Ms. Dorchak: My beginning position would
be, yes, you always have to render everything to writing. It's not because I spent 23
years with IBM that I say that, it's because it provides clarity. The exchange that this
individual had probably shows that what he thought and what the other person thought were
slightly different. That's human behavior. Communication is a complex science and
rendering things into agreements provides clarity and a basis for both companies to
operate successfully. It is a good business practice, and it doesn't have to be
complicated. I advise people to write things down, but make it simple and make it
something without all the "wherewithal's" and the "whatever's." They
basically become documents that define the scope of the relationship and how it will be
Mr. LaFever: If you see the people laughing hysterically at the middle
table it's because I've had to have that beaten out of me over a decade of being a lawyer.
You don't need the "whereas's" and "therefore's" and "ipso
facto's," but you absolutely, positively have to have it in writing. If you can't
agree to agree when you are friendly, it's going to get nasty later on. As Glenda said,
you may think you have the same intentions, but until you see it in writing, unless you
are a mind reader, you don't know that that's the case. Secondly, not every relationship
works, and it's much better to have in writing what happens if it doesn't work; otherwise,
it will get really ugly. I can tell youunfortunately my legal training is
resurrecting itselfthat many times it's the very earliest transactions that a
company or entrepreneur gets into that causes problems later on with funding. It may be
awkward, but you'll continue to live if the thing unwinds, so make it happen, make it
simple, but put it in writing.
Ms. Smith: Another question from the Internet: I could use some help from the
group in negotiating strategic partnerships. In our case, it would be a partnership where
we would be providing content to a large branded site. We have assets that are very
valuable in this relationship. What I want back from the partnership is visibility and
eyeballsthat is, two clicks from the home page and promotion. What else should I be
Mr. LaFever: Notice that nowhere in that question did the writer ask,
"How can I best show this partner what we can do to make them successful?" I
would lead with that. You want to show them why the particular type of content you have is
going to make them more successful. Find out what their important metrics are. Are they
trying to get greater traffic? Are they trying to get greater and higher CPM? What is it
they are trying to accomplish? If you can take the assets you bring to the table, put them
through that filter and do it right, then they are going to find everything they can to
make you successful. It's the old "help me help you," but it's true.
Sure, you want to make some money on it. The easiest way to get a deal is to get paid
on a click-through basis, but I think there's a real fallacy with that because it involves
the way they position you. The best deal is a lot of money up front, and you are probably
not going to get that. However, if you can get a combination of money up front and some
advertising revenue or sponsorship share, I think that's probably a great home run for
someone who is not a marquee player yet. You also want to make sure that it's not an
exclusive arrangement unless you really have to agree to that. Sometimes you agree to
something just to get the deal done, but what you thought was a great deal today, might be
not so great tomorrow. The one thing we have learned is that you never give anybody
everything you've got. Try to give them a subset of what you have so that you have a
reason for people to come to your site after they've read whatever you've put on that
Ms. Dorchak: I support what Gary said. It's important to recognize
that you have to provide value, and I echo his comments about exclusivity. I think it's
very important to keep business open. That's very different from establishing an exclusive
partnership for a company to be your manufacturer, but business shouldn't have to be
legislated as exclusive between two parties. I think open business relationships work very
Mr. Stapleton-Gray: I'm Ross Stapleton-Gray of TeleDiplomacy (http://www.telediplomacy.com). This is a question
for Glenda. In your space, how much are you finding existing relationships between
manufacturers and brick-and-mortar retailers retarding the partnerships you can form? For
example, a retailer telling a manufacturer, "We are very important to your
distribution. Do not sell products online for less than we sell them in the store."
How much could you do if those relationships weren't there, and how do you see the old
brick-and-mortar manufacturing relationships changing now?
Ms. Dorchak: Great question. It varies by industry. Value America
carries products from 25 industries today, growing to 40. How I respond to that question
in the technology category is very different from the apparel category, and we have had to
reconcile it with each. It's very interesting because we clearly are being viewed by the
manufacturers as a solution to a problem that, in many cases, they have with the retail
industry. Personally, I believe that there are segments within the retail industry that
should be concerned about a Value America model, particularly the vertical superstores,
where we add more value in depth of category and we are not anywhere near as
confrontational in our relationships with the manufacturers as they are. In the case of
the small retailers, we believe that they add a tremendous amount of value. I use the
example of consumer electronics. I believe that the store that has two versions of every
form of stereo systema couple of low-end and medium systemsis the one that's
going to suffer in this. The audiophile store that's got the finest in a whole range of
products is going to coexist with us, and we very much support that specialized store
In terms of dealing with the manufacturers on retail, first of all, it hasn't been
getting in our way. Remarkably, these companies are rushing to our doors because they are
trying to solve a business problem. It doesn't matter whether it's the white goods area,
appliances or apparel; they are all going through the same process where specific
distribution channels have squeezed margin out for them and they have had great difficulty
reaching the marketplace they want to reach. What we have done is, where they hold
manufacturer's advertised pricecertain industries do that, such as consumer
electronics and technology productswe observe manufacturer's advertised price, we
don't break MAP (Minimum Advertised Price, the price set by a manufacturer for Internet,
print and radio advertising. Companies cannot advertise at a price lower than MAP.) and
that's how they manage to allow us to coexist with their retail channels.
I have been to a couple of retail industry forums recently, and there is a lot of buzz
in the brick-and-mortar industry about the impact that companies like ours are having on
them. It hasn't been a problem, we believe, because we don't buy through distribution and
our model is to work directly with the manufacturers to form a relationship with them
first. We may choose to distribute through some of their channels, but we do have a
relationship with them. We work out the pricing formula, the supply formula and go
forward. It's an interesting question to watch over the next year, however.
Mr. Greathouse: I'm Mark Greathouse with New Vision Financial (http://www.nvfi.com) and EDIE Online (http://www.edie-online.com/EDIE). Something
that a lot of people face with early stage and startup businesses is that they get a
partner early that they give equity to, then later find that it's necessary to part ways.
Please talk about how you might handle that and what the options are.
Mr. LaFever: First, I hope you have it in writing because that could
get very ugly. You have to be very careful in giving away equity. We did it because, if
for no other reason, everyone else was doing. iVillage gave some equity to NBC. It was a
cool thing to do.
Seriously, though, we have raised $5 million to date. I know that's a lot of money to a
lot of people here because it's tough to get the first dime, but iVillage raised more than
$100 million before they went public, and another $100 million in their IPO. Women.com
raised close to $80 million and they are slotted to go public at the end of this month.
When you compare what we've done to what they've done, it's very, very different. The
reason for that is, although the sales people hate this, our real priority has not been
traffic so far; it has been developing the quality of our core competencythe content
and the knowledge of the demographic. When we went to increase traffic, which is obviously
an important metric, we had two choices. One, we could raise a lot of money and give up a
lot of the company to investors. Now, I don't want to begrudge what investors bring to the
table because they bring you opportunities, but that was one way to go. The other way to
go was to find corporate partners who wanted our content and could give us breadth and
coverage. One of the things we do with Value America is put our content on their site to
provide them with the ability to have contextual sales, stickiness and repeat visitors.
Why do they want that? Because they want to sell products over and over again and make
money. That content, though, has links back to us.
With respect to the equity given to CNNfn, in that particular situation we thought it
was a cheaper means of acquiring what we wanted. We could just as well have raised a
couple of million bucks and paid them had it not worked out. What you can do, and we did
this in our deal with CNNfn, is to negotiate things in the contract that act as break
points. If a particular thing happens or doesn't happen, depending on your perspective, it
means the contract's over. If a break point occurs within a certain period of time, you
either get some of that equity back or they don't get to exercise the option as fully,
depending on how it's structured. It's very difficult to do, but it makes sense to
negotiate break points or performance milestones, depending on whether you are an optimist
or a pessimist, and have the equity rights tied to that.
Ms. Smith: To follow up on that, many companies, especially the public
companies that have a nice war chest of cash, are developing strategic partnerships by way
of investment. To what degree might this be part of the eventual acquisition strategy, and
to what degree might it be just a good way of creating a partnership?
Ms. Dorchak: Value America has a lot of business and a lot of
partnering decisions to make over the next while. It's publicly known that we raised well
over $200 million in our private and IPO offering rounds. As we go forward, the decision
on how we use our money in terms of acquisitions versus partnerships is an optimal
question. Critical over the next couple of months, and I advise anyone who is doing an IPO
to do the same, is fortifying the infrastructure on which you run your business. We are
building a company that we believe truly will be the largest E-tailer, in the world within
the next couple of years. We're optimized to be an E-tailer, not a content site or any of
those other things. That means it has to be built for the traffic and the substance. It
has to have the scalability and the infrastructure, so we are pouring significant sums of
money into creating our infrastructure. The second thing is, we are going to look for
things that create shareholder value, and shareholder value in today's stock market
environment is revenue driven. We are going to look for partnerships that potentially lead
to acquisitions that support growth in that scalable fashion. We will look for other
partnerships to bring out our breadth and pursue those more on a partnership basis.
Whatever we do in the form of acquisition has to have a direct value back to our
shareholders and the way that we are measured today.
Mr. LaFever: If you do a partnership that involves equity, and/or if
somebody invests in you, you probably are increasing the likelihood that they might
acquire you. You are also just as likely to be striking all of their competitors off the
list of acquirers, and you need to be okay with that. General Electric (http://www.ge.com), which owns NBC, is one of our investors,
although we didn't do a deal with CNBC (http://www.cnbc.com).
They tried to help set it up, but we just didn't think it fit, and we went with CNNfn. Who
knows in this space, but I don't think GE or CBS or NBC or ABC is therefore ever going to
want to acquire us, because we aligned ourselves with Time Warner. It's not a bad thing.
It's nice to have an opportunity to align with Time Warner, but the point is, any time you
do any kind of equity relationship, whether it's barter or cash, you should make the
conscious decision that you are probably writing those other people off the list.
What's your exit strategy? I can't figure out why investors still act like it's a
question. There are only two exit strategiesacquisition or IPO. There is a third
that an investor taught me: "We blow out the management team and bring in a new
one." I don't like that one. The point is, if you think your exit strategy is
acquisition, then you have to be very careful with everything you do and how you position
yourself for that sale.
Mr. Kling: Arnold Kling with Homefair.com (http://www.homefair.com).
We provide relocation information on our Web site. We did our first co-brand partner
relationship a few years ago. It was completely unplanned and it was very expensive. We
learned how to do it by doing it, so by the time we did a partnership with
womenCONNECT.com, it was low effort for both of us. What kind of planning do you do, and
what kind of planning do you recommend, for making your companies able to partner quickly
and with low effort?
Mr. LaFever: Homefair.com is a good example of a company that pitched
to us the right waywhy this would be good for our clientele, since our audience is
often relocating. I didn't hear word one about the technology. I'm assuming it works. Let
me just compliment them on the way they presented it, which is the right way: help me to
This is a space where you learn as you go. I know it's simple, but come up with your
acronym. Try it every time you have an opportunity. How does it fit each of your criteria?
How would you number it on those scales? Also, look for people on your team who have key
skill sets that may not be in their official line of responsibility. Have them come in as
kind of a SWAT team to evaluate the opportunity. Ultimately, the CEO or the management
team has to make the decision, but, if you set up the right kind of environment, people
will feel comfortable saying, "I think this is a good idea," or, "I think
it may not be." Assess the team's barometer; if they have an experience set, apply it
against your acronym and go from there.
Ms. Dorchak: Adding to what Gary just said, have people focused on it.
It was a big decision for us, in a company that was only about 150 people at the time, to
put Jennifer and a team of 10 people in place to develop and run an affiliate partnering
business unit for us. If you are going to be in the partnering business, as we are, you
have to put people on it. You have to take time and make it a serious part of your
business. Otherwise, it doesn't happen or it happens in a way that doesn't fulfill
anybody's objectives. The effort has to have people focused on it as a primary part of
your business, not a secondary part. It's helped us because we recognize that, when we
partner with affiliates, it's on us to make it easier for them to do business with us. As
our scale grows, it's easier for us to do that and we become more complicated to do
business with. Look for companies that have dedicated the resources to making the
partnerships move more effectively.
Mr. Maloy: I'm Timothy Maloy, a technology journalist. To quote Glenda,
"We have chosen to partner instead of to build." That seems a very adept
business model for the current state of the Internet economy, but things are turning so
quickly in terms of bandwidth and the penetration of the Internet into the average home.
Where do you think both of your companies will be relative to partnership and business
strategy five years from now? Cutting to the chasewhat will keep your partners from
disintermediating you and going directly to the consumers.
Ms. Dorchak: Going forward, the first thing that is so very important
is my point about core competencies. Value America doesn't look at every component of its
business and then go to outsource it. We very clearly have our own core competencies, and
among those is marketing. We have an in-house agency. All the marketing you see is done
in-house and it's done extremely efficiently. Our relationships with brands is also a core
competency. We have made a significant investment in people who are specialized as buyers
in brand relationship management. What I'll call "E-fulfillment," managing the
complexity of E-distribution, is the most difficult aspect of our model. Therefore, the
information technology infrastructure that we put in place is something we don't consider
outsourceable and we never would.
As we go forward in the long term, multi-years from now, the partnerships we form will
have less to do with outsourcing parts of our model, as it was in the Ambra days, and more
to do with extending our reach. If you think of the boundlessness of the Internet, there
is a seamlessness that goes with its reach which means you become "all virtual."
Everybody, every site on the Internet, begins to become homogeneous in a way. Going
forward five years from now, I expect that we will be connected to every site of any
substance in terms of traffic that exists on the Internet. The thing that's so critical
and so exciting about it is that the Internet is the final frontier for people to get
exactly what they want. People's needs will drive E-commerce companies, content companies
and where manufacturers put things. We are moving and shifting in this 24-month period.
The year 2000 is when the consumerwhether a small business owner, a corporation or
an individual consumertruly takes control based on their needs. All business, all
commerce will align itself to those needs. In my view, partnerships will grow, but they
will take on a different means. You will have to coexist to be able to exist on the
Mr. LaFever: Over that period, my acronym will become BRET, leading
with Brand. Our objective is to unequivocally establish womenCONNECT.com as the single
largest point of contact to women in business. When a businesswoman or a company wanting
to reach businesswomen has a question, it will be, "Who do I call after I call
womenCONNECT.com?" If we can establish ourselves in that space by implementing
multimedia and multidisciplinary means through partnering, because that's how you can do
it fast, we become the AARP, as it were, of the women's space. Most people who are members
of AARP (American Association of Retired Persons) (http://www.aarp.org)
probably have no clue who they are buying their life insurance from. They think it's from
AARP. When that renewal contract comes up between the manufacturer and AARP, AARP is the
one that says, "You want to do business? What are the terms?"
The way that we will establish ourselves in five to 10 years, is that we will continue
to partner with people who have and hold the same ideals, thoughts and values that we do,
and we will continue to do business with them because we are helping one another. If we
are successful in establishing our brand in the way we want to, they are more at risk than
we are of the relationship not continuing.
Mr. Simon: I'm John Simon with TechnologyNet.com (http://www.technologynet.com). Could you speak
further about exclusivity, especially when you are down the food chain? We are having some
negotiations now with alliance partners that have a lot of traffic. Some of them want to
lock out some of the other people we are talking to. What criteria did you use if you had
to make those choices?
Mr. LaFever: It's a trick I learned in law called "the sleeves of
your vest." The best concession you make is when you give the other side the sleeves
of your vest. Figure out how long it would take you to negotiate the competing
deal60 days, 90 days? Then, if you have to do it, basically say, "I'll give you
exclusivity for a period of X days. It will continue thereafter if the following
milestones are met." The reality is, if it's a real winning partnership, you won't
mind giving up exclusivity, so you condition it with break points for performance
milestones, and it may maintain itself after that. Or you go to them and say, "Okay,
I'll give you six-month exclusivity." In my view a 90-day exclusivity period during
which time I can talk to your competitor and get ready to do business with them is easier
for me to agree to than a six-month exclusivity period during which time I can't talk to
your competitor. So, lead with the 90 day if you can. In the "early days" its
hard to always successfully resist requests for exclusivity. Believe me, early on we were
there, and it was not that long ago that we were the little tiny plankton that the amoeba
was eating. We had to agree to exclusivity with IBM. You do it sometimes, but, if you can,
try to put markers in place that protect you.
Mr. Fredrick: I'm Steve Fredrick with Novak Biddle Venture Partners (http://www.novakbiddle.com). I'm curious how your
own financial standing may have impacted your ability to partnerwhen you were in
bootstrap mode, after you received your venture funding, and, in the case of Value
America, after you went public. Did it affect your ability to partner or your
attractiveness to potential partners?
Ms. Dorchak: Good question. It changes. During the time I have been
with Value America, we have gone through probably three phases the challenge of
having a great business proposition and no money, to the environment of actually having
money prior to the IPO, then there's what happens when you are in post IPO with a
significant sum of money and making other business decisions. Your circumstances do
In the early daysand I wasn't at Value America in the really early days, so some
of the experience Gary has is more relevantyou have to look at everything with the
same fundamental values your partnership is based on. I believe in building it for a
longer period of time than a lesser one, because you have to visualize that it is going to
be successful as you are going forward; otherwise, it won't happen. Having breakpoints is
critical, but there are things in the early days you have to accept, such as exclusivity,
that become tradeoffs to getting a business started. We were very fortunate. We had no
exclusivity agreements associated with our first $50-$80 million of funding. Most likely,
that was a very, very unique proposition. It's important for both parties to understand
that they must coexist in their own big fish ponds down the road.
Mr. LaFever: I love the question. If nothing else, it gives me the
ability to tell one of the better stories of womenCONNECT.com.
Perception is everything, and the Web is a master of perception. I have to tell you,
put your money in your business cards and your stationery. Put your money into your Web
site and ask potential partners to come meet you. If you have investors, or if you have a
decent accounting firm or law firm, meet in their offices. When IBM came to meet with us,
we were working out of the back of Susan's house on end tables and whatever else was
handy. The night before they came, we ran out and bought folding tables. We bought chairs
which looked good, but if you sat in them for more than an hour, you would be in pain. We
bought a whole slew of phones. Susan had, I think, eight lines coming in. It looked like
the central station of the Pentagon with these phone lines coming into her house. We
bought all of these phones and set them all up. So, we are sitting there talking with the
IBM people when the phone rang. Well, we didn't realize that all these phones had volume
adjustments that we hadn't turned down. We all jumped straight out of our chairs because
there were eight phones on full volume. We even borrowed computers from friends so that we
had all these work stations set up...
Ms. Dorchak: This is my partner. Isn't this great?
Mr. LaFever: The one computer we couldn't get was from Susan's
daughter Gina because she didn't trust us. Of course, we didn't think to get all IBMs.
Fundamentally, you do business based on credibility and character, but that first
perception is everything. Do what you can. Use strategic partners. Having them come to you
says something; that you're not afraid to do that. Of course, you don't have to have them
come to your backyard or back room.
Ms. Smith: This has been a great session. The partnership between
Glenda from Charlottesville and Gary from McLean adds an overlay of reality to it. No
matter how theoretical we get or how much we speculate, reality always wins. Thank you
again for a truly great morning.