books "Lingo Sorcery" and "Magical A-Life Avatars".

What amazed me, as I saw the dotcom bubble building up, were the number of people who were trying to create e-businesses based upon old economy concepts. Certainly, the Internet can be used to great effect by conventional companies to enhance their methods and procedures to bring about new efficiencies, but, this is not what e-business pioneering is all about. E-business pioneering is about exploiting new opportunities that were impossible or unimaginable in the pre Internet world.

Reaching out, beyond the conventional and into the unknown, is not something that can be done with standard business models and methods. It requires the mind of a scientist and the skill of a games strategist. It requires conceptual models that allow solutions a freedom to evolve beyond a designer's imagination: not be limited by it. This was the main problem with the dotcom failures. They had predetermined business models that had limited scope to adapt and evolve. What couldn't be visualised beforehand couldn't be part of their plans.

The trick is to create a business that can self organise: a business that is self adapting and able to escape from the limitations imposed by human imagination and knowledge. This can only be done by using the techniques of Mother Nature: the all powerful mechanisms of evolutionary biology.

I'd intended to write a singe book on e-business, a book that explained how to think differently about the new implications of the Internet. It couldn't be done with a single book. All I could do was expose the problems this new business environment was throwing up and provide some of the basic conceptual models to be able to think about the Internet in a different way.

The first of these problems I encountered was the exploding volume of information that had to be dealt with. Every area of technology was fragmenting and expanding. Despite having had eight years of direct involvement, there was no way I could keep up with the developments in so many different areas.

What gave me encouragement was that everybody else was in the same position. Nobody could ever hope to know it all. This thought gave me a new perspective. It wasn't about learning all the technology, it was about learning how to proceed when you didn't know everything that needed to be known. This called for a game theory approach rather than a solution based upon organisation and planning.

My visualisation of this situation was to see e-business as a game of chess, where parts of the board and many of the pieces are invisible: such that most of the playable moves cannot be realised. As different people will have different areas of knowledge and different kinds of knowledge gaps, this chess board representation of e-business would look differently to different people. They'd each see only parts of the board and only some of the pieces.

Seeing the situation in this way it is obvious that a game can only be played if a mixture of people combined together so that between them they can see all the pieces on the board. This took the emphasis of e-business strategy away from the technology and on to finding and working with an appropriate mix of collaborators.

The second problem seemed to be even more difficult to solve: technology is continuously evolving and changing. If seen as a game of chess, it would be the equivalent of a capricious imp, continuously moving the pieces around while you are not looking, sometimes removing some or adding others. This makes the game unpredictable and impossible to use a strategy that involves forward planning.

Seeing e-business in the light of this Alice in Wonderland game of chess, I was totally amazed to see people playing the e-business game as if it were a straightforward game of chess. Entrepreneurs were presenting ideas and business plans as if they knew how things would pan out. Venture Capital companies were supporting them with finance, as if the ideas and planning were reasonably reliable. Investors were encouraged to back these ideas and plans: on the basis that everyone knew what they were doing.

My second book "The Ultimate Game of Strategy" dealt specifically with these two major problems. It devised strategies to create and cultivate a suitable group of personal contacts and cope with the problems of a rapidly expanding and changing knowledge base. This put my thinking out of line with practically every conventional business strategy being recommended by most of the consultants and advisors to the e-business pioneers.

Using a game theory approach, I'd concluded that using capital investment in e-business pioneering ventures was not the way to proceed. Business planning was too unreliable to be of any better value than guesswork. Even more controversially, I'd come to the conclusion that the provenly successful concept of a managed team would be unsuitable for pioneering e-business ventures.

Not surprisingly, my first two books in this trilogy were treated with derision in many quarters. They asked, "How can you create a business when: you have no business plan; don't know what the results will be; have no capital; lead no team and have no management structure?

This book is about answering those questions. I started off exactly in this position and the book is a record of the strategic thinking over a nine month period that saw me getting into a positions to create an e-business.

Most books on business strategy are based upon historical events. They tell you how others have succeeded or failed. They are written for people who already have a set business idea and just want to know how to be more successful than their rivals or competitors. Few business books cover the area most difficult for entrepreneurs – the time before a business is born. This book covers this enigmatic but crucial period.

 

The entrepreneurial check list

Every e-business entrepreneur must begin a venture with research and much preparatory work before taking positive action. It is like being an explorer: setting off into the unknown. It needs months of preparation, to make sure there are sufficient resources available to complete the journey. Both e-business entrepreneurs and explorers will be acutely aware that, having once set out, there is no turning back without having to abort the mission.

Preparations take a long time. To make sure nothing has been forgotten, an explorer will have to compile a check list of everything that will be needed for the journey. Different kinds of explorers will have different items on their check lists; an explorer venturing across the Antarctic wastes will have a totally different list to an explorer heading for the Amazon jungle.

Similarly, wise entrepreneurs will spend much time in preparation before they start on their ventures. They too will have check lists, to ensure their preparations have covered all possible contingencies.

The check list of any entrepreneur, explorer or adventurer will be grouped into main categories. For an e-business entrepreneur these categories would include:

1) Credibility

2) A suitable communication strategy

3) An array of conceptual components

4) Adequate experience

5) A sound conceptual framework

6) Proof of concept

7) A number of key contacts

8) Sufficient funding

This final book of the trilogy describes the thinking processes behind getting this important check list together. However, it is not neatly arranged in this order – or even in these categories – because in practice the categories are highly interdependent. Worse still, the dependencies are circular. For example, funding will be dependent upon credibility and credibility will often be dependent upon proof of concept and funding will be necessary to produce the proof of concept.

It is such circular dependencies that give rise to problems in mathematics. Circular dependencies cause computer programs to crash. In the world of e-business they cause breakdowns that lead to failure; promising ideas and projects being still born or abandoned at an early stage. The way out of this circular dependency trap is to have a firm grasp of the fundamentals: an abstraction of the business as part of a wider system.

This book is concerned mainly with such abstract models because they allow entrepreneurs to rise above detail to facilitate rapid change and adaptation without losing control. They provide the entrepreneur with the confidence needed to be able to act boldly and decisively without having to count on luck.

Fundamental to all business progress and success is cash flow. It is as important to a business as blood circulation is to a mammal. For this reason, the first part of the book sets up a conceptual framework for considering funding and finance. Although the issue of funding may be the final stage of getting a business up and running, the requirements necessary for funding cash flow will affect all other aspects of a business particularly in the early stages. It is vital, therefore, that this critically important area is mastered first.

 

Flexible business ideas

Probably, the most difficult concept to grasp is that an an e-business entrepreneur cannot work with any firm idea as to how the future might unfold. An astute entrepreneur will realise that all business ideas are vulnerable to unknowns and uncertainties: partners or associates might let them down; funding bodies might change their minds; new technology might outdate proposed schemes, methods or processes; competitors might produce something cheaper, better or both, maybe even copying their ideas and coming up with better innovations.

With such a range of unpredictable problems, a business based upon control and organisation is not reliable. The alternative is to create a business that is self organising and self funding: a business that evolves and adapts in an organic way to whatever the future might come up with.

Such a business will consist of a system of components, comprising many different ideas and human associates that can be reconfigured to meet any contingency. Instead of a plan that sets out a course of action, there is a set of guiding rules that steer the business through the mine fields of danger.

It is this game theory approach to e-business strategy that is brought out in this book. It is not about being able to execute a business plan, but, about being able to survive and prosper in a chaotic environment of change and uncertainty.

 

Don't read the last chapter first

The reader may be tempted to read the last chapter first, to see what business has been created during the writing of this book. Try not to do this because you'll miss the value of the constantly changing directions the book takes before a viable business opportunity comes along. It must be appreciated that the business idea hadn't even been thought of until about halfway through the writing. Indeed, it was only in the final part, the last three chapters, that the business idea emerged as a real possibility.

Like a good murder mystery, it is best to read the book through sequentially, from page one to the end, evaluating the clues as they turn up. Living with the author during the explorations, the dead ends and the red herrings. The value is in the journey - not the final result.

 

### End of introduction ###

Back to index Note: This book lead to the creation of the stigmergicsystems.com website

 

Copyright 2001 - Peter Small

E-mail: peter@petersmall.net

All rights reserved by Pearson Education (Longman, Addison-Wesley,Prentice Hall, Financial Times for FT.COM imprint