xx INTRODUCTION TO THE REVISED SECOND EDITION
Introduction to the Revised
Second Edition
The business plan was flawed
In the three years following the initial edition of this book, a record number of business
plans were approved. These plans received a record amount of funding. Unfortunately, a
record number were very soon seen to be flawed. Why did this happen? What was going
on? And what lessons can be learned?
This was the era of the dotcom boom and bust. It was just starting when the first edition
of this book went to the presses at the end of 1998. In the months that followed, thou-
sands of dotcom Internet businesses were established. The excitement was reminiscent of
a gold rush or explorers setting off for a New World rumoured to be filled with unbeliev-
able riches. Venture capital providers emerged from the woodwork and provided backing
for seemingly any young techie with a website and an idea, or preferably just an idea. It
was a popular joke at the time that if you had a track record you wouldn’t get funding.
Business experience, management training, wisdom were seen as counterproductive.
Adaptability and an unshackled mind were regarded as more important attributes. Money
poured into distinctly weak business propositions on a shot gun approach that out of
every dozen, 11 would fail but one might be spectacularly successful.
At the peak of the frenzy, in the first three months of 2000, a record $22 billion of ven-
ture capital was pumped into a record 1330 Internet start-up deals in the US alone – the
same number of deals and more than twice as much money as in the whole of 1998
(according to 3i/PricewaterhouseCoopers, VentureOne, Money Tree™ Survey). Worldwide
in 2000, business plans raised nearly $200 billion of external funding for start ups, man-
agement buyouts and expansion – two-thirds of it for technology businesses. The time
between business start-up and initial public offering (IPO) was shortened dramatically
and money piled into global stock markets. The US Nasdaq stock exchange has the high-
est dollar volume of trading of any market in the world; the Nasdaq-100 index soared to
peak at nearly 5000 in the first quarter of 2000.
Then came the collapse. Disillusionment set in. After squandering millions of dollars,
many Internet upstarts saw the prospect of failure. In the next 18 months, over 1000
dotcoms laid off more than 150,000 workers in the US alone. Several hundred corpora-
tions closed or declared bankruptcy. Even before the fateful terrorist attack on America
on 11 September 2001, the Nasdaq-100 had dropped back to its end-1998 level of around