Learning From the Dot-Com Bust

Jan.16 -- For the past year, I've been preaching that the dot-com boom is going to recur with the success of the Google IPO.

Only Microsoft can thwart the next boom, by buying Google outright. If the Google IPO goes as planned, investment bankers are going to loosen up — and then the deals start all over again.

But what's to prevent another collapse? What have we learned from the last fiasco, and how can we spot the next one before we lose our money?

Many fads begin in California, so you have to understand California culture. Some fads become fashion; most do not. One that crept into the collective unconscious of the trend-crazed California citizenry was the dip into self-actualization movements, beginning in the late 1960s and continuing strong until the mid 1980s and even the early 1990s.

New Age Mumbo Jumbo

California has long been clogged with all sorts of New Age training systems and methodologies. Even today, the state is crawling with crackpots promoting weird schemes designed to make you a better person. The successful ones do the best job of separating you from your money.

A prime mover years ago was a character named Werner Erhard, who developed mind control-based "training" techniques to help people improve themselves. Erhard Seminars Training (est) was popular among go-getters looking for success in life and in business.

Erhard's est established a thought process that still permeates California culture and the business investment environment. Most Erhard audio tapes were full of reassuring commentary about how est was fabulous and how it worked better than anything else. Often heard was the comment that people who say est is bogus simply "don't get it."

This idea is key. The rationale is that people don't get it because they cannot see or understand a paradigm shift (another key phrase). This simple notion permeated est and also permeated the dot-com revolution.

‘You Don't Get It’

I was lucky enough to host the TV program Silicon Spin in the midst of the dot-com phenomenon. Executive after executive would come on the show and say that "people don't get it," to explain how online grocers, for example, not only were going to be successful but would dominate their market. The execs would throw out some numbers but make no connection between the numbers and reality.

Pets.com, for example, came about only because people buy a lot of pet food. The investors made a ludicrous leap of faith in assuming that people would begin to buy pet food online and have it shipped via FedEx. Why? Because there was a paradigm shift. If you said Pets.com was a crazy idea, you were told that "you don't get it."

The "you don't get it" retort serves only one real purpose: to stop a conversation. You can use it as a ruse to end any debate or argument. It's uniquely dismissive, and nouveau-management decision-making has been heavily influenced by the concept.

The world of mumbo-jumbo self-actualization hokum is important to the dot-com litany. Much of the computer revolution is tied up with such thinking systems. Their influence is here to stay, just as the influence of drugs — marijuana, cocaine, and methamphetamines — fuels many high-tech companies at one level or another.

Just look at some of the boom-time business plans, in retrospect. The people who drew them up were snorting something. Welcome to California.

The Next Fad to Fade In — And Out?

We have seen multiple versions of California group-think fads come and go.

The personal-computer revolution itself began in California. It was going to change everything and liberate us. Instead, it made big business bigger and the MBA king of the hill. Then there was the artificial intelligence (AI) revolution of 1982, which died in 1984.

Pen-based computing was also going to change everything. It died but has recently re-emerged as tablet computing, which awaits the same fate. The CD-ROM revolution blossomed and died in the San Francisco Bay Area, as did dot-com mania.

What's next? It's hard to predict, because the group-think mind can go in any direction in the blink of an eye. But whatever is next will probably be Internet-related.

The only sure thing I can predict is that things will not turn out as expected. Then again, when it happens, I probably won't "get it" anyway.