Today, netpreneurs have to adapt to a “back to basics” environment in which dot.com mania has been replaced by a renewed emphasis on revenues and profit. At this Morino Institute Netpreneur event held February 22, 2001, entrepreneur and venture capitalist John Burton, Managing Director of Updata Capital, provided a crash course in “Sales & Distribution 101,” an introduction to building a sound distribution matrix for these more practical times. As Burton put it, “Companies that have been the most successful are not those that have made technological breakthroughs; they are the ones that have made those breakthroughs coupled with unique marketing and distribution capabilities to promulgate their concepts and their ideas.” It was also an idea reflected in Mario Morino’s opening to the session, a report from the World Economic Forum in which he discussed the need to understand and adapt to the globalization of technology and eCommerce markets.

Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, Netpreneur.org or any of their affiliates, agents, officers or directors. The archive pages are provided "as is" and your use is at your own risk.  

Copyright 2002 Morino Institute. All rights reserved. Edited for length and clarity.

mary macpherson: welcome

Good morning. I'm Mary MacPherson, and welcome to the first Coffee & DoughNets for 2001. I guess I should say Happy New Year as well.

          When I was getting ready for the program this morning, I went back into our archives, then I paid The Washington Post a buck-and-a-half to go into their archives to see what was happening a year ago. Let me read from Shannon Henry's “Download” column from this week last year. "What a month it's been for FBR Technology Venture Partners¾three public offerings, two sales and a big money partnership.” Last year, webMethods went public on February 11; VarsityBooks.com went public on February 15; and LifeMinders had an $86 million secondary on February 7. Another story in the same issue was the launch of PSINet Ventures' $1 billion fund. At Coffee & DoughNets we were listening to Raj Khera, who is here this morning, Oron Strauss and Frank Wood talk about selling their companies. They were all riding high, and we'll certainly see a lot more M&A this year, but I think the valuations are going to be substantially different. The bottom line is: what a difference a year makes!

          This morning it's fitting that our program is very much about getting “back to the basics.” When we were putting our plans together for the first part of this year, we were hearing from entrepreneurs and funders that getting customers is much more important than being the first mover. So, today, we are delighted to have our good friend and sales maven, John Burton, Managing Director of Updata Capital, with us to talk about the world of sales and distribution. We also have another part of the program at the other end of the spectrum because it's more about looking forward to the future as opposed to back to the basics. Mario Morino, Chairman of the Morino Institute, had the opportunity to spend a week at the recent World Economic Forum in Davos, Switzerland. He's here with us to share some of his observations on what that was like, but he has to leave early so we're only going to have about 30 minutes with him.

                Before I ask Mario to come up, I want to say a couple of thank you’s. First to Pete Carney, our host here at the Bethesda Theater Cafe, and to the teams of TV Worldwide and MAD Events & Production who do our video work. I would also like to acknowledge our volunteers this morning: Michelle Varga from the Metier, James Dodwell from Opendesk, Vince D'Onofrio from ProxySource.com, Eric Sommer from iCapture and Charity Sack from Easybridge!. Thanks for your help volunteering this morning. Also, of course, thanks to my colleagues on the Netpreneur team.

          Without further ado, let me ask Mario to come up.

mario morino: a report from the world economic forum

Good morning and thanks, everybody, for being here. I always love when Mary says “we only have 30 minutes with Mario.” Second prize is 60 minutes.

          At our last Coffee & DoughNets in December we talked about “Going Global: Challenges And Opportunities.” I recently had the opportunity of going to the annual conference of the World Economic Forum, and it was quite an experience. I want to use it to reinforce some of the dialogue that we had in the last Coffee & DoughNets.

          Some of you may not be familiar with the Forum; I wasn't that familiar with it myself until the last several years. I went as a special partner of General Atlantic Partners (GAP), which was a sponsor this year. The Forum has been going on for almost 20 years, but it's during the last four or five years that it's become more popularized as the high-tech industry have become the darlings of the conference, so to speak. If you have the chance to go, I would urge you to do it because, in terms of what you learn and who you connect with, it is the most amazing collection of intellects I've ever been around.

          There were about 2,400 people there. On Saturday alone, for example, the President of Mexico, Vincente Fox, came through, as well as the King and Queen of Sweden and the Prime Minister of Japan, Yoshiro Mori. We had delegates from most of the major developed countries, including a large US Congressional contingent. It would be difficult to go through the hallways without bumping into people such as John Chambers of Cisco or Bill Gates of Microsoft--it was that level of interaction.  The opportunity for dialogue and engagement is fascinating. The reality is that you can learn a lot, although it is a little different because there are armed guards every time you turn around.

          From the business point of view, for anybody who is in the enterprise or consumer areas and looking at going global, this is a sort of Mecca because there are so many opportunities to learn and to make hard business transactions at the same time. Somebody who knows how to work a conference--and any good vendor grows up with that capability--could significantly benefit from this conference. It is by invitation-only, and they have really pared it down. They've made it a demand-based case, and I understand that they turn people down pretty regularly.

          What was surreal for me was the amount of security they had at this event. I'll describe one night, and I’ll return to this later as part of the “backlash to globalization” that I think is very real. It may not have a direct effect in your businesses today, but, in certain sectors, it is my belief that it is going to have an impact on business. You have to go no further than Monsanto. Monsanto created a genetically enhanced seed, and the world handed it back to them. It was a global backlash, and there are going to be certain elements of eCommerce that will see the same thing. It won’t affect you immediately, but, when you look at global markets, it’s something that I think you have to at least take into consideration.

          The reason it was so surreal was that we drove from Zurich to Davos and went through four checkpoints. Every checkpoint had full SWAT teams and complete barbed wire barricades. The closest you could get to the town was one kilometer. I heard that on Saturday, they had troops at every border post in Switzerland, and they were literally turning people away from the country. That's how much they were concerned about the safety issue. You have to picture this scene. You're in this beautiful, affluent Swiss Alpine village, you see snow falling in the mountains--you couldn't ask for a more tranquil setting--then you bump into a barricade with 16 soldiers, fully clipped and ready for action. It was weird. They were very concerned about security because there were so many world leaders there.

          I came away from the conference with several things.  It is stunning to move out of our US-centric view and sit in another world. It is important to be able to understand how other parts of the world look at life very differently than we do. It has enormous implications to the sales and distribution issues John Burton will discuss, and what really struck me were two facts.

          First, and especially from a consumer standpoint, in the US markets there will be a fundamental demographic shift in approximately the next 10 years in which African-Americans, Latinos, Asians and other non-white ethnic groups will become the majority over the Caucasian population. That has stunning implications for consumption issues.

          Even more interesting is to watch the growth in the Asian cultures. I sat in a dinner, and it was riveting to hear the intensity with which they see the Internet, technology and eCommerce from their perspective. I urge you to go back to that discussion we had at Coffee & DoughNets on “going global,” and, please, do not take a US-centric view of life outside the US. There are many assumptions that simply don't hold. I'll share with you some of the more anecdotal pieces that I walked away with.

          In my role with GAP, we were talking about how to understand some of the changing markets in different areas of the world. There is a group called Ashoka, a world-class organization headquartered right here in Arlington, Virginia, and run by Bill Drayton, formerly with McKinsey & Co. Ashoka is the premier organization that supports social entrepreneurs globally, and Bill's philosophy is that we will see more global social change driven by people around health issues, environmental issues, even business issues on a global scale. He is a remarkable, insightful individual. We were talking, and he said that the danger you face when you look at these areas today--he used China, India and Japan in particular--is that you can get very different inputs based on who you speak to. I understood immediately, because to me, it was like the US in the mid-1990’s when you could have probed the IBM’s and the Microsoft’s and gotten a totally different read with respect to the importance of the Internet, than if you polled entrepreneurs like the people in this audience. In fact, if you remember, that's when we started the Netpreneur Program because the change was not coming from the established players at all; it was coming from this insurgent, growing base underneath. It was a very insightful conversation, and I saw it firsthand in a meeting we had about the Asia-Pacific area. If you are doing business in these markets, pay very close attention and don't just take the standard, traditional, established way of doing business. Just like it has changed dramatically here in the US, it is changing dramatically in each of those markets as well. You can actually get in the wrong camp and get feedback that is very different from where a country and its market are actually moving.

          That was one of the views I walked away with. Another was to watch how much the aura of the high-tech persona has fallen. This was really something. It was not so much an anti-American thing; I wouldn't put it in that context. It was, first of all, a bricks-and-mortar view that the Internet and New Economy folks now are getting their due. Second, it was a backlash against the arrogance of our industry, something you’ve heard me say before.

          I was at a dinner where the Chairman of an international financial services corporation said, flat-out, that those US technical luminaries “are not quite so smart today as they were a year ago, are they?” He said it with a lot of disdain. I'm cautioning you, again, about the sense of arrogance in global markets. When you're riding high and everything is going well, no one is going to tell you you're full of it. When you hit a bump, however, they’ll tell you really quickly what they really believe. Right now, we don't shine as brightly, folks. We don't hold up as well and, if you're arrogant, you’ll get punctured really fast. In doing your business, be confident, be aggressive, but watch the arrogance because, when you stumble, they will pay you back hard. Right now, you're seeing paybacks happen quite a bit. That was very evident, by the way, not in the actual lectures and conversations, but in the hallway talk or sitting in a bar or in a restaurant.

          Earlier I mentioned the issue of the global backlash. I don't think it affects many of you today, but I do think that in the next 10 years you're going to be conscious of it in consumer markets where certain actions will trigger reactions in globalization. One individual said, “American business and capitalism are spreading. Jobs are being created.  All this is good and we have to do a better job of selling the benefits of globalization.” I responded, “You've got to have your head in the sand. That's all true, but there are tens of thousands of people who will lose their jobs in this transition, and what may be good to you won't be good to someone else.” You don't have to agree with that, but you have to understand that backlash may occur in particular markets. Again, it doesn't apply to everybody, but it probably will make sense in your 10-year horizon at least to give it some thought.

          What probably struck me more than anything else were the cultural differences. Some of the people there could not understand how some Americans have the view that globalization will just happen so fast through some kind of eCommerce magic in which everybody in the world is going to buy our products. They said that the naivete of the American mind was absolutely stunning because we often didn't appear to understand cultures. There is a lot to this, and you heard it again in the ongoing global sessions. For example, in countries like India, which is a huge potential market, there is no fundamental credit card system, so how do you buy online? There is no fundamental transportation network outside of major areas. So, how do you deliver a consumable product that was bought online? These are fundamentals.

          When you're looking at markets, there is a lot to do before you come up with these fabulous projections about how you are going to penetrate China, India or other areas of the world. You have to look back and ask some logical questions of people who know the market. People who can say, “Wait a minute. Yes, there is that number of potential consumers, but is there a legal, financial and social infrastructure that will support that business in that country?” As basic as that sounds, I've seen projections from people making assumptions of what they are going to sell in the Asian markets without ever taking this into account. I’ll give you another example, video-on-demand. I think that in the US, video-on-demand is very questionable as a business with pay-for-view TV still having a long way to go before we're ever going to see an impact of any significance. On the other hand, one person at one of the meetings got up and talked about how pronounced a market it would be in India because of the difficulty of transportation there and because of a burgeoning movie production business in the country. If you understand the issues, all of a sudden, a video-on-demand market opportunity could begin to have some context of sense in that culture.

          What's even more interesting was a discussion during a dinner focused on the growth of the Internet in the Asia-Pacific region, and this observation really blew me away. At my table was Sachio Semmoto, the founder of eAccess in Tokyo and one of the true Internet leaders in the Asia-Pacific region. He said that when people get so infatuated by the Asian cultures and their use of the telephone, they might not understand something that is taking place. He said that the 10-key pad on cellular phones is actually a most convenient data entry device for the Japanese character set. This nuance doesn't necessarily transfer to other languages, by the way; it's unique to their character set and several other Asian languages and how it's used. He said that you have to be careful when you're making assumptions about how this is going to be applied in other cultures, yet I’ve not heard anyone taking this into account before. That keypad is something that has actually amplified their ability to use their character set and, in this regard, may have zero transfer value to certain other languages. A nuance like this is something you could do market research on for 15 years and not uncover, or have someone tell you in a serendipitous conversation.

          Something else that really struck me was the intense nationalistic spirit. I've seen this firsthand in the Internet domain names market. At GAP we did an investment in a firm in Singapore called IDNS, Internationalized Domain Naming Services, which handles domain registrations into 39 languages. Technically it's advanced, but what you face is the reaction of how a country views domain registrations versus how ICANN or the US views it. Let me tell you, there is a gap. You know what somebody in China says? “Screw you, Americans. You think you're going to tell us what to do?” I’ve heard voices from India say the same thing and from Taiwan as well, and similar reactions come from each country because you see an intense nationalistic spirit. Now, I'm not saying it's bad. Don't misinterpret. I’m just saying that you have to factor it into your marketing because it's a different element if you're coming into that country today, trying to bring a US-centric view to something that has a nationalistic base to it.

          What was so compelling at that Asia-Pacific dinner was that we had the equivalent of the rock stars of the region, and what floored me was a challenge by one of the people to an individual. What you kept hearing in the dialogue was, “Come back to your homeland.” You haven't heard that in a long time, but one has to recognize that those economies are starting to move. There is a tremendous need for the kind of talent that sits here in the US. One individual from Hong Kong got up at the end of the meeting and addressed an individual from another country who had been living in Paris. He said, “Your recommendations are great, but if you really want to do something with your life, move back to your homeland and make a difference for your people.” Remember, this was in front of some 70 peers, and, I mean to tell you, this room went quiet. I've seen this now in three settings. Do not underestimate the issue of nationalistic spirit that is building in those countries as you move globally, especially into the Asia-Pacific markets. I shouldn't say “building;” it probably has been there, but now it is clearly coming out around the issues of eCommerce. 

[continued]

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