Tag Archives: Emily Barker

About 4466 days ago E-Commerce

Upstarts: Internet Salvage

Cleaning Up from the Dot-Com Mess Online companies are falling left and right. But for some start-ups that spells opportunity It’s been almost a year since the Nasdaq crashed last April, and the results haven’t been pretty. Anyone who has invested in Internet companies, worked for one, or simply enjoyed shopping online has probably had a disappointment or two. Some 210 dot-coms closed up shop during the year 2000, according to a report by Webmergers.com. That desperate gasp you hear emanating from places like the San Francisco Bay area and New York’s Silicon Alley is the sound of Internet hopefuls running out of money. Of course, not everyone is suffering. In fact, the spate of deaths in the Internet world is fertilizing a new crop of start-ups. Look at it this way: when an epidemic hits, you need doctors to tend to the sick and undertakers to bury the dead. New companies like NetCatalyst are aiming for the Internet first-aid niche, while others like Bid4Assets.com are standing by to take care of the dot-coms that won’t make it to the hospital. Life support Long before last April, Ronald Posner knew that a dot-com shakeout was coming. Too many start-ups were getting funding too quickly, without enough due diligence. That’s what prodded Posner and cofounder Chris Karkenny to start NetCatalyst in August 1999. Posner, then 56, was a venture capitalist and former CEO of five software companies. Karkenny, 32, was running an Internet incubator. They believed, Posner says, that “when the downturn did come, there would be a lot of good companies looking for partners” — that is, hoping to be acquired by a stronger company. Billing itself as a “liquidity engineer,” NetCatalyst is not a plumber but an investment bank, with some management consulting thrown in. Its target customer is a high-tech company whose venture capitalists have turned off the spigot or a business that has realized that attaining the nirvana of a public offering is no longer a possibility. (“Internet companies that have hit a road bump,” as NetCatalyst’s Web site delicately puts it.) NetCatalyst’s aim is to help such companies get back on the road by finding an acquirer, a merger partner, or a new investor. When necessary, though, NetCatalyst will also supply some management advice to get an ailing company into better shape before shopping it around. If NetCatalyst manages to match a company with a new partner, its fee is usually 3% to 10% of the acquisition or investment amount. The company also charges time-based fees for its management-consulting services, which generally total less than $100,000. What companies like NetCatalyst can provide is “a fresh set of eyes” to find efficiencies and help a dot-com reposition itself in the market, says Emily Meehan, senior analyst at the Yankee Group. Many Internet companies have relied on incubators and venture-capital firms for capital and guidance. Now, says Meehan, “that help is totally drying up.” It’s hard to put a number on the potential market for NetCatalyst’s services, given that the number of failing dot-coms is still unknown. But researchers at Gartner Group estimate that as many as 60% of business-to-consumer Internet start-ups founded in the past three years will be gone by 2005. And even if the dot-com epidemic abates, says Karkenny, Internet mergers and acquisitions will undoubtedly continue. One early NetCatalyst client was Alert-IPO.com, an Internet business that tracks initial public offerings. The company hired NetCatalyst early last year while debating whether to seek a large round of venture capital, says Karkenny. NetCatalyst’s recommendation: bring in more experienced management and look for a strategic partner instead of VC money. Within 90 days, NetCatalyst engineered Alert-IPO’s acquisition by Internet.com, a portal consolidator that has rolled up more than 67 Web sites since 1995. In a year and a half of operations, NetCatalyst, which is based in Santa Monica, Calif., has worked with approximately 30 companies as an acquisition or investment intermediary. Its revenues for 2000 totaled some $2 million in cash, which doesn’t include the more than $10 million in equity that the company has garnered from some of its deals. Increasingly, says Posner, NetCatalyst finds itself being retained by venture-capital firms whose Internet portfolio companies need attention — fast. “They may have investments in 30 to 40 companies and don’t have the resources internally to deal with more than 4 or 5,” says Posner. “They’re turning to people like us.” NetCatalyst is picky about choosing which dot-coms to take on, though. Posner says he looks for companies that are fundamentally healthy, despite cash-flow problems, with a technical advantage or a business model that differentiates them from the rest of the marketplace. And if the company is down to its last nickel, forget it. “We don’t do dot-bombs,” says Karkenny. “If they have less than three months’ worth of cash, we don’t get involved at all.” Last rites Those unlucky Internet companies that fail to make NetCatalyst’s cut might consider the services of Bid4Assets.com. Launched in November 1999 as a site aimed at unloading goods ranging from bad loans to items seized in bankruptcy, Bid4Assets has found a serendipitously lucrative niche in selling the assets of defunct dot-coms. “This wasn’t in our business plan,” admits vice-president of strategic development David Marchick. “We didn’t really see it coming until about September.” But now as much as 20% of the business’s revenues come from liquidating Internet companies, and interest in Bid4Assets’ services is growing, says Marchick. “We have conversations with between 10 and 20 Internet companies per week,” he says. Based in Silver Spring, Md., Bid4Assets auctions items both online and off. Bidders for the assets of the recently deceased Value America, based in Charlottesville, Va., came from 16 states, says Marchick. “That would never have happened with a live auction,” he adds. Unlike Overstock.com, its best-known competitor in the dot-com scavenger business, Bid4Assets tends to sell to businesses rather than to consumers. About 40% of the time, Bid4Assets buys assets directly from failing Internet companies and resells them. In other cases it acts as a broker, usually collecting 10% of sales, plus a premium. Liquidating dot-coms brings some special challenges. A brick-and-mortar business usually has buildings, equipment, inventory, or other tangible property that can be sold off. Internet companies, which tend to be more virtual, often have a different range of assets. As of mid-December, Bid4Assets was offering intellectual-property rights from the now defunct Zodo.com, an entertainment-content site, including the company’s trademark application, its business plan, and its prototype site. (At press time, one bidder had offered $1,000.) Another recent auction involved computer equipment, office equipment, and furniture from the failed Value America, all of which sold for about $300,000. Other typical dot-com assets might include domain names, software, and licenses. Bid4Assets sells retail inventory only occasionally. “Assets from Internet companies are perishable,” says Marchick. “They’re like fruit.” So Bid4Assets tries to act fast, auctioning items within a week or two. “If you hold on to a server for six months, its value drops exponentially,” he explains. Intangible assets like domain names are short-lived, too. Even if a site has tons of traffic, once it shuts down, “within two months no one goes there,” Marchick says. There’s likely to be no shortage of troubled dot-coms in the near future. But what happens when the shakeout is over? Marchick says that he isn’t worried. By then another industry will be in a downturn, with Bid4Assets ready to scoop up the remains. “That’s kind of how it works in bankruptcy,” he says. Emily Barker is a senior staff writer at Inc. Cyber-kvetching The downturn among online companies has launched a slew of Web sites for the downsized and the people who love them to complain or commiserate or both. And — surprise! — some of those sites are even making money. Here are some of the loudest voices. FuckedCompany.com, in New York City, publishes a list of troubled Internet companies, based on reports that founder Philip Kaplan collects from disgruntled dot-commers. What spawned it: Last June, Kaplan, the founder and CEO of a small Web-design company, put up the site as a joke for his friends. He got back from vacation a week later to find his answering machine full of calls from reporters. Tone: Gleeful schadenfreude. Kaplan even runs a pool that lets users bet on which Internet company will be the next to fail. Revenue sources: Advertising; job listings; merchandise, including T-shirts and coffee mugs. NetSlaves.com, in Yonkers, N.Y., posts essays, rants, and other contributions from tech workers. The offerings provide a virtual underground guide to the Internet workplace. What spawned it: Founders Bill Lessard and Steve Baldwin started the site in 1998 to relieve their burnout after a series of frustrating Internet jobs. Tone: Grassroots subversion with a high-tech twist. Stories on sweatshop recruiters, articles on drug use in dot-coms, and gift suggestions for the special geek on your list. Revenue sources: Advertising, plus sales from Lessard and Baldwin’s 1999 book, NetSlaves: True Tales of Working the Web, which was launched on the site and has sold 50,000 copies so far. Another book is in the works. Startupfailures.com, in Castro Valley, Calif., offers advice and a community that help entrepreneurs bounce back after their companies have failed. What spawned it: Last February, after his third start-up in a row tanked, founder Nicholas Hall came up with the idea of starting a Web site for guys like him. Tone: Helpful encouragement of the “You get right back in there and keep trying” variety. Hall refers whiners to FuckedCompany.com. “I didn’t want to have that karma,” he says. Revenue sources: Sponsorships, plus off-line business coaching, speaking engagements, and workshops. Q&A Opportunities Abound Seth Freeman, managing director of EM Capital/EM Management Inc., a San Francisco consulting firm that specializes in turnarounds, talks about some of the opportunities that he sees in the Internet shakeout. Inc.: What can turnaround experts do for distressed dot-coms? Freeman: Venture capitalists, private-equity funds, and banks are beginning to use turnaround managers to evaluate their portfolio companies. And that leads to another opportunity for turnaround people: performing a planned wind down or asset sale that delivers as much value as possible. Inc.: What are the challenges of working with Internet companies? Freeman: There’s a perception among turnaround specialists that with dot-coms leverageable assets don’t exist. There hasn’t been much understanding of how to value and use intellectual property as collateral. Also, the ability to appraise the value of a dot-com brand name is still developing. Inc.: What are the opportunities for new turnaround companies? Freeman: You’re going to see firms set up to work as advisers to Internet “vulture” funds. Those are run by people who would like to buy either the assets or the ongoing companies at a discount. For that, they’ll require new-economy-savvy consultants. Inc.: How long will such an opportunity last? Freeman: I think it’s permanent. We’re going to continue to see new Internet start-ups. And many of those will fail. Q&A So What’s to Sell? How is liquidating an Internet company different from dissolving any other type of company? Jeffrey Wolf, a bankruptcy specialist at the law firm of Greenberg Traurig, in Boston, who represents Bid4Assets.com and other more traditional liquidation companies in many of their transactions, explains. Inc.: What are the opportunities for liquidators in the dot-com downturn? Wolf: Clearly, there will be a lot of failed dot-coms. The real question is, What is there to liquidate? Many dot-coms have no inventory. Obviously, there are the minimal physical assets, like office equipment, used computers, and the like. Then there are the intangible assets: the technology, the licenses, the customer lists, the domain names, and any intellectual property. And each one of those unfortunately comes with its own liquidation difficulties. For instance, customer lists, which everyone at one time supposed would be a very valuable asset, have become difficult to liquidate because of privacy concerns. Inc.: Sounds as if the opportunities for liquidators could be pretty small, then. Wolf: Yes and no. If liquidators can find efficient, cost-effective ways to dispose of companies’ assets, there could be a lot of opportunity, especially for online liquidations. Since the cost structure of an Internet-based auction is theoretically very low, the net results will be higher. Inc.: What’s the competition like? Wolf: Some companies have tried to liquidate themselves over eBay and other online auction sites. And some of the traditional liquidators are experimenting with dot-com liquidations. I don’t know how successful they’ll be without partnering with an experienced online player. The investment criteria of a traditional liquidator may not justify spending a lot of time or expense in that area. I think the traditional liquidators will have plenty of brick-and-mortar retailers to work with very shortly and will not necessarily be focusing on the dot-com sector. Please e-mail your comments to editors@inc.com.

About 4586 days ago Computer Security

Upstarts: Energy Deregulation

A Shock to the System Where do you buy your electricity? If you don’t have a choice now, you will soon Twenty years ago most Americans got their telephone service from Ma Bell (a.k.a. American Telephone and Telegraph) and their power from the local electric company. Today consumers can pick from among AT&T and roughly a zillion other telecommunications companies — but most people still buy their electricity from a local utility. Shocking, really. But that situation isn’t going to last much longer. As the telecom industry did in the 1980s, the U.S. electricity industry is now undergoing deregulation. State utility commissions are unplugging their tight control on rates and allowing a range of new energy providers to enter the field. For consumers the process hasn’t been uniformly smooth. This past summer electricity users in San Diego and New York City were stung by price spikes after regulators removed long-standing rate caps as part of the deregulation process. Still, within five years, 90% of U.S. consumers will be able to choose where and how they buy their watts and volts, according to the Yankee Group, a research and consulting firm in Boston. As you might expect, the Internet is making things interesting by providing brand-new ways for energy providers to reach consumers. And investors have certainly recognized an opportunity: venture-capital funding in energy-related companies rose from $150 million in 1999 to an estimated $300 million in 2000, according to Venture Economics, a research company. Deregulation appears to be sparking a whole new wave of start-ups. Power to the people Newly empowered consumers in New York City, for instance, can now buy electricity from SmartEnergy.com, which was founded in 1999 by a team that includes five former energy traders from the New York Mercantile Exchange. “We figured that there was a huge market in electricity and natural gas at the retail level,” says SmartEnergy president and CEO Gautam Chandra. Someday, he says, Americans may buy their energy from familiar retailers like Wal-Mart or the Home Depot. But it’s likely that those retailers don’t know much about the complex supply chain in the energy market. That’s where SmartEnergy comes in. “We think of ourselves as a distributor,” Chandra says. That means supplying retailers with the electricity and natural gas that they will in turn sell to consumers. SmartEnergy, based in Woburn, Mass., doesn’t actually generate power. Instead, the company buys it directly from independent producers and is banking on its energy-trading expertise to save consumers at least 10%. (The energy is delivered to customers over existing infrastructure maintained by formerly monopolistic utilities.) So far, SmartEnergy isn’t selling to retailers like Wal-Mart or the Home Depot, but it has struck up partnerships with newly emerging Internet energy retailers such as Essential.com and Energyguide.com. Consumers can also buy directly from SmartEnergy, and the company offers features that it hopes will distinguish its product from that of traditional utilities. Call it commodity branding. “Customer service has been fairly nonexistent in the energy space,” says chief marketing officer Jon Sorenson. With SmartEnergy, customers can use the Internet to sign up for service, reach customer-service agents, and pay their bills with a credit card. They can choose from different service plans — such as one that lets them buy power at a fixed rate for 12 months and one that offers a rebate that rewards them for saving energy. They can even earn frequent-flier miles on United Airlines: 500 miles for signing up and one mile for every dollar spent thereafter. SmartEnergy rolled out in New York in February and aims to be in five more states, including New Jersey and Pennsylvania, by the end of the year. Funded originally by its founders, SmartEnergy has since raised more than $10 million from outside investors. The company expects to be profitable in the third quarter of 2001. SmartEnergy and other upstart providers still have a long way to go to make a dent in the market. As of June, only 2.2% of residential customers and 4.8% of business customers in New York State had switched from their old utility. And now, as the Yankee Group analyst Karl Jessen points out, SmartEnergy and its ilk are facing serious competition — namely, from the NewPower Co., a potential Goliath energy provider that is funded by energy giant Enron. On the plus side, this past summer’s price volatility — which temporarily raised electricity bills in New York City by as much as 30% — gave SmartEnergy a bit of boost. While traditional utility customers were paying wildly varying market rates, SmartEnergy offered consumers a chance to lock in a favorable rate that would remain in place for a year. A conduit for savings For a lot of consumers, having to comparison shop for a commodity they’ve long taken for granted could prove to be quite a jolt. Or so Harvey Michaels figured when he and two cofounders started Nexus Energy Software Inc., based in Newton, Mass., three years ago. “The company’s starting thesis was that consumers of energy don’t know what’s ahead, and that what’s ahead is going to be reasonably complex,” says Michaels. “But consumers’ decisions are going to have a big impact on household budgets or the bottom line of small businesses.” After all, he points out, energy can cost a homeowner $3,000 or more a year. “We’re addressing a very large cost that people don’t really think about” — yet. In his former life as president of energy-consulting firm Xenergy Inc., Michaels helped Fortune 500 companies analyze and reduce their energy consumption and save money. “If you’re a homeowner or a small business, you can’t afford to hire someone to do this,” he says. “We saw software on the Internet as a great enabler, helping consumers to make smart energy choices.” The result was Energyguide, which is the name Nexus Energy now goes under. At the company’s Web site, homeowners or small-business owners can get an analysis of their energy costs by answering an online questionnaire. Based on their data, they receive suggestions on how to reduce those costs. Consumers can compare the energy providers available in their area, sign up for service, and buy products (ranging from fluorescent lightbulbs to energy-efficient space heaters) from Energyguide partners. The company collects a fee for everything sold through the site. The company’s earliest revenues have come from strategic partners, deregulated utilities that were suddenly in the position of having to court their old customers. For them, Energyguide is a service that they can offer as a goodwill-generating freebie to their customers. About 20 utilities pay the company a licensing fee to put the Energyguide software on their own Web sites or to distribute it on CDs. Energyguide also shares in any revenues it generates for the utilities. That solid partner base helped the company rack up revenues of just under $5 million last year. Recently, Energyguide has also broadened its partnerships to include about 20 nonutilities, such as personal-finance Web site Quicken.com. Michaels estimates that the retail-energy market on the Internet could total $40 billion to $50 billion within the next five years. Energyguide is aiming for a tiny sliver of that. “We’re a long way from nailing down what our share ultimately will be,” says Michaels. “Probably in the hundreds of millions.” But to get there, Energyguide will have to fight off challenges from rivals in the consumer-information niche, including ChooseEnergy Inc. In March, Energyguide raised $7 million from a group of investors led by GE Equity, primarily to increase sales staff and develop more partnerships with energy providers. “Going forward it’s going to be a little more interesting,” says Michaels. Emily Barker is a senior staff writer at Inc. Energy Goes Cellular Along with more competition and — theoretically, at least — lower prices, energy deregulation is bringing some uncertainty to the nation’s power grid. After all, California experienced controlled interruptions of service this past summer because utilities had stopped building power plants in anticipation of deregulation. That instability is especially bad news for any company that does business on the Internet, since it takes uninterrupted power to keep Web servers humming. That’s where Sure Power Corp. comes in. Sure Power uses high-tech fuel cells to turn hydrogen and oxygen into electricity — a backup power source that the company claims is both environmentally friendly and available 99.9999% of the time. That availability level translates into a 1% chance of power failure over the course of 20 years, says cofounder and executive vice-president Art Mannion. Although fuel cells are similar to batteries in some ways, they never run down as long as enough fuel is present. Sure Power, based in Danbury, Conn., is betting on a growing need for dependable backup power. Its target market includes data centers, Web-hosting companies, medical facilities, research laboratories, high-tech manufacturers, and any other business that can’t afford to have its computers or equipment go down for even an instant. Using cells manufactured by a partner, ONSI Corp., Sure Power will install several dozen fuel cells for each of its customers and offer maintenance services for those setups. The installations aren’t small or cheap: each fuel cell is about the size of a sport-utility vehicle, and according to Mannion, a typical contract could run into the tens of millions of dollars — hardly a price point that most small businesses or individual homeowners would fall into. But Mannion insists that for a 10-year span, Sure Power’s system can cost two-thirds to one-half of what traditional power-backup systems would run. So far, with seven employees, Sure Power has just one customer — First National Bank of Omaha, which hired Sure Power in 1998 to provide uninterrupted power for its credit-card-processing operations. Sure Power’s revenues for both 1999 and 2000 hover around $2 million, says Mannion, adding that the company is currently negotiating contracts worth up to $50 million each. In landing the First National contract, says Mannion, it helped that some of the bank’s executives were familiar with fuel cells. Unfortunately for Sure Power, however, not every customer is going to be so knowledgeable. “Our biggest job is educating the public,” he says. Q&A Current Events Deregulation can be confusing. To make some sense of the muddle, we spoke with Hugh Holman, a senior analyst at CIBC World Markets who’s been tracking energy deregulation since 1997. Inc.: How did deregulation get started? Holman: The power industry is really the last remaining large monopoly. We’ve broken up almost everything else. California opened its market in 1998, and it looks as though the other states will follow. Inc.: How big is the potential market? Holman: Huge. The power industry is one of the largest in the United States. Revenues are more than $200 billion a year. Opening it to competition is going to have pretty dramatic ramifications throughout the economy. Inc.: Is deregulation spawning many new companies? Holman: There are a lot of newcomers. Some are power marketers who don’t generate any power themselves. They just buy power and resell it. A lot of them are selling on the Internet, which is a natural because the wires for providing electricity are already in place. These companies don’t need to build warehouses and so forth, like Webvan or Amazon.com, because the power can be delivered over the existing infrastructure. Inc.: But how can they make money in what’s historically been a low-margin business? Holman: You have to customize your product, differentiate what you’re selling. Green Mountain Energy, of South Burlington, Vt., has done that by offering environmentally friendly power, branding it, and selling the environmental attributes of the energy it’s providing. In some cases it’s going to be reliability that sells. Users like Amazon.com, eBay, and all of the other Internet service providers can’t be out of power. So they require highly reliable service, and they are willing to pay for it. Inc.: Are consumers ready for deregulation? Holman: I think the proof of the pudding will be whether people switch suppliers. In Pennsylvania they’ve had a very successful program to educate consumers. As much as a third of all the electricity consumed in Pennsylvania is now being purchased from an alternative supplier. So in that sense deregulation seems to work: people do seem to switch suppliers when given a choice. Related resource: Find out about ways to save on energy costs. Please e-mail your comments to editors@inc.com.

About 4647 days ago E-Commerce

Upstarts: Internet Convenience Services

Making E-commerce Easier The massive consumer rush to buy stuff online has created some real-world logistical problems — problems these start-ups hope to solve Shopping on the Web is pretty simple. You just point and click — and wait. Sure, the Web gives you endless variety, terrific deals, and 24-7 convenience. But when it comes to actually delivering the goods, E-commerce isn’t quite as fast and painless as the hype would have us believe. For some consumers, ordering on the Web just isn’t worth the hassle. 30% of Internet shoppers have cut back on their online purchasing because they don’t like having to wait for orders to be delivered, reports the Yankee Group. With such a big chunk of the E-commerce market at stake, there’s plenty of incentive to make Internet delivery radically simpler and quicker, and a new crop of Web-based start-ups is aiming to do just that. I want it, and I want it now In the brick-and-mortar world, instant gratification is something we take for granted. You walk into a store, and you walk out with the merchandise you want. So it’s no surprise that consumers want the same immediacy with E-commerce. Call it the Kozmo.com phenomenon, after the well-known Internet service that delivers snack food, videos, books, and CDs within an hour to time-starved — or maybe just lazy — urbanites. Kozmo.com isn’t the only start-up focused on shrinking delivery times. Sameday.com, based in Los Angeles, strives to give any Internet retailer a way to deliver products to customers on — you guessed it — the same day those products were ordered. In 1998 founder, president, and CEO Alex Nesbitt, with backing from Bill Gross’s Idealab, launched what was then called Shipper.com to offer next-day delivery to E-commerce companies. He changed the company’s name and focus after realizing that the demand for same-day delivery was even bigger. To deliver that quick turnaround, Nesbitt has bet on a system of large, centralized warehouses in which the company’s customers maintain inventories of their most popular products. The company launched in Los Angeles last year and now, with 36 warehouses around the country, offers ultrafast delivery in New York, Chicago, San Francisco, Memphis, and the Dallas-Fort Worth area. When retailers link their E-commerce sites to the Sameday.com site, Sameday.com becomes one of several shipping options that buyers can choose from. Sameday.com also has its own Internet mall, where Web shoppers in Los Angeles, for instance, can order baked goods, books, music, toys, gifts, and electronics from the company or its partners. Picking, packing, and shipping charges are in the $6-to-$8 range, a slight premium above traditional second-day shipping. The start-up also charges retailers additional fees for receiving and storing inventory. As Nesbitt sees it, aggregating deliveries from one central warehouse is the key to keeping delivery prices low. But rolling out the service hasn’t been cheap. So far he’s raised $25 million in three rounds of venture capital; he aims to break even sometime in 2002. To do that, he says, Sameday.com will have to gross $200 million from 20 million deliveries a year. On a recent Thursday in Los Angeles, the company made just 200 deliveries. But Nesbitt is confident that demand for his service will grow. “The question for E-commerce companies is, how do they make that instant gratification available at a cost point that consumers find attractive?” he says. “We bring the cost of speed down dramatically.” The online strip mall Whereas Sameday.com is about time, WhyRunOut.com is about convenience. Grocery shopping, dry-cleaning retrieval, film drop-offs, video pickups and returns — WhyRunOut.com aims to unburden people of the mundane tasks that so often eat up a perfectly good Saturday morning. Unlike most Internet grocers such as Webvan or Peapod, however, WhyRunOut.com offers same-day delivery: order by noon at the WhyRunOut.com Web site, and you get your groceries and other goodies in the afternoon or evening. And unlike Sameday.com, WhyRunOut.com manages speedy response without a central warehouse. Instead, the company teams up with local merchants. WhyRunOut.com’s professional “shoppers” fill orders at a number of stores, then deliver goods and services straight to the customers. WhyRunOut.com collects fees from retailers and charges consumers for each delivery. “Our target segment, busy suburban families, would rather trade money for time,” says founder Dan Frahm. What about the cost of paying people to roam the aisles and wait in checkout lines? Frahm admits that his model misses some of the efficiencies of a central warehouse. But, he points out, grocery stores are already fully stocked with merchandise and located close to consumers’ homes. “Yes, there’s some labor there, but it’s half what you have if you set up your own warehouse system,” he says. Frahm started WhyRunOut.com in 1998 with $50,000 in savings, at first doing the shopping and schlepping himself to hone the concept. Lately, the company has been operating in beta-test mode, with 30 employees and fewer than 1,000 customers in its home territory of Orange County, Calif. Currently, Frahm is seeking venture funding to underwrite a marketing campaign. One thing that’s helped, he says, is being able to ride the coattails of some better-known Internet grocers. “Customers know that home delivery is out there, and other Web grocers helped make it an acceptable way of life, which we could never have done on our own.” Look, Ma, No PC These days you don’t even have to have a computer to shop the Internet. At least that’s the aim of Vistify. Founded in Phoenix in April 1999 and now located in San Francisco, the company focuses on the household-replenishment market — or, in plain English, goods such as groceries, personal-care products, and housewares. Instead of ordering on a PC, users can choose products by touching pictures on the screen of an Internet appliance that might sit on their kitchen countertop. (Vistify has developed its own streamlined, Jetsons-esque prototype. The company also plans to offer its service on TV screens, among other media.) Vistify itself won’t sell products or deliver them, says chief marketing officer and cofounder Menekse Gencer; instead, it will offer goods through partnerships with other providers, such as Internet grocers and delivery services. At press time, the company was planning a trial rollout for the end of the year, in Colorado. For those who can’t wait for their Internet appliance, there’s Quixi, launched in New York City in October 1999 by Evan Marwell and Robert Pines. Quixi lets users shop the Web through their cell phone and a live, human intermediary who searches for information and makes purchases online using the subscriber’s stored (and privacy-protected) credit-card number and delivery information. Users pay $19.95 a month, plus some additional transaction charges. Quixi receives 5% to 10% of revenues from each online sale that it processes. Employing human helpers isn’t cheap. But Pines says that Quixi’s back-end technology is designed to minimize the time that live helpers spend on any particular transaction. The company has contracts with outside call centers, limiting its investment in infrastructure, although Quixi might eventually save money by bringing the call centers in-house, Marwell says. With around $28 million in venture capital under its belt, the company began a beta-test phase in June, offering the service free during the summer before its official September launch. In its current form, Quixi is something of an interim solution, admit Pines and Marwell. Eventually, its human-mediated Internet interface may be rendered obsolete by voice-recognition software or ubiquitous personal digital assistants. So Quixi hopes to gain a foothold in those very markets through partnerships with companies that are developing those technologies or by developing such applications itself. At the same time, says Marwell, Quixi’s intended market is people who value convenience more than the dubious prestige of being early adopters. “We almost view ourselves as being a bit of a gatekeeper for customers, not forcing the technology on them before they’re ready,” he says. –E.B. Is there any there there? Onna Iucolano, vice-chairperson of Shop.org, an Internet retailing trade organization, and former chairperson of its research committee, spoke with Emily Barker about the recent expansion in same-day delivery services. Inc.: Are there a lot of same-day delivery start-ups out there? Iucolano: There is a great deal of focus on delivery and fulfillment, and I would say that has come about as a result of activity in the last 18 months. Most Internet retail was very much focused on the front-end activities — the look and feel of the Web site, taking and processing an order — and in reality that was 50% of the battle with respect to what the customer wanted. The stumbling block was on the back end, with respect to being able to actually deliver the finished product to a consumer. Inc.: Then is the potential market the whole of Internet retail? Iucolano: I don’t think it’s that big. It’s sort of like the FedEx model of a few years back. You used to put a package in the mail, and it got there when it got there. Then FedEx in its brilliance convinced us that we had to have it overnight. So it created a market. It’s really interesting how a lot of these products and services create their market just because they exist. Inc.: How’s that? Iucolano: Given the choice of having a book in two days or having it in an hour — well, you probably never thought of having it in an hour, and all of a sudden it’s available to you. Right now the market for same-day delivery is probably relatively small, but it’s one of the fastest-growing areas of opportunity. Internet companies are all taking and processing orders, but they’re all spending a ton of money to do that. It’s too early to tell who the winners might be. Inc.: What do these companies need to succeed? Iucolano: Customer demand. The customers have to be convinced that they really need things the same day, outside of the floral business and the gift business. Video and food make a lot of sense. Anything else that’s going to work will be products that consumers latch onto and say, “I need that right now!” whether they really do or not. Getting and Sending A selection of start-ups that focus on two of the most common headaches for Internet shoppers: packages that arrive when you’re not at home and purchases that need to be returned Company: PaxZone, in Chicago Business concept: Establishes a local network of businesses to which residents can have their E-commerce purchases delivered. Also offers consumers a drop-off service for merchandise returns. Recently expanded to San Francisco. Competitive advantage: Services are free to consumers; PaxZone charges a fee to retailers since its service reduces the extra charges incurred when carriers are required to make repeat trips to residences. Major hurdle: Service may not be easy to scale up. PaxZone must sell its concept not just to consumers but also to retailers, delivery services, and the local businesses that serve as drop points. Company: Brivo Systems Inc., in Arlington, Va. Business concept: Markets software that works in tandem with a “smart box” for home deliveries. When a consumer makes an Internet purchase, the order generates a unique Brivo password that the delivery person uses to open the customer’s wireless-controlled drop-off box. Competitive advantage: Brivo’s software can be adapted to open garage doors and other receptacles too. It also handles “reverse” deliveries from the consumer’s home, such as returns or dry-cleaning pickups. Major hurdle: Since consumers are likely to balk at having to pay subscription fees to receive deliveries, Brivo is developing partnerships with online retailers that will pay for the service. Company: The Return Exchange, in Irvine, Calif. Business concept: Offers Internet retailers online software and services for handling returns. Customers register their returns on the retailer’s Web site. The merchandise goes to a Return Exchange processing center, where it is either shipped back to the retailer for resale or resold through an online auction such as eBay. Competitive advantage: Since the Return Exchange handles all phases of a return, it provides turnkey service for Internet retailers who don’t want to deal with returns themselves. Major hurdle: There’s no lack of competition in this space, from both E-start-ups and brick-and-mortar companies that specialize in handling returns. Please e-mail your comments to editors@inc.com.

About 4647 days ago E-Commerce

Upstarts: Internet Convenience Services

Making E-commerce Easier The massive consumer rush to buy stuff online has created some real-world logistical problems — problems these start-ups hope to solve Shopping on the Web is pretty simple. You just point and click — and wait. Sure, the Web gives you endless variety, terrific deals, and 24-7 convenience. But when it comes to actually delivering the goods, E-commerce isn’t quite as fast and painless as the hype would have us believe. For some consumers, ordering on the Web just isn’t worth the hassle. 30% of Internet shoppers have cut back on their online purchasing because they don’t like having to wait for orders to be delivered, reports the Yankee Group. With such a big chunk of the E-commerce market at stake, there’s plenty of incentive to make Internet delivery radically simpler and quicker, and a new crop of Web-based start-ups is aiming to do just that. I want it, and I want it now In the brick-and-mortar world, instant gratification is something we take for granted. You walk into a store, and you walk out with the merchandise you want. So it’s no surprise that consumers want the same immediacy with E-commerce. Call it the Kozmo.com phenomenon, after the well-known Internet service that delivers snack food, videos, books, and CDs within an hour to time-starved — or maybe just lazy — urbanites. Kozmo.com isn’t the only start-up focused on shrinking delivery times. Sameday.com, based in Los Angeles, strives to give any Internet retailer a way to deliver products to customers on — you guessed it — the same day those products were ordered. In 1998 founder, president, and CEO Alex Nesbitt, with backing from Bill Gross’s Idealab, launched what was then called Shipper.com to offer next-day delivery to E-commerce companies. He changed the company’s name and focus after realizing that the demand for same-day delivery was even bigger. To deliver that quick turnaround, Nesbitt has bet on a system of large, centralized warehouses in which the company’s customers maintain inventories of their most popular products. The company launched in Los Angeles last year and now, with 36 warehouses around the country, offers ultrafast delivery in New York, Chicago, San Francisco, Memphis, and the Dallas-Fort Worth area. When retailers link their E-commerce sites to the Sameday.com site, Sameday.com becomes one of several shipping options that buyers can choose from. Sameday.com also has its own Internet mall, where Web shoppers in Los Angeles, for instance, can order baked goods, books, music, toys, gifts, and electronics from the company or its partners. Picking, packing, and shipping charges are in the $6-to-$8 range, a slight premium above traditional second-day shipping. The start-up also charges retailers additional fees for receiving and storing inventory. As Nesbitt sees it, aggregating deliveries from one central warehouse is the key to keeping delivery prices low. But rolling out the service hasn’t been cheap. So far he’s raised $25 million in three rounds of venture capital; he aims to break even sometime in 2002. To do that, he says, Sameday.com will have to gross $200 million from 20 million deliveries a year. On a recent Thursday in Los Angeles, the company made just 200 deliveries. But Nesbitt is confident that demand for his service will grow. “The question for E-commerce companies is, how do they make that instant gratification available at a cost point that consumers find attractive?” he says. “We bring the cost of speed down dramatically.” The online strip mall Whereas Sameday.com is about time, WhyRunOut.com is about convenience. Grocery shopping, dry-cleaning retrieval, film drop-offs, video pickups and returns — WhyRunOut.com aims to unburden people of the mundane tasks that so often eat up a perfectly good Saturday morning. Unlike most Internet grocers such as Webvan or Peapod, however, WhyRunOut.com offers same-day delivery: order by noon at the WhyRunOut.com Web site, and you get your groceries and other goodies in the afternoon or evening. And unlike Sameday.com, WhyRunOut.com manages speedy response without a central warehouse. Instead, the company teams up with local merchants. WhyRunOut.com’s professional “shoppers” fill orders at a number of stores, then deliver goods and services straight to the customers. WhyRunOut.com collects fees from retailers and charges consumers for each delivery. “Our target segment, busy suburban families, would rather trade money for time,” says founder Dan Frahm. What about the cost of paying people to roam the aisles and wait in checkout lines? Frahm admits that his model misses some of the efficiencies of a central warehouse. But, he points out, grocery stores are already fully stocked with merchandise and located close to consumers’ homes. “Yes, there’s some labor there, but it’s half what you have if you set up your own warehouse system,” he says. Frahm started WhyRunOut.com in 1998 with $50,000 in savings, at first doing the shopping and schlepping himself to hone the concept. Lately, the company has been operating in beta-test mode, with 30 employees and fewer than 1,000 customers in its home territory of Orange County, Calif. Currently, Frahm is seeking venture funding to underwrite a marketing campaign. One thing that’s helped, he says, is being able to ride the coattails of some better-known Internet grocers. “Customers know that home delivery is out there, and other Web grocers helped make it an acceptable way of life, which we could never have done on our own.” Look, Ma, No PC These days you don’t even have to have a computer to shop the Internet. At least that’s the aim of Vistify. Founded in Phoenix in April 1999 and now located in San Francisco, the company focuses on the household-replenishment market — or, in plain English, goods such as groceries, personal-care products, and housewares. Instead of ordering on a PC, users can choose products by touching pictures on the screen of an Internet appliance that might sit on their kitchen countertop. (Vistify has developed its own streamlined, Jetsons-esque prototype. The company also plans to offer its service on TV screens, among other media.) Vistify itself won’t sell products or deliver them, says chief marketing officer and cofounder Menekse Gencer; instead, it will offer goods through partnerships with other providers, such as Internet grocers and delivery services. At press time, the company was planning a trial rollout for the end of the year, in Colorado. For those who can’t wait for their Internet appliance, there’s Quixi, launched in New York City in October 1999 by Evan Marwell and Robert Pines. Quixi lets users shop the Web through their cell phone and a live, human intermediary who searches for information and makes purchases online using the subscriber’s stored (and privacy-protected) credit-card number and delivery information. Users pay $19.95 a month, plus some additional transaction charges. Quixi receives 5% to 10% of revenues from each online sale that it processes. Employing human helpers isn’t cheap. But Pines says that Quixi’s back-end technology is designed to minimize the time that live helpers spend on any particular transaction. The company has contracts with outside call centers, limiting its investment in infrastructure, although Quixi might eventually save money by bringing the call centers in-house, Marwell says. With around $28 million in venture capital under its belt, the company began a beta-test phase in June, offering the service free during the summer before its official September launch. In its current form, Quixi is something of an interim solution, admit Pines and Marwell. Eventually, its human-mediated Internet interface may be rendered obsolete by voice-recognition software or ubiquitous personal digital assistants. So Quixi hopes to gain a foothold in those very markets through partnerships with companies that are developing those technologies or by developing such applications itself. At the same time, says Marwell, Quixi’s intended market is people who value convenience more than the dubious prestige of being early adopters. “We almost view ourselves as being a bit of a gatekeeper for customers, not forcing the technology on them before they’re ready,” he says. –E.B. Is there any there there? Onna Iucolano, vice-chairperson of Shop.org, an Internet retailing trade organization, and former chairperson of its research committee, spoke with Emily Barker about the recent expansion in same-day delivery services. Inc.: Are there a lot of same-day delivery start-ups out there? Iucolano: There is a great deal of focus on delivery and fulfillment, and I would say that has come about as a result of activity in the last 18 months. Most Internet retail was very much focused on the front-end activities — the look and feel of the Web site, taking and processing an order — and in reality that was 50% of the battle with respect to what the customer wanted. The stumbling block was on the back end, with respect to being able to actually deliver the finished product to a consumer. Inc.: Then is the potential market the whole of Internet retail? Iucolano: I don’t think it’s that big. It’s sort of like the FedEx model of a few years back. You used to put a package in the mail, and it got there when it got there. Then FedEx in its brilliance convinced us that we had to have it overnight. So it created a market. It’s really interesting how a lot of these products and services create their market just because they exist. Inc.: How’s that? Iucolano: Given the choice of having a book in two days or having it in an hour — well, you probably never thought of having it in an hour, and all of a sudden it’s available to you. Right now the market for same-day delivery is probably relatively small, but it’s one of the fastest-growing areas of opportunity. Internet companies are all taking and processing orders, but they’re all spending a ton of money to do that. It’s too early to tell who the winners might be. Inc.: What do these companies need to succeed? Iucolano: Customer demand. The customers have to be convinced that they really need things the same day, outside of the floral business and the gift business. Video and food make a lot of sense. Anything else that’s going to work will be products that consumers latch onto and say, “I need that right now!” whether they really do or not. Getting and Sending A selection of start-ups that focus on two of the most common headaches for Internet shoppers: packages that arrive when you’re not at home and purchases that need to be returned Company: PaxZone, in Chicago Business concept: Establishes a local network of businesses to which residents can have their E-commerce purchases delivered. Also offers consumers a drop-off service for merchandise returns. Recently expanded to San Francisco. Competitive advantage: Services are free to consumers; PaxZone charges a fee to retailers since its service reduces the extra charges incurred when carriers are required to make repeat trips to residences. Major hurdle: Service may not be easy to scale up. PaxZone must sell its concept not just to consumers but also to retailers, delivery services, and the local businesses that serve as drop points. Company: Brivo Systems Inc., in Arlington, Va. Business concept: Markets software that works in tandem with a “smart box” for home deliveries. When a consumer makes an Internet purchase, the order generates a unique Brivo password that the delivery person uses to open the customer’s wireless-controlled drop-off box. Competitive advantage: Brivo’s software can be adapted to open garage doors and other receptacles too. It also handles “reverse” deliveries from the consumer’s home, such as returns or dry-cleaning pickups. Major hurdle: Since consumers are likely to balk at having to pay subscription fees to receive deliveries, Brivo is developing partnerships with online retailers that will pay for the service. Company: The Return Exchange, in Irvine, Calif. Business concept: Offers Internet retailers online software and services for handling returns. Customers register their returns on the retailer’s Web site. The merchandise goes to a Return Exchange processing center, where it is either shipped back to the retailer for resale or resold through an online auction such as eBay. Competitive advantage: Since the Return Exchange handles all phases of a return, it provides turnkey service for Internet retailers who don’t want to deal with returns themselves. Major hurdle: There’s no lack of competition in this space, from both E-start-ups and brick-and-mortar companies that specialize in handling returns. Please e-mail your comments to editors@inc.com.

About 4800 days ago E-Commerce

Managing by the Web

An increasing number of Web sites promise to provide everything you need to run and grow your business. We asked real-world CEOs to try Type the phrase small business into Yahoo’s search engine and you’ll see there are 7,618 sites listed in 68 categories. Narrow your search down to entrepreneur and there are a mere 102 sites. The Web is bursting with brand-new destinations — we get an E-mail notice nearly every day about yet another one — purporting to solve all the problems and fill all the needs of small businesses. They offer expertise on management, finance, business planning, technology, and recruiting. They offer online tools for creating business plans, finding venture capital, and scoping out the competition. And they provide chat rooms, where, they claim, you can engage in hearty discourse with like-minded CEOs. Naturally, they also sell every kind of office product you may ever need. In short, these sites bill themselves as one-stop shopping for busy CEOs coping with the day-to-day challenges of running a growing business. And you can do it all from the cozy comfort of your desk. It sounded great to us. Wouldn’t it be nice if you actually could manage your business entirely by the Web? So we sorted through hundreds and hundreds of sites and culled the 10 best of the general-interest small-business offerings. (In the interest of full disclosure: Inc. has its own Web site — inc.com, which is a sister company to the one that publishes this magazine. To avoid any potential for conflict of interest, we are leaving our site off the list.) Then we asked a panel of 34 CEOs and entrepreneurs to put the promises made by the sites to the test. We had them evaluate the wide array of online offerings and let us know which ones were worth checking out — and which were a complete waste of time. Boy, did they ever. Our CEOs told us in no uncertain terms that most of the sites weren’t up to snuff for business builders who live in the real world. We’d picked experienced CEOs and company leaders who described their Internet savvy as “good.” And we asked them to rate each site based on 40 criteria, including sophistication of content, quality of experts, and usefulness of online tools. Most important, we asked them if they would ever go back to the site — and for what reason. So what passed the real CEO test? The answer was clear: not much. In general, the sites’ level of sophistication was far below what most heads of growing companies could really use. As one of them put it: “It’s like going to a sale. You go because you might find a deal, but generally you walk out of the store with things you don’t really need.” Still, our panel turned up worthwhile nuggets hidden here and there. One CEO, for example, raved about Onvia.com’s request for quote (RFQ) tool, saying it was “incredible — easy to use, comprehensive, and what a time-saver!” And even the harshest of our judges said they might go back to most of the sites for reference. Certainly, most of the sites offered worthwhile starting points for novice entrepreneurs looking for the basics. And after we had studied the sites for more than two months, one thing became clear to us: Web sites are changing and developing faster than you can imagine. What fails to meet CEO standards today may improve dramatically tomorrow. But there’s still a long way to go. As one disappointed CEO put it when asked if she’d go back to a particular site: “Never. Maybe for a zip code.” Read on for what our panel of CEOs had to say about the best of the offerings for small businesses on the Web. Additional reporting and site evaluations were provided by Inc. staffers Jill Hecht Maxwell, Anne Stuart, Christopher Caggiano, and Susan Greco. The Lowdown on the Sites We asked several senior Inc. staffers to give us their take on the 10 winning Web sites. (For reviews of sites run by nonprofits, see below.) Here’s what they had to say: AllBusiness.com All singin’, all dancin’, AllBusiness.com covers finance, human resources, sales and marketing, and office services, among other things. However, our CEO evaluators tell us that this Web powerhouse tries too much to be all things to all CEOs. Despite its easy-to-use design and good organization, it ends up being overwhelming in scope. Among its useful amenities: a “virtual file cabinet,” in which you can store documents or Web tools. There are also handy links to the site’s numerous partners and informal alliances: Lawyers.com (legal advice), Barnesandnoble.com (books), Onsale.com (auctions), AtYourOffice.com (office supplies), and so forth. DigitalWork.com This site offers small businesses help in doing such tasks as collecting bad debts, issuing press releases, listing a site on search engines, and posting jobs to recruiting sites. Don’t look here for free content or discussion groups. This is a down-to-business site with a handful of very specific functions. While some services, such as online travel booking, are available elsewhere, time-strapped novice CEOs may find DigitalWork.com’s one-stop convenience worth a visit. IdeaCafe.com Geared to new entrepreneurs, this site offers information, networking, and inspiration. It might be tempting to dismiss it as a neophyte-only destination, but Idea Cafe scores points for its disarming attitude and fresh point of view. Although many of our CEOs thought it might be good for beginners, they generally said they wouldn’t be going back. Its food motif (“chewy biz questions”) gets tiresome really fast. The sophistication level of the questions in the chat forums also could try the patience of any CEO, as could the chirpy responses from the “advisers” (read: consultants on a marketing mission) who seem to provide the lion’s share of the feedback. Office.com As one CEO put it, it’s hard to figure out exactly what Office.com is supposed to be until you’ve cruised the site awhile. But even navigating it isn’t easy. If you stick with it, what you’ll find is an array of online tools and software — some of them fun, most of them pretty basic. Maybe the best thing we can say about Office.com is that it provides a number of decent links to other sites as well as articles aimed mainly at beginners. Onvia.com You need a lawyer, some insurance, and a Web designer — and you need them yesterday. One place you can turn is Onvia.com, an ambitious online marketplace for small-business products and services. You may find some decent suppliers — or at least a good deal on PCs — from these folks. And one CEO raved about Onvia.com’s RFQ feature. At best, Onvia.com is a shopping mall for small businesses. Most of its attempts to offer broad content — such as the news-and-tools section — fall short. Don’t even waste your time there. SmartOnline.com Smart Online looks as if it offers a lot when you first get there. The site bills itself as having easy-to-use Web-hosted software to help people start, grow, and manage their businesses — but in reality, it’s damn hard to find your way around it. What we did figure out looked as if it would be interesting for beginners; it ranged from canned business letters to tools for creating financial statements. workz.com If you’re thinking of launching — or relaunching — your Web site without spending a lot of money, you may want to consider the resources of workz.com. For real beginners, the site delivers layer upon layer of how-to articles, checklists, and links. You’ll find everything a novice needs — from advice on how to build a Web site and maintain it to how to actually make money with it — discussed here in detail. Our CEOs didn’t have much time for workz.com, but we think it might not be bad for absolute beginners. Not for Profit Here’s the Inc. reviewers’ bottom line on the best of the Web sites that are not focused on making money from your business: edge.lowe.org Edge.lowe.org is the business library you wish you had down the street. Cleanly lit and well organized, it’s a good place to begin research on many start-up topics, from preparing a profit-and-loss statement to creating a marketing campaign. However, the fact that it’s run by a nonprofit shows. The content is all pretty basic and may frustrate more experienced entrepreneurs. EntreWorld.org The official Web site for the Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation in Kansas City, Mo., is helpfully organized into three areas: “starting your business,” “growing your business,” and “supporting entrepreneurship.” While it does have some original content and some promising if ill-attended chat groups, Entreworld.org mostly just links you to other sites you might need. Some of the material is old, and it’s probably useful only for those just starting a business or wanting to be part of the entrepreneurship-education community. sba.gov Run by the Small Business Administration, this utilitarian site is the definitive source for small-business information from the government. Visitors can search a comprehensive online library about regulations, download loan forms and other documents, and take “workshops” in tasks such as preparing a business plan. The material is at the beginner level and often needs updating. (Y2K information was still on the site in February.) But the site is well set up and a snap to search. The Savvy CEO’s Guide to the Small-Business Web What CEOs say about the best of the Web offerings for small business Would our CEOs go back? What is the site good for? CEOs’ quick take AllBusiness.com “Occasionally, whenever I have a specific need.” Reference “This site relates to small businesses and start-ups with little previous experience. Not the sort of site I look to for advice.” DigitalWork.com “Occasionally, whenever I have a specific need.” Applications, one- stop shopping, purchasing “Applications seem useful, especially to newcomers. But those applications are limited to 11 functions.” IdeaCafe.com “Never.” Training for novices “What’s the mission? Business or humor?” Office.com “Occasionally, whenever I have a specific need.” Training, reference, purchasing “I didn’t have a clue as to what the site is about. If I wasn’t critiquing this site, I probably would have surfed right past it.” Onvia.com “Occasionally, whenever I have a specific need.” Purchasing “The RFQ tool was incredible. I needed a new printing company, and within minutes I had 15 responses.” SmartOnline.com “Occasionally, whenever I have a specific need.” Reference “Nothing on the site really captured my interest. Some relevance for those thinking about starting a business. Minimal relevance for me in helping run a business.” workz.com “Never.” Training for novices “The site is very general, designed for the very small company just getting into the Internet.” edge.lowe.org “Occasionally, whenever I have a specific need.” Training, reference “This site is good for ‘just in time’ learning on a variety of subjects all entrepreneurs will invariably deal with at various stages of growth.” EntreWorld.org “Occasionally, whenever I have a specific need.” Training, reference “Good links to other sites.” sba.gov “Never.” Training, reference “Good if it’s relevant to you — all SBA- and government-related.” Our Entrepreneur Judges Amilya Antonetti, president, Soapworks Jim Brock, partner, Amicus Chris Colbert, president, Holland Mark Edmund Ingalls John Coleman, president and cofounder, VIA Richard Colombik, president, International Tax Associates Eric Crown, CEO, Insight Enterprises Liz Elting, copresident, TransPerfect Translations Prashant H. Fadia, president and CEO, Abacus Software Group Maura FitzGerald, president and CEO, FitzGerald Communications Larry Gilbert, president, The Event Network Mark Gordon, CEO, Synergy Networks Ron Harris, president and CEO, Pervasive Software Charlie Horn, president and CEO, ScriptSave Karen Janson, CEO, 10 Minute Manicure Linda Kaplan, senior account executive, Identity Group Andrea Keating, president and CEO, Crews Control Linda Kellogg, founder and CEO, Start-Up Resources Deb Klein, founder, LMI Management Eric Kriss, president, Workmode.com Daryl Magana, founder, president, and CEO, Bidcom Marion McGovern, president, M Squared Debbi Milner, president and CEO, Jade Systems Glenn Neff, cofounder, Marketing Connections Brad Neuenhaus, president, TPC Steven Nickerson, chairman and CEO, Mucho.com Gerry Philpott, CEO and president, E-Poll.com Linda Pinson, owner, Out of Your Mind… and into the Marketplace Robert Posten, managing partner, Icon & Landis Eric Schechter, president, GAME: Great American Marketing & Events Randy Schilling, CEO and president, Solutech Eileen Shapiro, venture consultant, The Hillcrest Group Al Shariff, owner and president, GlobeTrends Marc Smith, CEO, NetStrategy Maura White, founder and CEO, GoBabies.com Crowded House Why are so many sites targeting you? With all the sites competing for the attention of companies like yours, small business has become one of the most hotly contested spaces on the Web. And why not? Small business is big business. There are some 15 million small companies in the United States today, according to the Small Business Administration. They employ more than half of the private-sector workforce. In 2000 they’ll spend $10 billion on personal computers alone, the Yankee Group estimates. And most important, small businesses are going online. No wonder Onvia.com, AllBusiness.com, Office.com, and the rest are lining up to give small-business owners advice, sell them office supplies, let them chat with other entrepreneurs, and even — in the case of Idea Cafe — tutor them in the gentle art of paper-airplane folding. (See the site for an, er, explanation. Yes, it claims it helps you understand leadership.) And the Web-service boom also explains why, for instance, NBC Internet Inc. agreed to pay $225 million to buy AllBusiness.com, on February 1, which was the same day that DigitalWork.com filed for an initial public offering. “Internet penetration into small businesses is higher than ever. At the end of the year it will be close to 80%,” says Internet analyst Kneko Burney of Cahners In-Stat Group. “It’s a huge opportunity.” Overall, Burney says, more than 30 companies that provide small-business destination sites have plunged into the fray, 19 of them in a serious way. Although the revenue models vary, most of the companies aim to sell business-related services, content, or products, sometimes through partnerships with other E-vendors. “The Web really allows the creation or potential creation of a channel to what has historically been a very fragmented market — and very difficult to reach,” says Teymour Boutros-Ghali, CEO of AllBusiness.com (and, yes, the nephew of that Boutros-Ghali). Founded by an accountant, a lawyer, and a serial entrepreneur, and armed with $20 million in venture-capital backing, AllBusiness.com offers entrepreneurs help with legal matters and human resources over the Internet — “all the things that small businesses hate to do,” says Boutros-Ghali. In classic Web fashion AllBusiness.com is gunning for market share over profits and doesn’t plan to break into the black until 2002. E-commerce marketplace Onvia.com, launched in 1997, has attracted some impressive bets, too, including $71 million in financing from Internet Capital Group and other investors. With total revenues since its founding of $28 million and net losses of $44 million, Onvia.com was heading for an IPO at press time. By comparison, the cozy, playful Idea Cafe, a bootstrapped operation with revenues of less than $1 million, seems more like a labor of love. But, says founder Francie Ward, who runs the site with five part-time employees, it does make a profit, with revenues primarily from banner advertising. Back in the 1980s, when she was publishing small-business manuals, Ward figured that what entrepreneurs really wanted was to talk to other entrepreneurs, and her site offers that service. Workz.com founder David Johnson had a similar revelation. In the pre-Web world, he published newsletters for software users that boiled down a complex subject into simple, digestible tidbits. He started workz.com — which has $1 million in start-up funding — when he figured out that he could do the same thing over the Internet. On the other hand, not everyone sees the Web as a panacea. The Edward Lowe Foundation (named after the man who invented Kitty Litter) has had a Web site for small businesses since 1994. But last fall the foundation decided to supplement the site with a radically different channel for distributing information: an old-fashioned newsletter, printed on paper and sent out by snail mail. Says content-development manager Eric Vines, “A journal gains legitimacy if it has a print version.” –Emily Barker Please e-mail your comments to editors@inc.com.

About 4860 days ago E-Commerce

I Was Seduced by the Web Economy

Cover story Real-life lessons from CEOs on the front lines “We find that … millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly. … Money, again, has often been a cause of the delusion of multitudes.” Author Charles Mackay wrote those words in the 40th-anniversary edition of his classic 1841 book, Extraordinary Popular Delusions and the Madness of Crowds. Back then, nobody could have conceived of anything like the World Wide Web, but the hysteria that surrounds it today would have seemed awfully familiar. Think tulips. We’ve read and heard so much about the Internet that it’s hard to figure out what’s real. All that business about how the rules are changing or there are no rules but here are the new rules is exhausting. It breeds myths and the madness of crowds. What we say is that reality always tends to be more complicated than the hype would have you believe. The Web really is a great frontier of opportunity. It certainly does move fast. But common sense still applies. A business still must have the basics: customers, suppliers, employees, a plan. The companies profiled here learned that lesson the hard way. They’re led by smart CEOs who were burned after buying into the hype. To cast perspective on their experiences, we have included comments from some of the most influential figures in the new economy. They remind us about what really matters for every business. In 1932, at the nadir of the Great Depression, financier Bernard Baruch wrote a foreword for a new edition of Mackay’s book. He reflected on the crash of 1929: “I have always thought that if, in the lamentable era of the ‘New Economics,’ we had all continuously repeated, ‘two plus two still make four,’ much of the evil might have been averted.” It was too late then, but it’s not too late for us. THE 7 MYTHS OF THE WEB ECONOMY Myth 1: Building a Web site is easy The word from the experts Myth 2: Traffic will make you rich The word from the experts Myth 3: Smart money makes you smart The word from the experts Myth 4: Razzle-dazzle makes Web sites great The word from the experts Myth 5: Brand is everything The word from the experts Myth 6: Wild ads make Web stars The word from the experts Myth 7: Community, community, community The word from the experts Plus: Tales my guru told me Dispatches from the Web economy Emily Barker is a senior staff writer at Inc. Anne Marie Borrego is a researcher. Mike Hofman is a staff writer. Researcher Ilan Mochari and reporter Jill Maxwell also contributed to this article.

About 4860 days ago E-Commerce

Dispatches from the Web Economy

If you’re not on-line yet, you will be soon. That’s the finding of a recent study commissioned by Prodigy Biz Corp., which found that one-third of U.S. small businesses were on-line. The smallest organizations were the least likely to have taken the plunge. Only one in four companies with fewer than 10 employees reported that it had an Internet presence, while half of those with 10 or more employees were on-line already. Nearly 75% of small companies reported that cost was not a barrier for getting onto the Web. The survey results ranked reasons for going on-line as follows: promoting to prospects (69%); doing E-commerce (57%); providing better customer service (48%); competing with other businesses (46%); and communicating with employees (11%). Of course, few small businesses suggested that doing business on the Internet was easy. More than 40% of the small-business owners surveyed claimed that they did not have the staff or the time to maintain a Web site. And 66% didn’t believe that the Web offered them significant growth opportunities, because they are local businesses. Such quibbling aside, many off-line small businesses planned to get on-line in the near future. Some 40% of businesses that didn’t have Web sites — approximately 2.1 million — said they would be on-line soon. The study was conducted by International Communications Research. –Mike Hofman Four years ago Jayesh Patel, managing partner of the Los Angeles law firm Parker Mills & Patel, hung his firm’s shingle out on the Web. Although Patel intended to communicate to the firm’s base of big-ticket customers, the overwhelming response to the site has been from prison inmates, who write or call collect in search of a lawyer. “We don’t know what to do about it,” Patel says. “We can’t sort of boldly put on our Web page ‘Prison inmates, please don’t bother us.” His misconception, he says, was expecting the Web audience to be much like his client base: professionals in management positions with a good income. “The audience is far, far bigger than we would have predicted.” –Emily Barker “I like banner advertising,” says Vincent J. Schiavone, CEO of 4anything.com, a three-year-old Web business based in Wayne, Pa. A recent Andersen Consulting study concurs, concluding that experienced U.S. Web users are more likely to buy on-line from a company after exposure to banner ads than they are after exposure to traditional advertising. Schiavone has found that banner ads are actually a great way to promote the thousands of sites that his 100-person company produces. The CEO reports that he can buy ads on portal sites for as little as $2 per thousand page views. And since companies that sell, for example, lacrosse sticks are willing to pay a decent price to advertise on 4Lacrosse.com, Schiavone can mark up his banner-ad pricing. “The economics work for us on both ends,” he says. –M.H. Attention, dot-coms: your mountains of venture capital no longer guarantee you special treatment in the ad world. Scheyer/SF Inc., a boutique ad agency in San Francisco that handles accounts like EMusic.com, demands 50% of a campaign’s cost up front. “If the check isn’t in our hands, we do not do the work,” says agency president and founder Dennis Scheyer. He adds that ad costs are skyrocketing. Demand for airtime is so strong that when companies cancel an ad, TV and radio stations resell that time to another company at a higher rate. He points to one local radio station that a few years ago would have charged $500 for a 60-second spot. Now the price is $5,000. One more thing. Once the spot is contracted, dot-coms often have to guarantee it immediately and with cash. Call it the ad industry’s version of due diligence. No one’s waiting to see who wins and who loses in the dot-com game. –Anne Marie Borrego THE 7 MYTHS OF THE WEB ECONOMY Myth 1: Building a Web site is easy The word from the experts Myth 2: Traffic will make you rich The word from the experts Myth 3: Smart money makes you smart The word from the experts Myth 4: Razzle-dazzle makes Web sites great The word from the experts Myth 5: Brand is everything The word from the experts Myth 6: Wild ads make Web stars The word from the experts Myth 7: Community, community, community The word from the experts Plus: Tales my guru told me Dispatches from the Web economy Back to Intro, ” I Was Seduced by the Web Economy”