Truth Is Better than IPO Fiction

Last Friday, employees of Toysmart.com showed up for work as usual only to discover that the Internet startup was shutting down. Though not a complete surprise to some, the news jolted many Toysmart workers.

Some of them had been lured from thriving brick-and-mortar companies as recently as a year earlier with promises of new challenges and future riches. They had been assured that the company and its financial backers, including the Walt Disney Co., were in it for the long haul.

As they mount new job searches, many of these talented, but disillusioned individuals have adopted a single rule: “No more e-commerce startups.”

Tide Going Out?

For years, new dot-coms have been able to attract top flight employees by leveraging the optimistic predictions of analysts and experts. Despite the risks, Net-savvy job seekers have taken the plunge in droves. But now, as the dot-com shakeout begins to take hold and the flow of public and private equity slows to a trickle, the pool of available talent may also be drying up.

A recent study found business school graduates favoring established consulting firms such as the Boston Consulting Group and Andersen Consulting, where they can get experience in bringing online ventures to fruition without the risk of watching reckless dot-coms shovel cash — and their future prospects — into the furnace each morning.

The workers who are drawn to the Internet world are typically young, creative, well-educated and driven. The potential loss of employees who fit the “dot-com profile” could be as big a blow to the long-term health and stability of the Internet as the evaporation of the capital pool.

Truth in Advertising

But there is one thing that might encourage talented workers and experienced executives to hang in there with the startups: honesty. That’s right — just tell the truth.

For example, throughout the United States, local sponsors for National Public Radio’s morning news features are invariably e-commerce, software and telecommunications companies seeking employees.

In the parlance of the day, these companies boldly assert that they are “pre-IPO startups.” The message implicit in the description: “Come to work for us now and you’ll reap the rewards when we go public.”

But how many of these companies are really destined for IPOs? Given the current climate on Wall Street and on the Internet, most of them are not IPO-bound any time soon. In recent weeks, employees have been hitting the streets as their companies’ IPO dreams drift farther and farther away.

In the worst case scenarios — such as Toysmart and Boo.com — failed startups are forced to fold their tents and disappear into the sunset, leaving their own employees adrift and countless others increasingly nervous about the future.

Risky Business

Internet startups could do much to stem the tide of panic by refreshing their images. A more honest tag than “pre-IPO” would be “venture-funded startup.” That label would describe the current situation for most new dot-coms and leave the question about IPOs up in the air.

Which, frankly, is a fine place for it to be. Talented employees with a good understanding of how the Web functions do not mind open-ended propositions. They have done their homework and they know there are risks as well as rewards.

It would be a great world if all Internet ventures being nursed on venture capital could see a huge payoff in two or three years. But most will not.

Most IPOs will trade at below their offering price for a significant period of time. In other words, the huge successes of the past two years are aberrations, not guideposts.

The stock options dream has displaced the real benefits of going to work for a startup, including attractive salaries and creative, relaxed work environments where people work as teams turning ideas into reality — where the speed of change leaves little time for boredom.

Even without pre-IPO options worth ten times their value, a startup can be a great place to work. But there seems to be an unwillingness on the part of most new dot-coms to tell people the truth — that they might be in for a lot of hard work that will never pay off financially.

Facing Facts

Startups are under no obligation to highlight risk factors for job seekers. Employees are responsible for their own careers, and with all the information available to them, they are certainly not operating in the dark.

But the new dot-coms have to recognize that in today’s market, hard facts are going to reach employees a lot faster than good news.

Startups have to stop relying on the lure of pie-in-the-sky paydays to persuade talented people to go to work for them. They need to use the first and best argument for working on the Internet: It is the future.