How the Dot-Com bubble became the rise of Lean (and what corporate innovators can learn from it)

Unless you’re either an economist, work in the financial markets, or is a modern economy history buff, chances are you’ll have a short-term memory for these kinds of things, but working for many years as a trader and portfolio manager, most of the economic crisis that happened during my adult life are still very vivid memories in my brain (and also the reason I insanely called my friends to buy stocks when the COVID-19 outbreak collapsed the markets — you’re welcome for the 40% there, buddies).

When I decided to leave the stock market to build startups in the early 2010s, the story of the 2000 Nasdaq dot-com bubble started to pop up again through readings and random conversations. But this time it had a different approach to it, one that only began to make sense when I started building startups myself.

I knew of course that there had been massive investments happening in these new promising internet tech companies that weren’t really turning a profit, but because the promise of the internet was so huge, all the investors ran to pour their money in, gushing for an IPO exit that was happening pretty fast at the time (three years for Amazon from founding to IPO, and just one year for Netscape to be trading on Nasdaq). There was liquidity in the market and investors were ignoring all investment fundamentals, creating this giant, overpriced, bubble that hit a 400% gain between 1995 and its peak in March 2000, bringing some companies to reach a Price-to-Earnings ratio of over 200. Only to drop 78% by 2002, giving up all its gains.

What I was hearing now was a different story though. It wasn’t just so that this new World Wide Web created an irrational exuberance that made markets skyrocket and crash, but a lot more on how its disruptive power crumbled old paradigms of building innovative businesses and shifted us head-first into the Information Age and into becoming a network society. But what happened?

The business side of the story

Until the dot-com crash, every time we were to build a business, any business, we started with a full-blown business plan. PowerPoint charts and presentations, Excel spreadsheets with promising long-term financial projections, and a very robust marketing plan that would make all those numbers become a reality. In hindsight, we know that doesn’t work for innovative ventures. (we do, right?! 🤔) But at the time there was absolutely no clue of this. So, brilliant entrepreneurs grabbed their solid business plans like a Frenchman grabs his baguette, placed it under their armpit, and marched straight into the open arms (and open checkbooks) of thirsty venture capitalists and investment bankers (they were the ones making all the profits from the IPOs). And money poured in.

So off they went into this journey of building the new era of mankind. Because of the superfast user adoption of the world wide web, the motto was: “build it and they will come”. The last part no-one really said out loud was: “…and if they don’t come, since we’ve spent several million building all this, let’s just spend a few more on executing the shinny marketing plan we’ve got and drag them down here and shove it down their throats (as usual).”

Online supermarkets, online pet stores, online toy stores that made us feel like we’ve created an e-Santa Claus, even online ice cream delivery services, you name it. We had it all. The only difference from the similar services we have today is that no one had ever seen them before. So with millions of dollars in cash and a business plan in hands, these CEOs did what they do best: they executed the plan. Warehouses, distribution centers, trucks, piles and piles of inventory, ERPs, employees, lots of employees, flashy offices with Aeron chairs, Super Bowl ads, celebrity endorsements, giant balloons at the Macy’s parade in New York City, just to name a few. These tech companies had the best money could buy. The only thing they didn’t have was the customer. So when people weren’t really confident in putting their credit cards to perform an online purchase, for example, projections obviously didn’t hit the mark. Not even if it was Whoopi Goldberg telling you to buy flooz coins. Here are some of the most notorious dot-com flops.

The rise of Lean

So, unlike a baguette tradition where you know exactly what you’re buying in to, there were so many risky assumptions in those business models that, of course, they collapsed. Now the exuberance became a gloomy sight and risk capital became scarce. With little capital available (or at a higher premium) for both startup founders and venture capitalists, since the latter has also investors of their own, a new methodology was needed that would help preserve cash and, most importantly, get the venture to product-market fit as fast as possible, before they ran out of money.

Looking back at the lessons learned from the dot-com bubble, they now brought to the center of the puzzle the missing pieces: the customer and the problem being solved (although ice cream delivery sounds yummy, it probably creates more problems than it solves). So the mindset around building businesses did a full one-eighty and shifted entirely from executing business models to searching and experimenting with them. And with a spending budget like it was being managed by Baloo in the Jungle Book: just the ‘bare necessities’.

From the get-go, the rule was not to write a single line of code before being sure they were building what customers needed. Of course, small leaps of faith had to be done, but if they were found to be wrong, they could change directions fast and “pivot” without suffering much damage. Because funding was so restricted, they couldn’t afford too many bad decisions either, so they had to rely on as much data as possible, paving the way for an entire field of measurements called Innovation Accounting to come to life, and moving personal opinions and political power calls out of the way. But you'll hear from me on that in a soon to come article.

Lessons corporates can learn from

During this journey, one of the main lessons learned, as Steve Blank put it very well, was that startups aren’t small versions of large corporations. Every process that exists in a corporation most likely will not suit an early-stage venture that you’re trying to build. You cannot expect, for example, a young, fast-moving, and yet extremely fragile startup to wait for the yearly budget meeting to get funding without turning itself into a fat, blown, overbudgeted, old school, PowerPoint business plan to justify the wait and comply with approval requirements.

So my guess is that if you’re not adopting Lean to build your ventures — and escalating it to a portfolio management level, with tranched funding rounds and metrics to make data-driven investment decisions — either you’re operating too close to the core and not really innovating, or you’re building yourself your own internal mini dot-com bubble that is likely to implode soon. Maybe that’s how it has always been done in your corporation, or maybe it’s even already accounted for and part of the status quo, but as a friend innovator of mine says: yesterday’s excellence is today’s standard and tomorrow’s mediocrity.

How much of Lean and Funding & Portfolio has your company adopted as part of your innovation strategy? Discover now with our Innovation Performance Scorecard.

If you would like to start a conversation with us about your business’s innovation needs, we would be delighted to share our expertise. Just reach me at

I help corporate innovators measure and improve innovation R&D performance.

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