Dotcom dilemmas

European dotcoms are experiencing a harsh reality check, with B2B and B2C companies having to take a long hard look at the way...

European dotcoms are experiencing a harsh reality check, with B2B and B2C companies having to take a long hard look at the way that they do business

The dotcom marketplace is in flux. Its potential is undiminished, but the short-term prognosis points to a sustained period of correction, consolidation, re-orientation and re-establishment of business fundamentals.

These were some of the findings from a survey of 400 dotcom managers conducted across four European countries between July and October 2000 on behalf of PricewaterhouseCoopers.

The market is still very much in its infancy. Forty-eight per cent of all companies surveyed, and 60 % of B2C companies, had been in business for under a year. Most are still small - only 10% employed 100 or more staff. The UK has the most start-ups, with 71% of its sample having been in business for a year or less.

Despite the recent market setbacks, respondents showed a high degree of optimism. If recruitment expectations were anything to go by, dotcoms should grow substantially over the next 12 months. According to the responses, turnover is also set to boom in the first half of 2001, with the average expected rate of growth at 272%. Dotcom management clearly does not share the pessimism shown by the capital markets in recent months.

Surprisingly, 72% of dotcoms had failed to obtain professional advice on the viability of their business models. This state of affairs owes very much to the way in which venture capitalists have funded dotcom start-ups. In the rush to get involved in the dotcom sector, ideas and not detailed business plans have been the catalyst for injections of funds.

UK companies were the most likely to seek advice (48%), and German companies the least likely (11%). Venture capital funded companies were twice as likely to seek advice as family or personally funded start-ups.

A quarter of dotcoms failed basic hygiene tests by not doing cashflow forecasts or management accounts once a month. Less than half of those surveyed held proper board meetings.

A shocking statistic from the research was how low a management priority issues such as making a profit, fulfilment, customer care and providing a good service were. Dotcom managers were more preoccupied with finding the right staff, becoming established in their market, getting and keeping new customers and keeping up with competitors. There was virtually no concern expressed over maintaining legal compliance.

Although issues such as attracting the right staff and keeping up with competitors are understandably important for newly created companies, the research does suggest that many dotcom managers are not keeping established business realities firmly enough in mind. The principal challenge facing European dotcom managers was recruitment, with 69% of them expecting to increase staffing levels in the first half of 2001. B2B companies were most bullish about recruitment, with small B2C companies least likely to be on the hunt for staff. Only 5% of respondents considered prior management experience to be an important characteristic when recruiting senior management.

Instead, 40% of them thought that flexibility was most important.

Recruitment strategies haven't changed much, with the "new school tie" network (friends and family) being the main way that management teams are created.

In terms of perceived threats, European dotcoms identified a lack of sufficient marketing spend, which is understandable as one of their main goals is to build a brand from scratch. In the B2B sector, small companies were most threatened by corporations' slow adoption of online trading and by funding problems. Large companies were most threatened by the high costs of development and brand building, and by the pressure to expand across Europe.

European consumers will spend £1.5bn on online Christmas purchases this year, 30% of the total online retail spend this year. This value nearly matches the figure for all online European sales in 1999, says the Forrester research group.

Forrester says that more consumers are now gaining trust as they spend more time online. In Europe's biggest Net economies, like the UK, consumers have been online long enough for the effect to hit. In countries like Spain and Italy, waves of free-Internet service provider initiates who first came online last Christmas will hit their first year mark and make their first online purchases this holiday.

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