The Day Ahead: Dot-coms latest survival tactic is relocation

Survival of the fittest is the name of the dot-com game these days and when you're barely surviving, the answer is to get lean, mean and relocate
Written by Larry Dignan, Contributor

It's a well-known fact that dot-coms are pinching pennies to survive, but now there's a sure-fire way to boost a company's financial standing. Move out of Silicon Valley.

PlanetRX.com became the latest company to pack up the moving van and head to cheaper pastures. The move was so well received that the stock is almost nearing the $1 mark, up more than 30 percent in two days.

PlanetRX, an online pharmacy, has had its share of woes of late. It plays in a crowded market and can't seem to keep its management. What could the company possibly do to restore some confidence? Move to Memphis from South San Francisco.

PlanetRX, which operates a distribution centre in Memphis, said it will cut its cash burn rate by 50 percent simply by moving. Of course, that makes us wonder why PlanetRX was ever headquartered in the Bay area in the first place.

The company is like many dot-coms who sprouted up near Silicon Valley because it was cool, the weather is nice and the capital flowed freely. Once the funding stopped flowing, little things like leases became a major headache.

Michael Beindorff, chief executive of PlanetRX.com, noted that it just makes more sense that the whole company should be under one roof. After all, 75 percent of its employees are already in Memphis. With the relocation, PlanetRX will hold on to its $50m in cash a lot longer.

PlanetRX isn't the first company to relocate out of the Bay area and it certainly won't be the last. Rents are too high, it's getting hard to recruit people and everything is just a tad too inflated.

Insweb got the message earlier this year and moved to Sacramento from Redwood City. Insweb, which has been leveled recently on revenue shortfalls, also announced massive layoffs.

If the dot-coms weren't so foolhardy with their cash last year, they would have saved themselves a lot of pain. Splashy TV ads, floats in thanksgiving parades and executive perks really weren't worth trouble.

Now these companies are paying the price (actually it's their employees paying the price). The dot-coms have already cut back on their costly branding binge and are making deeper cuts. Don't be surprised if you see press releases about coupon clipping soon.

Here are dot-coms' favorite survival tricks:

  • 1. Lay off most of your staff. An oldie but a goody. A corporate favorite. The management spent cash recklessly and the rank-and-file employees got the blame. Drkoop.com announced more layoffs and cut its already decimated staff by a third.

"We said from the beginning that we were going to run this company like a real business," newly appointed president Ed Cespedes said in a release.

Gee, Ed we really wish your predecessors would have thought about that before they handed all their money over to America Online and other portals for distribution.

  • 2. The private placement trick. Since dot-coms can't go back to the public markets for cash, they're running back to the venture capitalists and financiers that pawned them off to the market in the first place. Drkoop is another example of this. The company recently raised enough money to keep it operating for 18 months assuming it operates like a real business.
  • 3. Bankruptcy. Here's Value America's plan: file Chapter 11, reorganise and hope to emerge with a different business model that actually makes some sense. The company couldn't make it as a e-tailer, but will try to sell its back-end infrastructure. Yeah right.
  • 4. Sell out on the cheap. Mothernature.com, arguably CMGI's biggest IPO flop, is mulling over a buyout offer at 75 cents a share. The company went public in December at $13 a share.
  • What analysts said about the company even as it unraveled was even more alarming. Wit Capital just got around to downgrading Mothernature.com to a hold in July. In January, Mothernature.com was a "healthy investment opportunity" with a price target of $22. By the way, Wit was one of the company's underwriters. Surprised?

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