E-Commerce 101 meets the real world

BY JOSH GOODMAN

Way back in 1995, a group of five Yale students and one Columbia student launched a website that has since withstood the test of time and the fluctuation of markets. Success quickly followed the launch of their creation, Student.com, a website geared toward all aspects of college life, and the company remains in operation today. But for many of Yale’s other much-hyped student-created businesses life has been far less idyllic.

As the economy as a whole has deteriorated, many very promising Yalie-initiated ventures have found themselves unable to stay afloat. Catalyst Recruiting, an online database service that allows corporate employers to search through student profiles, received a significant amount of publicity in the Yale media at the time of its launch. But despite the good press, Catalyst, founded by Eric Ries DC’00 and David Millstone BK '99, had to shutdown its operations over the past year.

Their website reads, “Catalyst Recruiting didn't make it. Ultimately, we were unable to leverage an innovative technology platform into a viable business and Catalyst Recruiting went bankrupt.” A free version of their service is now administered by SourceForge.net.

Other Yale-founded Internet companies that were unable to survive the economic downturn of the past year-and-half or that were bought out by other companies include Sharkbyte.com, Quantrum.com, Powerdime.com, and Broadcast Builder.

Besides Internet companies, "incubators" were another popular Yale business model that haven proven difficult to maintain. Incubators select emerging companies that show a potential for profit and provide them with resources to expand in exchange for a stake in the company. Despite impressive financial backing, incubators like Aquarium Ventures, founded by Peter Venech ES '03 and Mike Stern DC '02, and Elm City Ventures, founded by Brian Kreiter DC '00, have closed their doors.

“The incubators were a bit of a fad,” said Julian Revie TC ’02, the president of the Yale Entrepreneurial Society (YES), an organization that supports entrepreneurial activity on campus and sponsors an annual business plan contest. The YES contest, called Y50K, awards $50,000 to the best for-profit business plan and another $50,000 to the best business plan that emphasizes social responsibility.

Despite the slow economy and the collapse of many Yale businesses, Revie, with tempered optimism, remains confident about the potential of Yale businesses to survive in the real world. “The general mind frame is that in these markets you really need a feasible idea to start a company," he said. "A couple of years ago, a lot of people just wanted to start dot-coms because they felt that was an easy path to riches. Now, before a student undertakes a project, they work a lot harder to make sure [their plan] is realistic. As far as we’re concerned, that’s an improvement. It’s better for people to be prudent."

A comparison of the winners of the two previous YES competitions reveals this greater sense of prudence with regard to launching e-businesses in particular. The 2000 winners, YellowPen and GenerationNet, were both Internet companies, and the 2001 winners were Elmseed Enterprise Fund, a microcredit firm, and MEMStar, which provides engineering services. All of the winners in the YES competition are still in operation.

Computer Science Professor Joan Feigenbaum, who teaches E-Commerce, does not see the sluggish economy as a reason not to pursue a business plan, including Internet businesses. “Don’t be discouraged about starting a business just because of the economy or the Internet bust or because you’re a student,” Feigenbaum said. “Just because the most exaggerated expectations did not come to pass does not mean there isn’t still great potential within the Internet and e-commerce as a platform for doing business. E-commerce will play a big role in the next economic growth phase.”

One Yalie who has exploited the great potential of doing business online despite the dot-com crash is Mike Kai PC '05. Kai founded Asianconnections.com, a portal to the Asian community, and StudioLA.com, a provider of entertainment news content for online syndication, before he came to Yale, and he continues to oversee his company from his dorm room.

“We survived when other sites didn’t because we did not have big investors pushing us to expand and we were extremely frugal,” Kai said. Like Professor Feigenbaum, Kai also emphasized the importance of e-commerce, remarking that it was the main revenue source of his company, and he confirmed its continued relevance. “In the future, we are definitely going beef up our e-commerce business,” Kai said.

For now, the Yale entrepreneurial scene may remain calm and cautious in comparison to two years ago. This caution, however, is reflective of the economy as a whole, and, as Revie is quick to point, there are still plenty of venture capitalists willing to put money behind a Yale company, provided the company has a feasible business plan.
 

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