What Domain Investors Can Learn from the Bankruptcy of Commerce Corp

Domain Investors don’t and have no reason to know anything about Commerce Corp.  Commerce Corporation was the largest (or one of the largest) suppliers to independent garden centers and officially closed down yesterday.  They simply were the biggest and cheapest vendor in the nursery space.  They were the giant.  Their prices and technology were the targets of most other vendors.  If they had a gap in their line, they simply bought a company that filled it.  But they failed and it was interesting how it unfolded. They had to announce this week that they were closing and yet most people didn’t even know anything was wrong until a week ago.  How can a domain investor learn anything from a totally unrelated business you may ask. In my opinion, I’ll give you 10.

1.  There is no such thing as too big to fail.  Commerce was enormous.  Like all businesses the last couple years, sales were down, but they still carried a depth of line that was unmatched.   On the surface their were no blips on the radar that pointed to anything even close to failure. While the little guy struggled, they all seemed jealous that the big boy was going strong and had all the purchasing power. They were lucky to be big, or so everyone thought.

2.  If a competitor sees you down they are going to kick you in the ribs and tell everyone you are hurting.  The downfall of Commerce was finalized with one simple press  release.  True Value put out a press release saying the Scotts (the worlds largest fertilizer and garden product company) was no longer going to sell to Commerce and if anyone needed Scotts products they would happy to provide a quote and supply the product.  Before that release most people had no idea Commerce wasn’t paying their bills and placed orders as usual.  But now they had questions because……

3. No company wants to buy from somebody that may not be able to deliver the goods. A business survives on selling products.  The only thing worse than paying too much is having nothing to sell.  The press release by True Value put doubt into the mind of buyers and they started calling around trying to figure out what this all meant.  Vendors to Commerce who actually had been paid on time started wondering if they were now going to start having problems.  Customers canceled orders and the suppliers of Commerce started looking for other sales outlets immediately.

4.  There is no stronger emotion than doubt.  Doubt is uncomfortable and when people started doubting Commerce it all fell apart within days.  Financial problems that may have be repairable immediately ballooned to irreparable when thousands of customers started canceling orders and vendors refused to ship product.

5.  The best technology among your peers guarantees nothing.  Technology is only of value if.  1. You have customers   2. The technology saves you money or makes it easier to sell more.

6.  The size of the party is not directly correlated to the success of the company.  Sorry domain investors.  Some people like to spend all their money on a good party but that doesn’t mean the company throwing the party is a solid company.  The domain conferences show that.  Commerce had some huge bands at their trade shows and they paid for everything including the hotel.  After you sober up you still have to have a supplier that can deliver the goods for the other 364 days

7.  The low margin, lowest price, high volume game is tough.  It’s almost always a make or break game.  Often the winner is the one that can take losing money the longest.

8.  Everything can change overnight.  Give me a business and I can probably name one major event that would lead to the closing of that company.  While we all hope it will never happen and the real reality is that things that appear quickly actually had visibly been coming for a while,  it does happen.  There is a reason Schilling is diversifying and investing in new TLDS and Marchex continues to sell off its portfolio as it concentrates on other areas of Internet marketing.  It’s not that they don’t believe in domains and traditional URLS, its that they are smart enough to take some eggs out of the basket to make sure they don’t lose everything if things change.

9. Take advantage of your competitors as they struggle.  Yes there are people that are going to suffer when a company goes under but a competitor has to take the opportunity to gain.  Whether it be scavenging up employees, taking their old customers, or even buying up liquidated inventory, you have to do it.  Our company has made more money in the last 3 years buying product at auctions of bankrupt nurseries than we have growing our own.

10.  Learn from their mistakes.  Too many people think that they are already doing things that will prevent them from having the same issues.  There is only one way to find out if that’s true.  Find out what happened.  Make some calls, read bankruptcy paperwork.  Gather up information so you can find out what mistakes were made that lead to the downfall.  There’s usually a little more to the story other than they spent more than they made.