Dealing with Dot-Com Desperation

Some dot-com failures seem to come out of the blue, with few public indications of struggle before the companies actually fail. But in other cases, the slow and painful descent unfolds under a hot spotlight as the whole world watches.

It is no accident that online grocer (NasdaqNM: SLNE) chose to make its severe money woes public — U.S. Securities and Exchange Commission (SEC) regulations required the company to file a warning of its potential failure. After all, had a responsibility to let its investors, large and small, know about its situation.

But regulations aside, Streamline has been far from shy about its money woes for some time now. I interviewed Chief Financial Officer J. Gregory Ambro after Streamline issued its earnings report in July, and he acknowledged that the search for a cash infusion — which began in May when the company hired an investment bank — had become an all-out scramble. Everything, he said, was on the table.

Is Anyone Listening?

“Everything,” it seemed, included strategic partnerships, buyouts and private equity placements — everything except for a return to Wall Street, where the company’s stock had been foundering for months.

At the time, Ambro’s admission seemed like a cry for help. Looking back, it was a good time to make such a plea, assuming it fell on the right ears. Streamline’s earnings report did have some good news, and one analyst even ventured to guess that the company could be profitable before too long — at least in one market.

While many dot-com death convulsions are good public theater, taking the act to the street can be a great way to grab the eye of savvy investors. Streamline had plenty of sources for inspiration.

We’re Dying Here

Peapod, Inc. twisted in the wind for weeks — first losing its CEO under questionable circumstances and then having a huge cash infusion withdrawn. Death watch analysts predicted that Peapod was down to its final days before Dutch supermarket giant Royal Ahold swooped in and made a last-minute rescue.

CDNow, Inc. burned through more than $200 million (US$) in cash — despite being a hugely popular site — and was forced to endure a lengthy turn on the death watch list before Bertelsmann AG ponied up $141 million, adding the company to its sprawling media empire.

Streamline makes a point of mentioning that it has not laid off any of its workers. According to recent studies, layoffs are a tell-tale sign that the end is near. But while that claim could be read as a stubborn refusal to face the facts, it might also signal the firm’s resolve — its confidence that it has hit upon something valuable and worthwhile.

Why So Quiet?

Of course, Streamline’s inability to attract the cash it needs flies in the face of that argument. If the company is doing so well, then why hasn’t someone come forward to prop it up for a few more months? Streamline can probably blame both itself and the market for that.

The fact is, Streamline does have a fairly impressive story to tell. The company has found a sub-market niche in the home delivery service. It targets upscale suburbs for group deliveries in a way that allows substantial cost cutting. Streamline has also been fairly effective at pushing its average order into the $120 range — considered a key threshold by many in the industry.

However, Streamline also managed to make a lot of other dot-coms look downright frugal, with its decisions to sink $50 million into a massive headquarters and distribution center and to buy up a Chicago company. The firm has since slowed its spending, but it may be a bit too late.

Swallowing Pride

Streamline might be shedding its remaining vestiges of dignity by making its money troubles so public, but dignity is not going to do the company or its shareholders a bit of good if the business fails.

It seems as though Streamline has come close to striking some deals, but hasn’t been able to lock anything down. Maybe the books don’t look as good up close. Whatever the reason, Streamline’s kicking and screaming exit seems like the right idea now.

If the company creates big enough splashes with its flailing, a bigger fish is bound to come over and investigate. Maybe it will even swallow Streamline whole and carry on its mission. After all, in e-business as in evolution, it’s all about survival of the fittest.

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