Tuesday, October 16, 2007

Dot-Com Comparison

Biobased News has a great editorial comparing the Dot-Com era to the current biofuels boom. An excerpt below:

The dot-com bubble was marked by unrealistic speculation involving faulty business models. The resulting business plans overestimated projections, included wild claims about market share, often did not consider factors such as logistics, and were backed by an impressive list of bios for personnel who passionately believed in the potential for the new companies but many times lacked legitimate experience.

In hindsight it has been apparent that basic business development questions should have been asked such as, “How long has the management team worked together?” Unfortunately these and other crucial questions were often ignored in the wave of excitement. Sound familiar to what is going on now?

My thoughts:

You've probably heard the comparison of the emerging biofuels sector to the dot-com era of the late nineties before. This is not a very original thought and you hear it more and more these days. There are a great many comparisons between the investing era we are in today and the bubble of the late 90's.

There are also some very large difference. In particular biofuels takes a great deal of physical capital at even the outset.

Biofuels being a physical product the actual innovation requires more than just a good idea taken to market. Biofuels creates a few ASTM products with strict quality assurance requirements. These biofuel products must also integrate into a preexisting petroleum sector (which often doesn't willing play nice with the new kids on the block). Combine this with measurable quantities and a market price which combine together to create real cashflow expectations and you've got a much more manageable business than a e-Commerce concept.

In essence the big difference is that with a biofuels business you can call B.S. much earlier than an e-Commerce business. This is further compounded with the fact that biofuel companies require credible real relationships with not only customers but distributors who must make clear decisions of which biofuels companies they will work with. This increasing the opportunities for a less than credible entrant to be handed the moniker "bull-shit" (this being an industry standard petroleum term).

In essence, even with smoke and mirrors, biofuels requires measurable results and distribution relationships. These can be measured at a great distance with little prior industry experience as an investor.

This separates the two sectors greatly. It still doesn't stop the Dot-Com refugees and I.T. tourists from cruising through our conferences though looking for that "killer ap" equivalent in a biofuel technology. Not that I would want the to stop, they make talking about the subject fun just on an enthusiasm level alone.

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