Cramer: Dot-Com Mismanagement

People keep talking about how business models are the reason some Net stocks work and others fail.

For example, eBay seems to have a business model that works because people like to swap things online. Webvan, on the other hand, seems to have a business model that doesn't work and that's why it's doomed to failure.

I think that's a pile of hokum.

Most businesses take a long time to work. They fail not because their business models are cockamamie but because they run out of money, either because they didn't manage their finances aggressively enough when the timing was good, or they spent too much, thinking they could always finance again.

Let's take Webvan. There's no doubt Webvan is in a good business. Lots of people love Webvan, and the customer is always right. If Webvan weren't about to run out of money, I think it could rationalize itself around a couple of key markets and make a go of it.

But Webvan was caught up in the "get big or get out" rubbish that the venture capitalists encouraged. It never really had a chance because it was asked to take on way too much.

Crucial Mismanagement on Part of Capital Markets

Kozmo seems similarly fated unless it can pull back to a core business, which I believe could be profitable. It, too, however, got forced into something it shouldn't have been in, a multicity behemoth that needed billions to work. Again, a crucial misjudgment on the part of the capital markets.

Or take eToys, which should have made it. People loved that company at first. But it expanded too quickly as a way to grow into its market capitalization, and collapsed under its own mismanagement.

But the ultimate business model canard is Third market equity salesman Jeff Bezos actually had developed a good little business in selling books. He could have owned that market by now. However, the company decided to become Wal-Mart. The hubris of it all.

And it, too, will probably run out of money before it can find out if that vision would ever have worked. In retrospect, there was nothing wrong with Amazon's book-business model. I'm confident that in its last year Amazon actually made money on books, even after all those shenanigans about what counts as cost of goods sold.

Misjudgments Never Cease

The issue in each of these cases was never the business model — it was management and its inability to understand execution and finance.

The people running these companies misjudged the patience of the market — virtually nonexistent typically, except for a brief period between November 1998 and March 2000 — and misjudged how long the money would last.

They are still misjudging, as I see many dot-coms and dot-com infrastructure companies presuming there will be more capital, someday.

Of course, the convenience of blaming the business model is that it depersonalizes the whole thing.

I'll let you in on a secret, something I know from my many years as a hedge fund manager: Good managements can take that cash and make something of it, something that can make money on money, before it runs out.

There's no such thing as a bad business model, there are just bad businesspeople and bad attitudes (meaning managements that want to blame the market instead of instilling discipline in time to save their businesses). Yet part of the great falsehood that was the dot-com era now includes a bogus obituary.

Given the shamelessness of the period, I guess it's fitting that the epitaph be equally fraudulent as the businesspeople behind the ventures themselves.

Still gets me angry, though.

James J. Cramer is a director and co-founder of He contributes daily market commentary for the network of TSC sites and serves as an adviser to the company’s CEO.