dot.bomb by David Kuo provides timely lessons on entrepreneurship.

Back when I was in high school my mom handed me a copy of "dot.bomb" by J. David Kuo. The budding computer geek I was back then, I read through it, and it seemed glaringly obvious to my arrogant 14 year old mind at the time why Value America, the failed company featured in the book, crashed and burned as tremendously as it did. Of course that's not how you scale a business, of course that's not how you deal with logistical issues, on and on.

Now that I'm older, and have my own montage of hyperbolic failures to look back on, I can sympathize with the anti-hero of the book, Value America founder and former chairman, Craig Winn. Winn was a salesman who headed up Dynasty Lighting prior to starting Value America in 1996. He was shy by nature, but had a gift for determining his customers problems, and presenting whatever he was offering as the solution to their problems. This knack led him to become a millionaire in short order, carrying the torch much further than his dad, also a salesman, ever did.

After a tumultuous end with Dynasty Lighting, Winn looks at the web as a new and exciting way to do retail. He comes up with Value America, which would sell products direct from the factory to consumers, with Value America being the online equivalent of a mail order catalog. He enlists the help of some close friends, builds out the core business plan, gets some funding, and Value America goes online. The book goes through the crazy roller coaster ride that was the .com world of the late 90's, where nobody really knew what they were doing. The books author, Kuo, was head of PR for Value America during its heyday, and provides an interesting insider perspective on the people involved, what went wrong, and what it was like to come crashing off the end of a .com waterfall and live to tell the tale.

I highly recommend it to anyone interested in business or technology. It's really engaging, frequently funny, and compulsively readable (I burned through it in a weekend). The most valuable thing about the book was all the great lessons in running a business, both from a logistical and interpersonal perspective. What follows is a bullet point reflection of some of Value America's pitfalls, mistakes, and shortcomings, in no particular order.

• Extremely unfocused product offering - Value America was 10 miles wide and 1 inch deep. They boasted about carrying over 1000 brands, and everything from shoes to grills to printers, but for every category of item they had absolutely no depth. This gave the Internet superstore the appearance of an Internet garage sale. By comparison, Amazon.com initially focused on books, and built up their core audience that way. A lot can be said for that approach. They became competent in their core business and expanded outward from that, rather than reaching for everything at once. Similarly, before Facebook was the all-encompassing everything-you-could-possibly-want social networking juggernaut, it served a limited audience of university students. Amazon did one thing well, Value America did everything not so well.

• Horrible profit margins - Another massive failure of Value America, and something that was brilliant on Amazon's part, is the issue of profit margins. Value America primarily sold items like computers and printers, where the retail mark up is astonishingly low. That is to say, they'd acquire a printer for $298, and turn around and sell it for $300. In contrast, Amazon built up their business selling books, CD's, and videos, which have always had much greater retail markup.

• Poor target marketing - Value America was supposed to be an e-commerce company. Their investors thought they were investing in an e-commerce company. It must have been a shock for them to realize Value America made 70% of its sales via phone orders. This was problematic for multiple reasons. Since most of their business happened over the phone, their website wasn't as well-traveled as their online-only competitors. Wall Street paid attention to web traffic, and used it for valuations, which had a negative effect on Value America's ability to attract further investment. Additionally, the overhead involved in phone orders is much more than online orders. You had to call an 800 number, which was money out of Value America's pocket; you had to talk to a live person who had to be paid a salary and commission; and there was the general overhead of maintaining the call centers. By contrast, placing online orders cost Value America virtually nothing.

• Technical failures - The death knell of any web company. Value America was plagued with technical problems. In a time where most customers were on dial up, and the expected time to load the Value America homepage should have been about 40 seconds, customers frequently had to wait up to 5 minutes to load the extremely top-heavy homepage, featuring a cluster of superfluous menus and buttons and images of products. Additionally, a number of failure cases for incomplete orders weren't correctly handled, so orders would be partially made, and lost somewhere in the fulfillment process. Due to lack of organization and a massive in-place upgrade of their infrastructure to SAP, there was virtually no accounting of lost orders, and even being able to correctly reckon and report on how much money the company was making and how much it was spending was sketchy at best.

• Overly ambitious and under-focused - At the time, when Winn wasn't out brokering the next partnership between Value America and [insert name of established company here] that was going to be "worth billions!", he was hard at work schmoozing with Republican party luminaries in DC, grooming himself for his "inevitable" 2008 presidential run. It is often said that successful entrepreneurs tend to be optimistic, but Winn was outright presumptuous. He simply never envisioned a case for failure, and when a problem did loom, he shrugged it off, assuming it would somehow go away. Winn poured money into frivolous things like buying company jets, instead of living paranoid in the light of the reality that any money you have to pour into growing the company now, you might not necessarily have later.

• Ignored crucial problems until they reached crisis level - ... and then still ignored them. For one particular example, VA had a huge problem with returns. The company itself never had warehouses and never dealt with the product directly. The whole idea was reducing overhead by ordering direct from the factory. The problem was, when customers had issues with their items, they would return them to VA, instead of the manufacturer. VA did not have a process for dealing with returns addressed to them, and many products ended up piling up at the office. The company didn't have a process for handling these items, so eventually they got placed in rented storage lockers and were never really accounted for or dealt with. When Winn was confronted about it, he shrugged off the massive liability/logistical problem as not a big deal.

• Dealt dishonestly with people; over-promised and under-delivered - There were several times in the book where Winn lies outright. The classic mantra of the salesman is to under-promise and over-deliver, and Winn frequently did just the opposite. The culture of an organization trickles down, and in like manner, Winn's executive team consisted largely of people who would rather kiss up to him at the expense of the company's well being, instead of being honest and disregarding the goofy cult of personality that VA formed around Winn. Moral of the story: if you aren't honest and forthcoming with people investing large amounts of money in your company, they'll probably stop investing large amounts of money in your company.

• Embarrassing company drama and coup attempt - As the story unfolds, it becomes increasingly obvious to the rest of the board members that Winn is a liability to the company. Winn fights against the other shareholders by trying to position himself in such a way that he won't lose control of his company. In the midst of all this comes embarrassing accusations, memos of corporate takeover plans, and ridiculous amounts of drama. The requisite paranoia that every good entrepreneur should have was present in Winn, unfortunately it was directed at his colleagues, rather than his competitors. This all serves to make Winn look even more desperate, reckless, and demonstrates how he's... a liability to the company.

• Poor reputation - After Dynasty Lighting's failure, Value America had a hard time raising money due to their founder. A lot of the people they were soliciting were still reeling from the losses sustained from prior investments in Craig Winn ventures. More alarming, the manner in which Value America was imploding was very similar to the way Dynasty Lighting failed. This didn't make for a bet that anyone in the know would feel comfortable about.

Overall, from the outside what caused Value America to fail was their extremely poor customer service reputation. These excerpts from P305 tell what happened as a result of Value America's lack of competence in filling orders and shipping them out in a timely manner (if ever):

"The e-mails and calls complaining about Value America weren't stopping at Value America. Those same people were calling consumer affairs reporters for major newspapers and television stations. They were also calling the Better Business Bureau, attorneys, and anyone else they can think of."

And just before that:

"Even Value America employees were sending each other notices on whether Buy.com, Amazon.com, or eToys had the best deals. Everyone knew not to order from Value America."

There's much, much more wisdom to be gleaned from the book than what I wrote down here. If anything, it serves as a firm reminder that honesty, integrity, focus, frugality, and cautious optimism are valuable characteristics to have when leading a business.