What Crypto Start-ups Can Learn from the Dotcom Boom and Bust

 

The so-called dotcom era that lasted from 1997 to 2001 was an epic period for tech industry hype. It was a veritable Wild West for tech-oriented businesses, where it sometimes seemed like investor money all but grew on trees for the many start-up firms that popped up almost daily. Investors poured money into projects that had only a vague business plan, just as long as those plans mentioned the mysterious internet. Few investors really understood the internet back then, yet that mystery made those investments even more alluring.

When the bubble burst, some companies like Pets.com, Go.com, and Webvan just evaporated as if they’d never existed. Other companies like Cisco and Qualcomm took crippling hits to their market capital but managed to cling to life. But there is a third category – businesses like Amazon, eBay, Google and Microsoft – that took a hit in the crash but sprang back to become the corporate titans of today.

Even as I write this, we appear to be headed into a new bubble – but instead of the internet, today’s exotic and mysterious buzzwords are terms like ICOs, cryptocurrency and blockchain. Even cryptocurrencies that started out as a joke, like Dogecoin, have managed to profit from the unbridled enthusiasm. Dogecoin ended up reached a capitalization of US$60 million at the start of 2014.

With that in mind, it is important to think about how true superstar companies managed to survive the dotcom bubble bust. After all, there are direct parallels between the atmosphere during the dotcom era and today’s crypto craze. Back then, many internet start-ups were adept at drawing large sums of venture capital, just as many crypto firms today draw large amounts of capital using initial coin offerings. In the dotcom era, many of those companies frittered away that capital on branding and self-hype, without ever thinking about how they would turn a profit. Most were led by weak teams who lacked the business experience needed to adjust their strategies when the industry encountered headwinds.

So, how did those surviving companies manage to avoid falling prey to those common mistakes? It’s no real secret. The companies that excelled did so because they had a good, old-fashioned business plan.

Today, tech start-ups have raised billions of dollars of investment relying on little more than vague white papers that make liberal use of the word “blockchain.” Many never explain the blockchain or how it works within their business plan. Some of those companies might as well be selling snake oil.

These companies use initial coin offerings (ICOs) to barter their crypto tokens for ready liquidity. However, the tokens rarely offer any stake in the value of the issuing company. Worse, the leaders of those companies often burn through the money raised without any thought of ever achieving a profit or ensuring long-term sustainability for their projects.  And for some reason, ICO investors don’t object as long as they see their tokens increasing in value.

It’s like they see the markets as some magical slot machine pre-destined to cough up jackpots with every pull of the lever. This is not rational behavior.

Contrast that with how Jeff Bezos worked to ensure that Amazon kept its attention on core business concerns during the dotcom era, leaving the markets to take care of themselves. That mindset helped to minimize the damage suffered by Amazon when the investment fever inevitably broke.

Of course, hindsight is 20/20, but let’s assume for the sake of argument that the crypto bubble follows a similar pattern. If that happens, then crypto prices are going to eventually tumble as investors start to shut their wallets. And once the flow of money dries up, those poorly-designed and ill-managed start-ups will burn up like shooting stars.

The good news is that the markets will eventually stabilize after such a crash. When they do, we will find that crypto projects that focused on intrinsic value and sustainable profits will still be around – just as Amazon and Google survivedClick To Tweet

The good news is that the markets will eventually stabilize after such a crash. When they do, we will find that crypto projects that focused on intrinsic value and sustainable profits will still be around – just as Amazon and Google survived the 2000 bubble crash. These projects will have staying power because they rely on competent, trustworthy executive leadership with real-world business experience. Rather than just being focused on theoretical concepts and wishful thinking, they have a fully-developed business model that investors can both understand and trust.

In that, crypto is like any financial company: trust and confidence are paramount concerns. That is, after all, the real appeal of blockchain technology – it’s ability to remove the risk of human error and malfeasance.

crypto is like any financial company: trust and confidence are paramount concerns. That is, after all, the real appeal of #blockchain technology – it’s ability to remove the risk of human error and malfeasanceClick To Tweet

Of course, you can’t just leave everything to algorithms, which is why a visionary, experienced team is so vital for success. That leadership will help some firms to survive the crypto craze and take a prominet role in the effort to build the financially inclusive world of tomorrow – in much the same way that great leaders shepherded their new tech companies through the dotcom bubble two decades ago.


 

 

Alan Yong is co-founder and CEO of DNotes, an ecosystem centered on a second-generation Bitcoin alternative digital currency. The DNotes-centric ecosystem includes DNotesVault, and a series of self-directed investment plans that encourage savings for different age demographics called CRISPS. Yong is an author, strategist, entrepreneur, and tech  pioneer, committed to bringing the advantages of digital currency to everyday consumers by executing winning strategies that he has implemented and refined over his 45 year entrepreneurial career. Yong has experience in nascent industries, having created the DTR, the world’s first personal tablet computer in the early 1990’s as founder and CEO of Dauphin – a company best known for winning a $400m contract with the Pentagon and $150m manufacturing agreement with IBM.

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