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The New Ten Commandments

The New Economy rules have changed--again. Here are guidelines forgetting through the next few months.

Posted on December 15, 2000

Jack Trout and Aaron Cohen

Just when we were all getting used to the New Rules of the New Economy, they up and changed. Whoever said that doing business on the Internet was going to be easy (we didn't). Hereare 10 commandments that should (we hope) get you through the coming months:

1. Thou shalt not try to change people's habits. You must facethe hard reality that people's habits change very slowly. If you can't afford to wait, you won't be around when they do.

Remember when the Internet was going to change the way consumers bought a home? The result was thousands of Websites that could find homes, get mortgages, and close a sale. Who needed real estate agents and their 6 percent commission, right?

Wrong. People are using the Web to research houses in their area, not buy them.

Buying a book is one thing. Buying a home is another. It's an important purchase that people just won't trust to the Internet.

2. Thou shalt not become too complicated. People also hate confusion. Dense, complicated, confusing Websites result in angry, frustrated, resentful visitors who never come back. This should be your mantra: Remember the old boo.com.

Don't start with complicated concepts either. Some of the "We'll get you an answer" fell victim to this. Exp.com made the mistake of first having to find 20,000 experts. Then those experts negotiated a fixed or hourly fee, 20 percent of which went to the site. It was all too much trouble.

3. Keep holy your need to make money. There's a reason why losses are called "red ink." Because like blood, you spill too much for too long and you're dead. To be sustainable, a business must turn a profit. Any brick-and-mortar business will tell you that isn't easy.

Consider the toy business. It turns out to be a brutal business driven by price on merchandise, which vendors must buy in advance and can't send back if inventory doesn't sell. It's damn hard to make money on toys, period. But that didn't stop Toysmart.com and RedRocket.com from getting in the game. Guess who's out of business?

4. Thou shalt not be trendy. When ecommerce ran into problems, everyone headed over to the hot business-to-business sector. Unfortunately, hot has turned to cool.

The big buyers balked at 20 percent transaction fees. They didn't want to disrupt years of supplier relationships. If they did want to use the Internet, many large companies figured out how to do it themselves.

Then there were the me-too pet sites, free email sites, portals, and so on. What most of these missed was what we call the law of duality. Most markets come down to a two-horse race.

And unless you're Coke (COKE, info), Pepsi, (PEP, info), Kodak (EK, info), Fuji, Duracell, or Energizer (ENR, info), you're probably too late.

5. Thou shalt cultivate talent and expertise in technology. Ebusiness is technology driven. You have to surround yourself with people who know how to use it and can teach you about it. You can't be just a finance expert, or an operations expert.

Substantial technology investments should be the responsibility of the company CEO.

6. Thou shalt not fall in love with convergent technologies. Such as, for instance, Web radio. It sounds like a wonderful idea. But, so far, few people are listening.

According to Arbitron Research, 3,000 sites streaming radio reach, in a given week, only 4 percent of the U.S. public over 12 years old. (It's 95 percent with regular radio.)

This is probably because radio is a mobile media, and because you need some sophisticated equipment before your computer can play music. And then there's the Internet telephone. To use this technology, you have to put up with voice-transmission delays and other quality-of-service problems.

7. Thou shalt not rely on Internet advertising. The favorite excuse of the dot-coms in the red was always: "When we build our base of visitors, we'll make money selling ads."

That has turned out to be a big "when." If your bottom line depends on nothing but ad revenue, you're in trouble.

8. Thou shalt try and predict the future. If you're betting your Internet business on what the pundits are saying about the future, chances are you're betting a long shot.

An example of a business with a questionable future are e-books. Publishing executives have been buzzing about ways that digital technology will revolutionize the industry. But a book survey conducted by Book Expo American and Publishers' Weekly found that while 63 percent of book buyers are aware of the existence of e-books, 70 percent said they're not at all likely to buy one.

9. Thou shalt try not to do more than you should do. Successful entrepreneurs think they can be successful at any number of things. But getting one idea to work well andbecome successful takes enormous energy. Moving on to another one sucks moneyand energy away from your base business. Just ask Jay Walker, Priceline.com's(PCLN, info) founder.

10. Thou shalt not covet your neighbor's stock price. A lot of people launched an Internet business because they saw other Internet businesses with runaway stock prices. The result was a lot of companies that were managed for Wall Street rather than for business.

What people have learned in recent months is that if you live by the stock market, you will die by the stock market. An Internet business has to play by the same rules as any business. The rules are the following: Have a unique problem solving idea, be first or maybe second into the market, keep things simple, and make sure you've figured out how to make some money while you're at it.

-- Anonymous, December 18, 2000