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Book Excerpt
Chapter 1
This is it—your chance to strike it very rich because suddenly,
the Internet has changed all the rules. For a half-century, the
big players in business, from IBM to Exxon, dominated the game,
leaving little room for newcomers to move to the top of the heap.
Then in 1994 a little start-up named Netscape introduced a Web
browser, and the race for cash was on. Amazon, eToys, Wine.com,
e-Trade, Motley Fool, ChannelPoint, Monster.com—today, they are
billion-dollar businesses, but where were they five years ago? Out
of nowhere these companies, and hundreds more, have emerged to
challenge the gods of commerce. They are succeeding because the
new rules favor small companies that are flexible, smart, tough
and ultra-quick to react to changing market conditions.
Chew on these numbers: Information technology consulting firm
GartnerGroup predicts that sales in business-to-business
e-commerce will hit a staggering $2.7 trillion in 2004. By 2005,
online sales of consumables (from prescriptions to groceries and
wine) will reach $119 billion, according to consulting group
ActiveMedia. And in the 1999 Christmas shopping season, consumers
spent $7 billion online, with 90 percent of the buyers saying they
were largely satisfied with the experience, according to Jupiter
Communications, a firm that tracks trends on the Web.
The Internet is for real, and in the 21st century, if you’re
not on it, you’re not in business. That is today’s reality byte.
A New Set Of Rules
On the Web, the advantage is yours—it belongs to the
entrepreneur. Why? Consider Compaq. It makes fine computers; maybe
no better than its competitors, but certainly no worse. So why has
it been stumbling while a comparative upstart like Dell has soared
into market leadership? Dell long ago made the leap into
full-steam Web retailing. It yanked its merchandise out of retail
stores and threw the dice, betting the company’s future on direct
selling (via catalogs and the Web) to corporations and
individuals. Compaq, meanwhile, has faltered at every step because
it doesn’t want to alienate its established retail channels,
convinced they would be irked if suddenly the same computers were
available for less on the Internet. So Compaq dithers, and in that
indecision it loses momentum and leadership while upstarts grab
market share.
The Web is both a new distribution channel and a new way of
doing business. Don’t miss either part of that statement. Think of
the Web only as a new channel—a different way of putting products
and services in front of customers—and you miss the threat and the
promise of the Internet, which is that it will utterly change how
you do business. For one thing, the Web is ruthless in the squeeze
it puts on pricing. Fat and waste have to go, and good riddance,
because many large companies (and too many small companies) have
grown comfortably wealthy by exacting indefensible margins out of
the retail process. No more. The Web stomps margins flat, and to
make profits, companies have to rethink where their dollars will
be earned. Big companies (most of them) have responded to these
new rules by shutting their eyes and praying the moment will pass.
(Think of the big banks that treat customers terribly, pay
laughable interest rates and are forever hiking fees. Most are
doomed to be dinosaurs in the 21st century.) All of this is good
news for you because it means you have a wide-open playing field
before you.
Better still, the opportunities are unlimited. Would it be wise
to go head-to-head against Yahoo or Amazon? Not directly, because
these companies are among the few Internet businesses that can
legitimately claim to have established major consumer brands. But
the Web is so young, possibilities are everywhere. Want proof?
Read on for a few amazing stories of Internet success popping up
where most people would least expect it.
Insuring Success
Ken Hollen is chipping away at a number: $54 billion. That’s
how much is wasted every year by a bureaucratic, bloated,
inefficient insurance industry, according to research by
investment bank Robertson Stephens Inc. That money is coming out
of every pocket in this nation for no good reason, other than that
insurance companies just don’t get it.
Hollen does get it. As CEO of ChannelPoint (www.channelpoint.com),
a Colorado Springs, Colorado, Internet company, he’s created an
efficient Web-based marketplace that links insurers with customers
and brokers, saving billions of dollars for all of us while
pocketing a few billion more for Hollen and his investors. “We
have the ability to deliver breakthrough values,” says Hollen,
whose company has constructed tools that move most insurance
transactions onto the Web, where things happen both faster and
cheaper than through traditional channels. “We can offer insurance
carriers cost reductions of 50 to 90 percent on the administrative
side and dramatically improve their customer service. We’ve
already shown we can cut the time involved in case processing from
45 days down to between two and five.”
Wow—that’s a win-win-win: Insurers win by cutting costs,
customers win by reaping some savings and greater efficiency in
service, and Hollen wins by earning a profit every time he
processes a transaction. And that is exactly what the Internet is
about.
ChannelPoint traces its birth to 1996, when Ken Hollen and his
brother, Jim, quit their day jobs to found a little Web start-up,
Icon Health, with the mission of making healthcare plan
information readily available to members. Within months, Icon
Health was snapped up, for an undisclosed amount, by emerging Net
giant Healtheon (now Healtheon/WebMD), the brainchild of Net
legend Jim Clark, the co-founder of Netscape and, before that,
Silicon Graphics. Ken Hollen wasn’t enthusiastic about being a
part of what was becoming a large company, so he held back rights
to insurance company-related software Icon Health had created.
Healtheon didn’t hesitate to accept that exclusion, and Hollen had
the intellectual tools that let him start ChannelPoint.
A Star Is Born
Now, remember just a few lines ago I advised against
challenging Yahoo? That only applies to Yahoo’s own turf. If
you’re willing to expand your horizons a little, one entrepreneur
discovered, the sky’s the limit. Tune into New York City’s
StarMedia Network (www.starmedia.com), a company co-founded by
Fernando Espuelas in 1996 after he quit AT&T because the giant
company just wouldn’t listen to his idea for building a Web portal
aimed at South America. Born in Uruguay, Espuelas knew the
Spanish- and Portuguese-speaking world craved Web content in their
own languages, but there was little of that to be found anywhere
on the Net. Business plan in hand, Espuelas marched from venture
capitalist to venture capitalist—and always emerged empty-handed.
“Many North Americans think ‘yo quiero Taco Bell’ is all they need
to know about Latin America,” he says. “They didn’t take the idea
of an Internet company for Latinos seriously.”
With no other funding to be found, Espuelas was forced to use
his credit cards, and every month he watched his balance soar
higher. Just when it was about to be lights out for his dream,
Chase Capital Partners (an arm of Chase Manhattan bank) called and
said it liked the idea of a Latino portal and wanted to invest $3
million—if Espuelas could convince them he was the man to run such
an enterprise. “They asked for 60 references,” he says. “And they
checked them all.” Chase liked what it heard and ponied up the
cash, and today StarMedia is a leader in a booming South American
market as well as a publicly traded company with a market
capitalization above $2 billion. Not a bad outcome for a guy on
the verge of maxing out his credit cards.
Fighting Irish
Now, what about treading on Amazon territory, a biggie both in
books and video? Hop back in time to the Belfast, Northern
Ireland, of a few years ago: a war-torn, drab, aging industrial
town with no future ahead of it and a past only worth forgetting
(its major claim to fame is that the HMS Titanic was built in its
shipyards). It’s 1998, and three guys, all under age 30, are
talking about two things they love—movies and the Net. They
wonder, “Why couldn’t there be an online store that sold videos?”
You need to keep in mind one technical curiosity: While U.S.
VCRs are made to run videotapes in the NTSC format, in the United
Kingdom and most of Europe, the prevailing standard is PAL. That’s
been a nuisance for world travelers (buy a special video in
London, and it won’t run back home in New Jersey), but for these
Belfast boys, it was the key that unlocked a treasure. The big,
U.S.-based online video retailers largely ignored PAL tapes, so
this was virgin turf.
Still, the lads had virtually no cash and no connections, so
what was to be done? They decided to pool a few thousand dollars
and build a demo site, just a test to prove what they could do if
they had the money. As they cobbled it together, they found
themselves liking it more and more. One day, they said, “Why not?”
They plugged it in, and BlackStar Videos (www. blackstar.co.uk)
was live, open for business. “We have an impressive degree of
arrogance,” shrugs Tony Bowden, one of the co-founders.
Then what happened? As customers stumbled in, they loved
BlackStar. Word spread. Investment money came in, and, within a
year, BlackStar could claim to be the UK’s biggest video store. It
had beaten Amazon, Virgin, and bunches of others, and now a
lucrative IPO (one that doubtless will put tens of millions into
the pockets of those Belfast boys) looms as a near certainty.
Incredible stories? You bet, but the Internet is filled with
them because—I’ll say it again—all the rules are new in the
Internet economy. Even the biggest players can be successfully
challenged by the upstart who sees an opportunity, then seizes it.
Better yet, the odds are stacked in your favor because you are
little. How? When a big company such as Toys “R” Us fumbles its
e-commerce debut—which it did by disappointing many 1999 holiday
season shoppers—it makes headline news. That company has a
well-established brand; consumers who shop there, offline or on,
come with expectations. When it made hash of its Web storefront,
it hurt.
What if you do likewise—dropping a few balls at start-up?
Customers don’t know you, don’t have expectations, and odds are
you’ll be forgiven. A few years ago, business guru Tom Peters’
mantra was that the moment had come for business to practice
“Ready, Fire, Aim” because no longer was there latitude to spend
months scoping the target. On the Web, too, action counts. Take
it—as BlackStar did—and you just may come out way ahead.
Sweet Dreams
Sometimes even when your dreams aren’t so lofty, the Internet
can still save the day, as Barbara McCann found out. She and her
husband, Jim, own The Chocolate Vault, a hometown store in
Tecumseh, Michigan, a village about 60 miles west of Detroit.
They’d watched traffic—and customers—veer away from little towns,
and they’d watched their cash flow dry to a trickle. “We were on
the verge of closing our shop,” says McCann. Then she decided to
give the Internet a whirl.
On a skimpy budget—a few thousand dollars—she personally built
her Web site, www.chocolatevault.com, and then she watched an
amazing thing happen. “People from all over the country found us,
and they started buying our chocolates!” she says.
She doesn’t have the money to buy major advertising space, so
she meticulously maintains an e-mail list and regularly sends a
newsletter to anyone who signs up. The newsletter is filled with
chatty news about chocolate and special product pricing, and its
flavor is scrupulously homespun, much like Barbara McCann herself.
People read it, and many click into the site to make impulse buys
of pecan clusters and other goodies.
Will The Chocolate Vault rise to the top and challenge the
biggies in that space, such as Godiva and others? Never, says
Barbara, who knows her budget and her ambition. But the big
miracle is that “the Internet has been a lifesaver for us,” says
McCann. “We would’ve closed our shop without it.”
Set the scale of your Internet ambitions—dream large in the way
of Ken Hollen or Fernando Espuelas, or dream on a more diminutive
scale like Barbara and Jim McCann—because there is no “right”
approach to the Internet. Good, steady money can be earned by
strictly local players who open on the Net and find a stream of
global business pouring in. Or big bucks may be yours if you
invent a new eBay or Monster.com. |
