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The African-American community has been hit hard by the failure of major urban Web sites and the general downturn in the Internet market. There are plenty of lessons to be learned, however, from the demise of those sites, agreed a group of industry players at the conference.
A six-member panel told HBS students and alumni that the next wave of entrepreneurs can avoid many of the mistakes made by the first generation of urban-oriented Web sites by researching what the African-American community needs, building smart partnerships with investors, and creating solid business models.
One urban entertainment Web site mentioned by the panel, Urban Box Office, went from being the envy of the industry, flush with $50 million from investors, to filing for bankruptcy in less than two years. Why?
According to the panelists, managers of the UBO site blew through their money while forgetting to focus on one fundamental strategy: creating a unique business model.
"Having Puffy on your site is not unique," stated Stephen Pamon, president and CEO of the marketing strategy firm Ethcentric. "What was UBO really bringing to the table to make you spend the biggest currency of all: time?" he asked rhetorically.
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| To me, black people need an awful lot more than a sweatshirt with Puff Daddy's name on it. If you know that, then that's an opportunity. | |
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| — Stephen Pamon, of Ethcentric |
"When you can listen to that on the radio, you can watch [it on] TV, you can read about it in every magazine ... why would you go to that site?"
Cracks in the model
Panelists agreed that many faltering businesses like UBO suffer from weak business models. They then compound the problem by failing to change direction when cracks appear in the original plan.
Their mistake is "continuing to do the same thing over and over again, rather than saying, 'This is not working. Let's do something different,'" said Anaye Milligan, managing producer of the community Web site BlackPlanet.com.
The collapse of UBO and other sites has sent a shiver of fear through investors, panelists said.
Bo Kemp (HBS MBA '98), president and COO of Vanguarde Neomedia, which owns publications targeting the urban marketplace, has noticed that his investors used to call him once a week, but now they check in more frequently.
"Our relationship has changed. I see my investors everywhere I go," he said, smiling. "They call me at home, they call me wherever I am. I'm sure they'll call me while I'm here. People are scared."
Knowing that investors who get burned can become hesitant about moving forward with new ventures, entrepreneurs should rely not only on their current investors but should have others waiting in the wings, said Peter Griffith, CEO of the hip-hop portal Hookt.com.
"We thought we were in a better position with all the failed companies to do some things," said Griffith. "And I suddenly realized that half of the failed companies are also in [our investors'] portfolios. As a result of that, they can't do some of the things they said. When the market turns like this, it can cripple these guys."
Denmark West, representing Microsoft Corporation, agreed that the market changes have spurred investors to take a closer look at the companies they are funding.
"We're facing very difficult decisions," West commented. "What do we actually continue to fund and what do we decide to take out back and shoot?
"People are coming back with needs for additional funding that may not be justified by a reconstituted business plan," West said. "There may be a number of reasons why you say, ‘This may not be working.' We've found that we've had to do more of that than we originally thought at the beginning of the downturn in the market.''
More than sweatshirts
Despite the Internet market's slide and a more hesitant pool of investors, the panelists assured aspiring entrepreneurs attending the conference that urban Internet opportunities abound.
Pamon said the first step in creating a sound business plan is figuring out what the consumer needs. "To me, black people need an awful lot more than a sweatshirt with Puff Daddy's name on it,'' he said, noting that African-Americans have stated their interest in sites about banking and health care. "If you know that, then that's an opportunity."
Griffith advised young entrepreneurs to focus their businesses around an idea believe in. "Do not be in it just to make the quick buck," he said, "because when the market turns like this, it's not going to be quick. It's going to be about having the passion to be in it for the long haul."
Pamon stressed the importance of finding investors who believe in the company's vision. He noted that his investors are quick to jump at a good idea, such as Ethcentric's recent proposal to create cruises aimed at an African-American clientele.
"When you solicit investors, find some people who believe in your business," he said. "If you've got people like that behind you, you know you're not going to get a billion dollars from them tomorrow, but you also know you're not going to go under. That's some real important security."
Smart partnerships
Creating the right partnerships is also essential in generating cash, the panelists agreed. Finding the right mix of advertisers is particularly important in enticing Internet users to make that all-important leap from reading content on a site to buying its products.
A deal between BlackPlanet and Hewlett-Packard didn't work, for example, because the two companies didn't mesh well. "People don't come to BlackPlanet to find out about printers," Milligan said. However, a separate deal with Doubleday worked well, he said, when it was paired with BlackPlanet's book section.
Doubleday wanted to sign up a certain number of people for its book club within six months — and BlackPlanet reached that goal in 30 days.
"When you align what your members are interested in with the revenue and advertising potential, that's your opportunity," Milligan said.
The panelists cautioned entrepreneurs to be sure that a partnership is a smart one before simply accepting an investor's check, because word gets around in the Internet business when deals fail.
"You aren't allowed very many mistakes," Milligan cautioned. "You must work smart. And sometimes that means slowing yourself down and asking yourself questions, looking at your competition, and looking at what's working and not working."
Ultimately, it's important for aspiring entrepreneurs to study the mistakes made by those who entered the market before them, the panelists said.
"A lot of what you see on the 'Net is first generation," Pamon said. "Children run out, they play, they get hurt, they know not to do it again.
"You all have seen the difficulties we've had, you've seen the struggles we've overcome. Now take it to the next level."
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