There is a reason you keep seeing Jeff Bezos’s smiling face on newsstands. People love reading about self-made billionaires such as the Amazon.com founder. (You didn’t think Yahoo! co-founder Jerry Yang wound up on the cover of this issue of Context by accident, did you?) Still, something gets lost in all the fuss.

What often gets overlooked is that Bill Lessard is more representative of the start-up experience than Bezos or Yang. Lessard is a seven-time loser in the New Economy’s lottery. During the past seven years, he has worked at some of the most-publicized train wrecks in on-line history, including Prodigy and Pathfinder. Sadder but wiser, he has co-written a book called Net Slaves: True Tales of Working the Web, in which he complains that start-ups and their stock options are really just a clever way to treat "employees as slaves, to have them do the work of three people."

Heidi Mason, managing director of the Bell-Mason Group, which consults to start-ups and other dot-com ventures, says: "There’s a lot of mystique about start-up successes. You never see the bodies that are buried."

Although so much attention is being paid to start-ups that many established companies think they need to adopt a wired culture to keep up, there is a long list of ways that start-ups fail to live up to the hype.

Here is the first dirty, little secret: Most of the ideas, even at companies that get significant funding, either aren’t very original or aren’t very good.

A start-up needs an idea that is "smokingly cool," says Kevin Hartley, who was the vice president of marketing at Green Mountain Energy Resources, a successful start-up that takes advantage of electricity deregulation to sell environmentally friendly power nationwide. (He also was a professional skier on the mogul circuit, which explains where much of his language comes from.)

But many ideas are like the one that got Matt McAdams and Jon Belmonte to quit their jobs with Boston Consulting Group in Chicago, raise about $400,000 from early-stage "angel" investors, and start LeagueLink. Their idea was to build an on-line community where members of recreational sports teams could interact with each other. Setting up their business in Westminster, Colo., they didn’t think they had any competition and began hiring talent. McAdams was on his way to the airport to meet his top pick for the chief technologist’s slot when he got some unexpected news. His co-founder’s wife had stumbled across two other sites on the Internet doing the same thing he was planning to do. "I thought I was going to cry," McAdams says.

(The rule of thumb in Silicon Valley is that anytime anyone has an idea, five people elsewhere have the same idea simultaneously.)

McAdams says he subsequently learned the two other Web sites were not businesses at all. They were "labors of love," the 29-year-old chief executive says. But, so far, so is LeagueLink. McAdams pays himself less than nearly every one of his 33 employees. The site was launched in December, but a month later there were no visible signs it was bringing in revenue.

Many start-up hopefuls are in such a hurry to get their product out that they don’t have much time for defining and understanding their target markets, so they wind up with ideas that, viewed with any kind of detached perspective, look odd. A new company called BlindGift.com attracted $2.5 million in seed money from investors who are betting on the idea that lots of people want to send gifts to people they know only by an e-mail address. Led by a chief executive who met his wife on-line in a chat room on America Online, BlindGift is convinced it can find a foothold in the crowded market for on-line gift sites. But, so far, there is only one entry in a section on the site called, "What others are saying about us."

That one entry is a rave from a happy customer from Hollywood: "BlindGift is the best thing ever! I can send and receive gifts without giving out my address—this is the invention of the century!" But the site’s occasionally expensive gifts don’t seem to be exactly flying out the door. So far, nobody has used the anonymous service to send the $225,000 gold and diamond-studded Cartier tank watch listed on the site (perhaps because someone sending the gift would know more than the e-mail address of the recipient and wouldn’t need to use BlindGift, but who are we to judge?).

Still, employees sit around in beanbag chairs to plot strategy in the cramped second story of an old house in one of San Francisco’s industrial neighborhoods. Says David Rosales, the chief technology officer: "We’re all holding our little lottery tickets [Silicon Valley-speak for stock options] and hoping we win."

At least BlindGift can point to one satisfied customer. Another start-up, CabCandy.com, may not even do that well. It plans to sell breath mints and candy in taxis and limousines, via an electronic-payment system. CabCandy, which raised $1.8 million in first-round financing, hopes to convince riders that, lest they ever fall victim to halitosis, they should set up an account on-line at the CabCandy Web site. They would then be issued a mobile electronic device they could use to charge their mint purchases. Just imagine trying to convince both hard-boiled New York City taxicab drivers and their customers that they should go through all this trouble for the occasional 25-cent pack of gum. Fuhgedaboutit!

"A lot of these companies are marginal," says Gordon Bell, a successful high-tech investor and the developer of Digital Equipment’s legendary Vax minicomputer. "We shouldn’t be giving them the name ‘companies.’ These are projects."

Even if start-ups have a good idea, they often are far too optimistic in their assumptions.

Bell says he invested in a portal Web site that offers marketing coupons and various incentives to shoppers "because I was led to believe they had signed an agreement with Visa" International. As it turned out, the company is nowhere near signing a deal with the credit-card-clearing company.

In fact, the start-up is a year behind schedule in introducing its product, and the founders, two technical people, haven’t been willing to relinquish control to someone who knows how to operate a business. Over two years, they twice refused to let a chief executive come in and take over. At one point, Bell says, they personally fired a very capable CEO without first consulting the board. "The thing is not managed at all," he says. And he is preparing to write off his investment.

Start-ups also are consistently too optimistic about how much traffic they can generate at a new Web site, says Guy Kawasaki, chief executive of Garage.com, an on-line matchmaker for entrepreneurs and venture investors. Kawasaki says he gets two to three business plans a day from people who think making money will be easy as soon as they get enough people or "eyeballs" coming to the site. He says there is a pretty low probability that someone will even be able to create a cool site, let alone get people to come to it with any regularity.

Even if start-ups have perfectly realistic assumptions, they frequently err because they are run by techies who neither have the time nor the inclination to think through how a nontechie customer will react to a Web site. Many visitors are asked to go through overly onerous tasks. They react by simply going away. "Many content sites expect you to fill in 65 fields of information, including your home address and credit-card number, in order to get a free password," Kawasaki says. "Would [the start-up’s employees] do this themselves?"

In general, start-ups are legendary for being lousy about managing their money. PowerAgent, a once-promising Internet advertising company, lined up a hefty $30 million in financing. But then it lost the lean attitude that characterizes most start-ups and blew through the money before it could get the kinks worked out of its software.

On the flip side, many companies raise little money and stay in business largely by driving employees to the point of exhaustion. Despite all the glamorous media stories of 28-year-olds who can afford to retire, many Net slaves sleep under their desks or in bunkbeds beside them. At Snapfish.com, an on-line consumer-photography venture that has yet to put its service on-line, the founder has posted joking signs on the walls that read: "Sleep is for the weak...the week after launch."  

None of this is to say that start-ups aren’t important sources of innovation, or that some won’t make many of their founders so fabulously rich that they will even wind up on the cover of this magazine someday. However, many start-ups that succeed will do so in spite of themselves. The market for initial public offerings has been so strong for so long that just about anything can go public. Even if a company can’t, these days start-ups often will get bought up by some other company that feels the need to quickly add some capability before going public.

In 1999, investors poured a record $48 billion into 3,649 venture companies, many of them electronic-commerce start-ups, according to the National Venture Capital Association, a trade group, and Venture Economics, a division of Thomson Financial Securities Data. So, there is an awful lot of money floating around that will buy up anything that smells like a halfway reasonable idea.

But it is hard to keep from feeling that a lot of these ideas shouldn’t, well, die. Think about FinalThoughts.com. Aimed at people who are about to die, the site allows the doomed to leave their last wishes in a safe place, and to send messages to loved ones. So far, business is dead, and it will surely remain that way. Just think about the design of the business: It has zero chance for customer testimonials, and it will generate no repeat business.

FREE THE FORTUNE 500

The stunning victories of well-publicized Internet start-ups such as e-tailer Amazon.com and auctioneer eBay make everybody jealous, but perhaps no group more so than Fortune 500 companies that have been in business—profitable business—for decades. Following Intel Chairman Andy Grove’s famous dictum, many big companies have become so paranoid that they see a start-up threatening their survival under every rock. Rather than build on their own strengths, these large companies think they should mimic the dot-com start-ups.

Not a good idea.

Experts say that big companies that go into start-up mode may make the mistake of throwing all their efforts into just one or two ideas at a time. But most ideas fail—at least if you aren’t likely to have access to the money in the overheated venture-capital and initial-public-offering markets. So, companies that have some money to invest and want to increase their chances of success should invest in a portfolio of new ideas, much as venture-capital firms do.

Established concerns also often fail to kill off bad ideas soon enough, says Martha Amram, author of the book Real Options: Managing Strategic Investment in an Uncertain World. "Start-ups run out of money, but big companies don’t. So, they tend to keep mediocre projects going for too long," says Amram, a partner with management-consulting firm Navigant Consulting.

Big companies find it equally difficult to adapt to the speed and spinning-plates nature of new ventures. In the past, big companies could lay out their strategies and test them one by one. Now, with so much uncertainty, "what tends to go out the window fastest is the rigor of the planning," says Heidi Mason, a longtime adviser to venture capitalists and more recently a consultant to large corporations’ dot-com ventures. That’s another mistake, she says.

Established corporations also tend to copy whatever the last successful start-up did. Instead, big companies should develop unique strategies suited to their own business—in other words, if you are discount brokerage house Charles Schwab, don’t try to be Internet brokerage house E*Trade or Wit Capital, an Internet financial-services concern; use your system of branches to be something better. "You can’t just ape the tactics of start-ups and expect to be successful," Mason says.

Paranoia may be OK within limits, but big companies should realize that they actually hold most of the advantages, with their established customers, tons of data, and solid infrastructures.

As Damon Runyon once said, "The race doesn’t always go to the swift nor the battle to the strong. But that’s the way to bet."