It sucks to feed plastic

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Automatic Media:

"AS OF JUNE 8, 2001, Automatic Media, Inc. has ceased operations due to an inability to secure additional financing."

I wonder when we’ll get rid of this crap. Companies don’t go out of business because of "IPO market conditions" or the "inability to secure additional financing". Most often, they die because they spend more than they earn. Failures can happen because of credit crunch too, when you don’t have enough cash at hand to pay your creditors while your account receivables grow too fast (if you have to pay your creditors quicker than you get paid by clients, which is almost everyone but retailers). But these are "rich people’s troubles" that these "new economy" companies never had the luck to face, because their problem was not how to finance account receivables growth, but rather how to get subsidies while waiting to start getting orders. OK, I’m stretching it, but let’s get real. Sound businesses don’t need money perfusions year after year just to stay afloat.
As to debt as a necessary component to start a business, I understand it sometimes take years to build an infrastructure or base from which to grow income. Yet we’re not talking plants or roads or breakthrough scientific discoveries here. Do you really think R&D spending by dot coms created long-term assets? What’s left of the expensive fees and licences spent trying just to get the damn site up and running? And the hardware gets cheaper and cheaper, so you’d better amortize it within two years. Maybe the biggest and baddest such as Amazon.com and Yahoo! have created real, proprietary assets (hint: if your brand is 18 months old, that’s not what I’m talking about) that would justify goodwill in case of an acquisition. The other 95%, they just grew Sun, Oracle and Cisco’s earnings for a while (talk about bubbles bursting in chain reaction).
Let’s face it, most intellectual property you find on the web has a half-life measured in days. There’s no way you can account articles Suck published three years ago as assets. Either you monetize news-related material when it’s published, or you go out of business (paying archives? Muhahah. Start fixing your search engines first). Next to fall: Salon, though someone might buy them for, say, $1M once they flush debt through bankruptcy. After Business 2.0, is AOL to acquire Salon? Vicious, sad smirk… Anyway, the point is, there is a limit to betting the farm on intangible assets.
Don’t get me wrong, I’m not saying I’m more clever than all the guys who launched and crashed dot coms. It’s just that I’d like them to be more honest. Like, "we really tried to make this work. After we realized our assumptions as to the size of our market were way too big, we tried to scale down but it proved still too expensive to run our operations and the market simply isn’t there at this point".


Many of us drank the Kool Aid (I know I did) but denial won’t get us anywhere. And the only definition of the market that eventually matters is clients that buy and use your product or service, not financial institutions. Only the former will keep you in business in the long run.
06/11/01 update: Irreverent Web Pioneers Suck and Feed Suspend Publishing, Laying Off 21.
08/14/01 update: So long, Salon.com?
08/24/01 update: The Problem With Salon Isn’t Money, and meanwhile, Ironminds "is going in hiatus".

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