In part, these mostly youthful entrepreneurs are victims of their own inexperience. “I see clients where I cannot believe what people have sold them and how much people have charged them,” said Michael W. Kempner, CEO of the MWW Group, a public-relations firm. “Many of the people running dot-coms have never run a business before. All they’re doing is spending a lot of money and getting very little return.” Without experience, entrepreneurs find it hard to value intangible services like consulting. As Marty Winston, an old-time technology PR expert, puts it, “PR pricing always has been a bit of voodoo.”
More often, though, the real source of trouble is “Internet time,” the frenetic pace that takes hold when the impossible is expected and service providers have to lavish staff and other resources on projects simply to keep up. “Half the time they change their business model in the second week they’re with you,” says David Eldredge, vice president at Edelman Public Relations Worldwide. The constant change and driving deadlines make for expensive business, and clients pay in measure. “We have had agencies tell us that they automatically add X percent more because of dot-com time,” says Ken Young, director of communications at 1-800-Flowers.com.
The Internet world’s premium on flexibility and speed also puts it at a disadvantage in buying advertising, where low prices come from planning and smart buying. Dot-coms miss discounts and constantly pay rush charges. “There’s a lot of ‘Gotta have it, gotta have it at the last minute, I don’t care what it costs’,” says an official at a leading media-buying company.
Even in technology, where they should be on solid ground, the companies have a “gold-rush mentality,” according to Stephen Lambright, vice president of marketing for Internet-software company NetObjects, Inc. Lambright remembers one client insisting on such a tight schedule that he had to assign consultants around the clock–for almost twice the price he normally charges. “They’re driven by two of the worst human characteristics: fear and greed,” he says.
At this pace, events seem somehow unreal, and venture-capital millions take on the tinge of funny money. “I’m seeing dot-coms that are asking for ridiculous levels of spending [from service providers], because they don’t feel it’s their money,” says industry observer Jeffrey Tarter. “In many cases, they’re going against the wishes of the service providers.”
The dot-coms are not the only victims. Many service providers find them unreliable customers. So many go out of business or simply refuse to pay their bills that Edelman Worldwide, for example, had to change its policies and demand two months of upfront payment from dot-coms. Other companies require cash on the spot for services, and sometimes even rent. Some Silicon Valley landlords, regarding the fledgling firms as bad credit risks, have demanded a year’s rent in advance. “There’s a laundry list of reasons, but we have been stiffed by a number of them,” says Eldredge.
Then there is IPO madness. “Every new business entity that has required PR services of us since Jan. 1 has said they want to do an IPO before the end of the year,” says Nancy Tully, executive vice president at Shandwick International. And some are led by people looking for a quick personal payoff. Brian Goodall, president of Hampel Stefanides, a New York advertising firm with many dot-com clients, says a number of Internet start-ups are looking only for a “beard” of respectability to get Wall Street’s attention. “They’re not serious marketers. They’re more concerned about a get-rich-quick kind of proposition,” says Goodall, whose firm actually resigned such an account. “All your antennae go up, you listen real hard… and run as fast as you can.”
