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Sunday - May 7, 2000

Start-Ups Wasting Money on Overcharges

According to Newsweek:

"Who's afraid of a little red ink? Ask an Internet start-up about its losses, and you'll hear about strategies to gain market share. But start-ups also lose money the old-fashioned way: they waste it. Dot-coms pay high rates to suppliers of all kinds of services, from public relations to accounting and even technical consulting, often for no good reason. 'We know we can get away with it,' says a source with a major PR firm whose rate card for dot-coms is 25 percent higher than its card for everyone else. With these services easily running into tens of thousands of dollars a month, the extra expense is anything but virtual.

In part, these mostly youthful entrepreneurs are victims of their own inexperience. 'I see clients where I cannot believe what people have sold them and how much people have charged them,' said Michael W. Kempner, CEO of the MWW Group, a public-relations firm. 'Many of the people running dot-coms have never run a business before. All they're doing is spending a lot of money and getting very little return.' Without experience, entrepreneurs find it hard to value intangible services like consulting. As Marty Winston, an old-time technology PR expert, puts it, 'PR pricing always has been a bit of voodoo.'"

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