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The Dotcom Stock Market Crash and Why it Matters to You

dotcom stock market crash
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If you’ve ever been curious about what happened in the Dotcom Stock Market crash, you’re in the right place because I’ll be letting you in on exactly what happened. You’ll get the history plus actionable takeaways to apply.

This article is a part of the series “The History of the Internet”.  I think this series can be extremely inspirational to you.  The internet has completely changed the last few decades of humankind, but didn’t start that way. 

As the internet is growing in influence, people want to know where the phenomenon came from, and this series answers that question.  You can read the entire series by going HERE.  Please read to the bottom and get all the AMAZING FREE STUFF at the end!

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dotcom stock market crashHave you ever had something you were so excited about that you rushed into it blindly?  Like, maybe, a new restaurant is built, and their food pictures look so good that when they open, you go there willing to pay more than you normally would on a meal.

Have you had the same restaurant extremely disappoint because the flavors didn’t add up to the picture?

If so, I think you can relate in some way to the disappointment of many people during the dotcom stock market crash.

Let me Explain…

In my previous articles, we discussed the history of many resources that are common to the daily life of most people nowadays: the internet, social media, search engines, and e-commerce.  Although, these tools have become daily essentials for many of us, it didn’t become such a welcome part of daily life overnight.

The internet began in the 60s as a way to share research between universities and government agencies, and grew babystep at a time into a huge commercial marketplace.  In the late 90’s when investors and aspiring entrepreneurs saw the growth potential of the internet, they started to perceive it similar to the example above…

It was like looking at really good food images like maybe this one…

dotcom stock market crashThen, you assume the flavor should align with the picture.

They flocked to the internet with business idea after business idea, and venture capitalists were investing in internet companies very loosely.

Even when you listen to some of the stories of the survivors like Google or Yahoo, you can hear the founders say they were given venture capital funding before they knew how to monetize the business.

That’s crazy!

Companies were able to go all the way to an initial public offering (IPO) without solid business models, and people were throwing money at them.

Something Similar To the Dotcom Stock Market Crash Happened Before

When you go back in history, this compares to how people behaved in England when there was news of “new lands”.  People were excited to be able to acquire wealth, they imagined it would be easier, less work, higher payoff, and more freedom–something like a “get rich” scheme.  Investors and explorers were throwing money into the “new lands” without understanding the challenges of settling a new land, and how long the return on investment would take.

dotcom stock market crashSimilar to the crushed expectations of many Englishmen and colonists in the early colony settlements, the dotcom era began with the same exaggerated hopes.

People heard buzzwords that weren’t clearly outlined, but struck a chord like “new economy”, “information technologies”, and “internet”, and were jumping in blindly: giving loads of investment capital, quitting jobs, investing time, and behaving rashly.

For many people who started VC backed businesses, the dotcom stock market crash left them with crushed hopes.  They may have been given money they never should have had or they were given money before they were capable of growing it.  A slim few VC backed companies were resilient enough to stabilize themselves despite the dotcom stock market crash.

7 Mind-Blowing Facts About the Dotcom Stock Market Crash

  1. Many people turned to the internet with unrealistic expectations
  2. The crash cost investors $5 trillion
  3. People measured their business potential based on other online businesses that worked
  4. Many investors ignored P/E ratios, market trends, and business plans
  5. People were not paying attention to how the business would generate cashflow
  6. Analysts used innaccurate calculations to give inflated valuations–making investors look optimistically at companies more than they should have
  7. HSBC said companies were overvalued by 40% on average which left them to need to increase revenue by 80% annually which is unrealistic for most startups (Source: MoneyCrashers)

The Major Contributing Factors of the Dotcom Stock Market Crash

dotcom stock market crashThey Thought Popular Meant Profitable

If many people were flocking to an idea, they thought that meant it would be profitable.  Many companies who had lots of users, lots of consumer attention did not profit.  Traffic doesn’t equal profit.  Don’t chase the crowds!

 

People were Chasing Opportunities without Measuring them

Not every opportunity is created equal, and it’s easy to fall into the opportunity chasing cycle because everyone is promising solutions.  There are many flashing lights that will come.  If the opportunity doesn’t fit into the scope of where you see your life plan and legacy going, avoid it (especially when the math doesn’t make sense).

Entrepreneurs weren’t doing the Math

How much money do you need monthly to break even?  How long will it take you to get the money you need to break even?  What are the key performance indicators that contribute to the profit?  Many of the entrepreneurs weren’t answering these questions, they weren’t able to focus on accomplishing one business metric at a time, and their businesses did not work.

the dotcom stock market crashBusiness Models Weren’t Business Models

Businesses were providing popular and necessary services, but without considering how to monetize the value created.  While it’s important to think about the value being created for customers, it’s equally important to consider the profit to sustain the offer.

They Thought About Solving a Problem but Didn’t Think About Payment

You’ll hear in many speeches how entrepreneurship is all about solving problems.  Many people recommend focusing on delivering value, which is very important; however, in the case of the dotcom stock market crash, it showed how delivering value isn’t enough.  There has to be a clear exchange of value where the product or service goes out and money comes back.  The exchange of money for products and services has to be clear and not hidden otherwise, the companies struggle to stay afloat.

10 Things Online Entrepreneurs Should’ve Learned From The Dotcom Stock Market Crash

Many people say “history always repeats itself”, but wise entrepreneurs will be able to avoid bubbles and inflated interests by applying these 10 things:

1. Payment is not a Natural Byproduct Without The Ask

As an entrepreneur, you’re in the business of selling solutions.  Often times, entrepreneurs want to indirectly sell, or their ashamed of being direct about the commerce transaction leading to payment.

If Google, Facebook, Twitter, and Linkedin struggle to cover expenses after delivering immense value to billions of people, we can see that people won’t “naturally” cover your expenses simply because you create value.  Look at plugins or other freebies that build their business model off of the donation model, they don’t make enough to continuously pay to update their products.  Toughen up on the sales and ask for payment.  It’s the only way.

dotcom stock market crash2. Money is not the end all-be all

Many of the companies received millions of dollars, but weren’t able to make the business work.  It doesn’t matter how much money you throw into a business, if the fundamentals don’t make sense, the business won’t work.

3. Venture Capital is not a Savior

There’s a huge craze over pitching venture capitalists for an investment, but venture capital simply adds pressure and expectation; not an escape.  If investors give venture capital, they are expecting to receive more than they gave.  You have to create a clear plan and act on it to fulfill the expectations of the shareholders.  It can be a lot of stress which is why I recommend bootstrapping especially before you have a very clear proof of securing returns.

4. Create a Clear Business Plan

Write down your business goals.  There are certain questions that should be answered to direct you’re online business.  In his article, Blogging Business Plan, author Mark Baker gives 30 questions you should answer to direct your online business.  If you don’t have a clear direction for your online business, check it out!

5. Do Your Math

How much traffic will you need?  What percent of the traffic needs to convert?  What will you do to ensure the conversion rates? Will you have a subscription model?  What lifetime customer values do you need?

There are many mathematical pieces in any business, and the math is mandatory!  You can’t skip the math and run a business that doesn’t add up, or your doors will close.

dotcom stock market crash6. Don’t Chase the Popular

Don’t do what everyone else is doing. Create a competitive advantage. Outwork, outthink, and outperform others.  Outserve and outsell others.

Don’t buy the courses everybody is buying and implement the business models that everyone else is doing.  Balance out your content–viral is not the end all.  Popular doesn’t necessarily pay.

7. Don’t Chase Opportunities Unless it Has a Clear ROI

There are so many flashing lights and things to buy.  Most salespeople will tell you what their selling is a need or very important for your business.  If the opportunity doesn’t mathematically calculate as an increased return, it can wait.  If you can’t say, “If I take this course, I’ll be able to bring $XX more money, then hold off” unless it’s a personal gift rather than a business investment.

8. Maintain The Mindset to Make the Business Plan Work

In my article the Mission-Essential Mindset for Making a Business Plan that Works, I talk about how it’s not sufficient to have a paper business plan if you don’t have the mindset beyond the paper.  Beautiful written business plans fail.  I’ve written some of them.  There’s a mindset that needs to be coupled with a written business plan that creates a successful business.

dotcom stock market crash9. Have an Exit Strategy and Stick to it

What red flags mean you have to quit the business or opportunity?  It’s best to set clear parameters before you start the business, so the decision isn’t impulsive or emotional.

Starting a business is hard and it’s not okay to quit because it’s hard, but it is okay to quit because the partnership is not going well or the debt is piling too much, or other good reasons.  Don’t stay in a bad situation, doing the same thing, and expecting different results.

10. Leave Yourself Room in Your Startup to Experiment

All startups experiment to some extent.  It’s important to have room financially and in your schedule to invest in the startup experiments.  Most business consultants say to give the business one year before expecting real profit.  If you have a good plan, put it to work, and be patient.

A Playlist on the Dotcom Stock Market Crash

This playlist has further explanation on the dotcom stock market crash.  It’ll help you explain more.  You can skip around to pick which video is relevant for you:

Final Words on the Dotcom Stock Market Crash

The goal of this article was to show you what happened in the dotcom stock market crash. If you have questions or concerns about this, don’t hesistate to leave them in the comments section.  I’d love to help you out!

If you are ready to participate in the early adopter crowd–using the internet to get your idea or business to solve problems for more people the RIGHT WAY, I’d love to help you out!  You can CREATE A FREE ACCOUNT HERE.  No credit card required, ever.

You’ll get two FREE websites, 10 FREE training lessons on how to set the websites up and get started (or advance) in your online business, access to millions of entrepreneurs who are leveraging the internet (some are seeing major successes!), and I’ll be available to answer any questions you may have.  CREATE YOUR FREE ACCOUNT HERE, and I’ll meet you there.

Now, it’s Your Turn…

What are your thoughts on the dotcom stock market crash?  Do you think it will happen again?  What bubbles do you see?  Leave your comments, questions, and feedback below.

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