Wednesday, November 08, 2006

What really happened in the dot-com bubble?

An upcoming paper in the Journal of Financial Economics studied business plans from the dot-com era and concluded that the "bubble" wasn't much different from what happens at the birth of any new industry.  David A. Kirsch from the University of Maryland (see says:

  • the failure rate of dot-coms was only about 20% per year
  • spectacular blow-outs (like or webvan) resulted from the "get big fast" strategy that many pursued in order to gain their first-mover advantage.
  • many success stories happened in smaller niches that are just fine as businesses, though not as well-known as the big names.

This reminds me of the advice in entrepreneurship classes, how it's a myth that "the vast majority of new businesses fail".  In fact, the majority of dumb businesses fail, but well-thought ideas that focus on good, flexible business plans with good execution do just fine.

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