You may not have noticed it but small businesses have been in the headlines this year as never before. It is not common knowledge because they haven't been calling themselves small businesses but "dot.coms" instead. They made big headlines during the year - but small sales. Clickmango, the internet site that was promoted by Joanna Lumley, got lots of publicity, but when it collapsed it turned out that its weekly turnover was barely £4,000 - probably less than your local corner shop. Even Lastminute.com, by far the plummiest of the new web companies, recorded revenues of only £409,000 during the quarter in which it was floated on the stock markets at a mind-numbing £800m.

The decidedly mixed fortunes of the dot.coms this year should be seen not as a net turn-off for small and medium-sized enterprises (SMEs) but as an opportunity - a wake-up call and a great chance to learn from the mistakes of the so-called "first movers".

The biggest mistake was to think that having a web presence was all you needed to succeed in the new economy. In fact, most of the collapsed dot.coms failed to appreciate the old economy virtues of marketing and delivery. They ended up spending vast sums in newspapers and on television (hardly ever on the web) to draw people's attention to their websites and even more trying to deliver on time. Small wonder that most of them simply ended up selling old economy goods in a more expensive way than traditional companies.

None of this will be a surprise to anyone involved with the fortunes of small firms, some 50% of which fail (or get taken over) within the first four years of their existence. This is part of the process of creative capitalism because those that succeed often do very well indeed. The only difference this year was that all the failures came under the media spotlight (because of the glamour of the dot.com suffix) whereas normally they go unreported.

The moral is not to run away from the e-commerce - that could prove fatal - but to make sure you have a strategy appropriate to the kind of business you are in. Companies selling commodity goods, where customers know exactly what they will get before they order (like wine, books, ball bearings, cameras or many standard foods) are ideal for selling through the web. Others, like fashion goods, shoes and anything where the customer likes to see it or try it on are usually inappropriate.

SMEs are embracing the internet at a fairly rapid rate but not nearly fast enough if they want to gain a competitive edge in world markets. A recent Mori survey carried out for Compaq showed that while 71% of small businesses use email, only 19% are currently using the internet to sell their goods and services.

There is still a long way to go before achieving the government's aim of getting a million SMEs trading online by 2002. The relatively high rate of emailing is not as encouraging as it looks because it means that 30% of our smaller companies are not even using a simple tool that could greatly improve their speed of communication and therefore their efficiency. It is amazing how many small business people still have a bit of a phobia about using email, a tool the basics of which can be learned in a matter of minutes. The Mori survey found out that almost half of small businesses still relied on word-of-mouth to learn about business-critical information - yet practically anything they want is only a click away on the computer screen if they use the internet.

There are lots of ways that proper use of a website can improve business efficiency. These days if a potential customer anywhere in the world wants to know more about your company, its first port of call is your website. If it is a good one (which doesn't mean an expensive or elaborate one) then it will not only get a good initial image of the company but might be led on to buy other things. If there is a facility to buy them immediately online then it could lead to increased business (often cutting out the commissions you would otherwise have to pay to intermediaries).

If, at the same time, you are buying your raw materials and components (or wholesale goods) from one of the burgeoning number of electronic marketplaces, then you will be able to cut the cost of your supplies as well as taking a higher margin from sales. But if companies don't embrace the internet, the world won't stop for them. Increasingly, they will be competing with other companies all over the world who are exploiting the advantages of the web, thereby enabling them to quote cheaper prices. So if small companies don't embrace the web they could face slow attrition as they gradually become less and less competitive than those who do.

• Victor Keegan is editor of the Online section