Tarred with the same brush
Investors should forget all the talk about B2B and B2C and instead focus on the company’s business proposal, claims Lucy Marcus of Marcus Venture Consulting.
In the 90s, the hype surrounding the Internet sector transformed technology from the preserve of geeks to a common topic of conversation in homes and offices around the world. But by making technology synonymous with dotcom start-ups, many businesses have been unfairly categorised and measured.
“There’s actually no such thing as a technology sector,” says Lucy Marcus, the founder and managing director of Marcus Venture Consulting. “When people talk about technology in terms of B2B and B2C, they’re comparing apples and oranges. How do you compare a site that sells books online with a site that sells pharmaceuticals?”
Instead, Marcus believes that investors need to look at Internet start-ups and so-called tech companies in the context of the sector where they operate. “If you’re looking at the pharmaceutical sector, then you’re looking at selling drugs online in comparison with other ways of buying and selling drugs,” she says. “Investors need to start looking at whether people are investing in that particular sector.”
Marcus’s company works closely with several early stage businesses, as well as advising institutions and individuals investing in the technology sector. The company differentiates itself by looking beyond tech sector classifications, Marcus says, instead it focuses on the viability of each individual business.
Companies that are selling over the Internet shouldn’t be judged on today’s sales, in Marcus’s opinion. The priority is to examine how the company will perform when the vision of a PC in every home is a reality. In that climate, Marcus believes, consumers will increasingly head online for everyday purchases. She adds that it is not unlikely that some of the B2C companies that have experienced a difficult time of late, could ultimately prove to be among the most successful online businesses. “It’s a timing issue, and I think we’re going to be back to B2C again,” she says. “People will want to buy things from the web, people will want information on the web and they will want to have new services and access to data.”
If that’s the case, then why have investors spent most of this year dumping tech stocks? Marcus believes that some start-ups were ahead of their time, and some were poorly run. But much of the problem was less logical, she believes. “I think a part of the slump has been anxiety, but some of it is just a timing issue.”
She believes that the fallout will continue until start-ups are judged as businesses on a par with their old economy equivalents. The principles of starting and running companies didn’t change for the Internet – they just got faster, Marcus says. “People thought they could match the size and scope of old economy companies that have taken 20 years to grow to that size, and they tried to do that in six months,” she says. “Something has to give. It’s like taking a fresh water fish and putting them in salt water: they explode.”
In the wake of this return to the good ole business practices, Marcus says her company continues to see as many as 300 business plans per month – though she notes a vast improvement in the quality of proposals. “Companies are much more cautious and the arrogance factor has gone away to a certain extent,” she says. “People are very attuned to trying to create a successful business, and investors are much less tolerant of excessive behaviour. They want people to stick to their knitting and build their businesses.”
For small investors, meanwhile, Marcus believes that the dotcom hype convinced many to ignore the risks of venture capital, where only one in 10 investments are successful. “I suspect that as you look back, everybody thought that they would be the one and nobody thought they would be the nine,” she says. “They forgot that it’s called venture capital, not banking. They thought that there was no risk because they saw so much money – but it just doesn’t work that way.”
