Dot-com companies and online e-tailers should consider a “convergence” with traditional bricks-and-mortar players if they want to survive — or even thrive in — current market conditions, warns a Calgary venture capital firm.

And in the wake of the recent collapse of NextClick Ltd. after failing to raise more financing, it might be time for other cash-strapped companies involved in B2B or Net-based retailing or customer service to revisit their business plans, analysts say.

“These business managers and owners have to look themselves in the eye and say: Are we kidding ourselves? Do we realistically have a pathway to profitability?

Or do we need to change our business plan today and figure out how we’re going to make money?” says Brian Pow, technology analyst for Acumen Capital Finance Partners Ltd.

NextClick, a Calgary company which specialized in helping businesses market to their online customers, shut itself down in December after failing to raise between $2 million and $3 million in investment capital, and is now facing creditors.

NextClick CEO Scott Martin says potential investors in New York being courted by the company were “spooked off by the market.”

“The saying that there’s always money for great ideas isn’t always true,” Martin says, adding he will spend the next six to eight months trying to raise new capital for the company.

But Byron Osing, chief executive of local venture capital firm Launchworks Inc., says Internet companies and dot-coms that are struggling with financing may want to consider forming new alliances or creating new business models.

“The people who are going to truly benefit from the shift to using the Internet and B2B as an efficiency tool and an enabling tool, will be the people who have a bricks-and-mortar component to their business, who apply the technology to do business more effectively and efficiently,” says Osing.

“If there isn’t money available for the pure plays, they should be approaching some of the traditional bricks-and-mortar players out there who haven’t done anything on the Internet yet,” but plan to, he adds.

The Internet is nothing more than a communications channel which can be an incredibly powerful advertising medium if used appropriately — but the market hasn’t had enough time to learn how to use it effectively, he says.

Dot-coms also have to remember to strengthen their customer base to last through harder economic times, notes Debi Andrus, assistant professor of marketing and e-business at the University of Calgary. “If they’ve got customers, they should be generating enough revenue in order to sustain them,” she says.

“You cannot sustain growth with one product or one service in the long term. They may have a good product, but how are they growing it into a company that’s going to be more substantial?”

Osing also levels criticism at the financial community. Prior to the collapse of the tech stock market last spring, he says, “the whole game was getting big, getting there fast, and worrying about the profits later.”

“If you were making money, you weren’t an attractive B2B or B2C company (to financial analysts). It meant you weren’t spending enough capital, gaining enough market share quickly enough,” Osing says.

“The financial community, for the most part, are lemmings. When one runs in one direction, everybody bails in behind and runs, and it doesn’t matter if it’s over a cliff,” he adds. “Right now, they’re running away from B2B and B2C plays. It makes them incredibly hard to fund.”

But Pow notes many dot-coms and Internet-based companies that have been able to raise money haven’t been able to execute their business plans — discovering, perhaps, that the cost to set up the infrastructure of their business or to attract customers was more than they anticipated.

“I think they found that even though the Internet is really pervasive, as a means of doing business it hasn’t got to the level yet that people anticipate,” says Pow.

“Showing progress in terms of Web hits and that kind of stuff is not enough information any more . . . you’ve got to be able to show you’re growing sales, that your pathway to profitability is obvious.”

And the carnage may be just beginning as tech companies that raised money earlier this year begin attempts at second or third rounds of financing amid worries of a possible economic slowdown — and an investment community more concerned with immediate results than future promises of profitability.

In the U.S., Internet firms announced more than 10,400 job cuts in December, according to a recent study by a Chicago outplacement firm.

“There are very heavy losses going on right now,” Challenger, Gray and Christmas Inc. CEO John Challenger told Computerworld Online, adding he has heard dot-com executives use terms like “nuclear winter” and “financial tsunami.”

But not everybody is losing confidence as dot-coms continue to struggle. NextClick customer Roy Lewis, owner of Airdrie-based Watertowne Bottling Co. Ltd., vows the demise of the personalization agency won’t stop him from using the Internet to connect to his customers.

“The key to NextClick is their people. And their people aren’t dead,” Lewis says. He plans to work with Scott Martin’s former employees on a consulting basis for his water bottling business.

“I look at it as an opportunity . . . we will get our needs fulfilled, whatever umbrella they put their services under. The only thing that happened was their umbrella got a whole bunch of holes in it.”

LOOKING BACK:

NextClick’s investors were caught in the tech stock crash. Many lost 80 per cent of their portfolio value, meaning they could no longer finance the company to the level they had planned. Clients started to withhold money, either because they feared NextClick was in trouble or because they had their own cash problems. “We had the taps turned off at both ends,” says Martin. This left NextClick looking for venture capital in a tough market. “We ran out of time.”

One of the hurdles in raising cash was being Canadian. People in the U.S. with cash are reluctant to finance across borders, he says. It’s hard for a Calgary company to interest people in New York when there are no direct flights there.

“We have an international airport and we do not have a direct flight to New York! I don’t get it.”

LOOKING AHEAD:

NextClick is ready to ramp up operations again quickly, says Martin. It’s keeping its office space and is continuing to look for venture capital. Martin claims the investing atmosphere will improve and NextClick’s business plan is still a good one.

The company focused on personalization and customer relationship management — technology that has a future, he says. However, part of a company’s strength is its staff and, as time goes on, it will become more difficult to bring the NextClick people back together. “Rebuilding a five-star team will not be easy.” Are other Calgary companies facing similar problems?

“I think this is far from over,” he says. “If you cannot say when you will be profitable, you will be done.”