We’ve Been Here Before

Abracadabra! Magic Trumps Math at Web Start-Ups in today’s New York Times explores the use by start-up online businesses of “nonstandard accounting metrics”–tools for measuring economic viability of companies that appear non-viable when viewed through traditional valuation methods.  Anyone old enough to remember the web bubble of a decade ago recalls “concepts like ‘eyeballs’ and ‘mindshare'” (as the article notes), new metrics that reflected the fundamental change in the nature of business wrought by c-commerce.  But the Internet did not change the fundamental nature of business.  Start-ups today are not exactly like start-ups in 1999-2001, but their differences don’t mean investors should uncritically embrace these new valuation methods.  That Amazon established itself with years of huge marketing costs does not mean that spending more to acquire each customer than they spend is the path to e-commerce success.  If it takes more than 90 seconds to understand a company’s business plan, be wary.