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Heart Of An Economic Transformation
Netpreneurs Pioneer Tomorrow's Digital Business

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, or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.  

Copyright 1998 Morino Institute. All rights reserved. Edited for length and clarity.  
an RTF version of the complete transcript is available (50K)

"A sweeping economic transformation is underway," says Mario Morino, Chairman of the Morino Institute, "one of enormous opportunities and risks." Here are his comments on what makes "netpreneurs" different from traditional entrepreneurs, why they are showing us how business will be done in the new century, and why the Baltimore/Washington region is leading the way to this new digital economy. They come from a Netpreneur Program's Coffee and DoughNets meeting held June 11, 1998.

Introduction: Angels In The Outfield

Let me first thank both Johns Hopkins University and the Abell Foundation. We couldn't ask for better partners for our first event in Baltimore.

I'd also like to introduce and thank someone here tonight who is a real mentor in the entrepreneur world, Dr. Bill Wetzel. Dr. Wetzel is the director emeritus for the Center for Venture Research at the University of New Hampshire and part of the national faculty for the course, Seed Investing as a Team Sport, a working session of private, seed investors sponsored by the National Association of State Venture Funds. He has been called the "father of angel investor research" for his work in the assessment of angel investing.

Investorwords calls an angel, "A wealthy individual who provides start-up capital to very young companies to help them grow, taking a large risk in exchange for a potentially large return on investment." We tend to focus so much on venture funding, but angels represent a new movement which is becoming a very important first step for firms like many of those here.

Tonight, I'd like to speak broadly about what is going on around the Internet and entrepreneurship. A sweeping economic transformation is underway, one of enormous size and scope with huge opportunities and risks. At the heart of this transformation are netpreneurs, the innovative people who are creating products and services which are for or delivered over digital networks. Who these people are, where they are, why they are doing it and what they are learning is a truly fascinating story. The Internet is the vehicle for this change, but the driving force is people who seek to take advantage of the opportunity and gain control over their own destiny.

The Netpreneur Program

The Morino Institute has created a collaborative arena through the Potomac KnowledgeWay Netpreneur Program. We purposely focus on netpreneurship, not entrepreneurship in the broader context. We believe it is a very different process from creating a traditional business, and that the lessons learned by netpreneurs will eventually affect all businesses in the digital economy.

By the way, we may be called The Netpreneur Program , but don't let the Potomac part fool you. We are very broad in our appreciation of rivers and include the Patapsco in our community—as many of you here tonight know who have been participating in the Program. One of the unique aspects of our efforts is to ignore arbitrary boundaries. That's what the Net is about. It both enhances community and physical space, while, at the same time, breaking down the barriers of jurisdictions. Don't assume that netpreneurs in Richmond, Virginia, and Baltimore, Maryland, don't talk to each other. Our regional view focuses on a corridor that goes from north of Baltimore down to Blacksburg, Virginia, where there is an enormous amount of innovation occurring in cellular wireless technology. We all have a very common interest, and it doesn't matter where we are based. We overcome the barriers by forming a community of interest around the issues that unite us, and entrepreneurship on the Internet is one of those issues.

The Netpreneur Program provides a forum for netpreneurs in this region to share ideas, learn from one another and establish a sense of community.

If you are a netpreneur, or a prospective netpreneur with an idea, and you need to get information on how to do banner advertising effectively or branding on the Net, a typical business assistance group is not going to know what you're talking about. I'm not being critical; it's a fact. The only place where this know-how and experience rests is with the netpreneurs themselves—the people who are trying it for the first time. You have to go to the people who are living it day in and day out at businesses like yours, start-ups all one, two or three years old, rarely older. There needs to be a forum where you can contact each other, exchange information and share experience. That's all the Netpreneur Program is really about, creating the forum—both physical and virtual—to facilitate those matches. It's a self-help network cultivating a more seamless flow of information, ideas and learning.

A Region Poised For Leadership

Our region can be remarkably successful in the new economy. We have an advantage here, located at the confluence of three industries: telecommunications, information technology and content—each of which is experiencing rapid growth and change. That convergence is a global phenomenon, but we are at its center, with significant core competencies in each and with the potential to dominate the "bookends" of communications and content.

On the one bookend, this is the epicenter of telecommunications, not only in the United States, but for the world. If you go down the corridor, from Baltimore to Blacksburg's Wireless Valley, you will find the predominance of satellite wireless constructs as well as terrestrial phone line companies. We're arguably the hub of telecommunications worldwide.

At the other bookend, you hear so many people say "content is king." Eventually that will come to pass—although I believe that context will be the most important part of that kingdom. No region in the world has the sheer raw information resources and the cultural objects that we possess, whether it's Johns Hopkins or the National Institutes of Health, in health and biological information like the human genome project; or the Smithsonian Institution, the largest single collection of art and cultural histories in the world; or the base of business-to-business newsletters; or the vast number of trade associations, journalists, political analysts, educators and so many other "knowledge workers." Go down the list of competencies in this region and you see graphics talent, media talent, writing talent, research, analysis, journalism—all the talents that will create the products which run on the communications pipes and which will be managed by the software. We have a 30-year opportunity process in front of us.

We even have competencies in the middle, information technology hardware and software. Of course, we're nowhere near Silicon Valley, but we're ahead of so many others. Just to digress, for a moment, I get a little tired of the comparisons to Silicon Valley. The Valley is the Valley, and no one else is ever going to be the Valley. The Valley is phenomenal. If you don't believe that, go out there one day, and you'll come back much more humble. We are not the Valley. We're us, and we have our own strengths.

As I've said, the Internet is the vehicle for this economic transformation. It is the enabler, but not the driver. People—entrepreneurs—are the driving force. It isn't like the PC revolution in the '80s, however, or the earlier computing revolutions of the '60s or '70s . Technology people were the driving force of those movements. Clearly, technology is at its root, but the revolution is not limited to technologists. Many other people can participate this time, people from all walks of life who are taking advantage of this new medium—technologically savvy or not. They are trying to create new ways of communicating, connecting, informing and transacting business. In fact, they are having a tremendous effect far beyond business, in government, politics, philanthropy, education and culture.

Let me give you an example of one person, Jean Amour Polly, who runs a Web site out of her home called Netmom which guides parents to sites appropriate for kids. It complements an award-winning book she has written on the topic, which has made her well-known in the field. This former librarian has done deals with Disney, AOL, the MCI Foundation and is talking to search sites like Webcrawler and Excite, as well as the Children's Television Network, producers of Sesame Street. Jean's husband has a full-time job and helps out at night. Two parents working out of their home, doing what they do because they're interested in it and want to inform parents like themselves. In the process, they have made a business of it.

It's a small example, but multiply it thousands of times, then add in all the large and small businesses, the great success stories like Yahoo!, the "life style" entrepreneurs, the growing string of IPOs, and the thousands of other ventures which are attracting angel and venture money at unprecedented levels and valuations. The scope is truly enormous, and the only limitation is imagination, not funding. There is more money than you can shake a stick at. The money will find you if you have the idea—and, by the way, our region has a growing presence the funding realm, as well.

The Social Factors

Most of the people in this room are thinking about building a business in the classical model—create the business, get the venture money, go out for an IPO, create significant net worth.

There are two other models emerging as well, not new, but the number of them and the opportunities are increasing tremendously because of the Internet. First, there are people who are not concerned about huge net worth. They want good real income and a stable environment. They want control of their company, which can become $20 million, $30 million, $40 million companies, easily. The distinction is in the control. They want that element in their life.

The second pattern, arguably a much bigger one, is the thousands and thousands of "life style" entrepreneurs like Jean Armour Polly. These are people who, for whatever reason—maybe they have been affected by corporate restructurings, or they're tired of two-hour commutes, or they simply want to spend more time with their family—want to have control of their lives.

A good friend of mine who worked for Morino Associates, a technology guy, was over at my home last Friday morning. When he left Morino Associates, he went to one of the first companies to focus on helping people create virtual corporations. That company cratered, but he came away with a great knowledge base. Today, he is grossing almost a million dollars a year working out of his home. He gets up at 5:00 AM and works online governing his communities until 7:00—he has an alarm on his desk. When his little girl, Nicole, wakes up, the alarm goes off, he goes upstairs, gets the baby and his wife and has breakfast with his family. When Nicole and his wife leave for school and work, he goes back downstairs. When they come home, he comes back up again. He is working just as hard as anybody else, but structured in a way that maximizes his quality of life.

Why is this all happening? The economic transformation is being fed by three fundamental social forces:

  • a growing dissatisfaction with our institutions—government, education, business, health-care, even nonprofits
  • a renewed spirit of entrepreneurism that has been triggered by our growing dissatisfaction with the status quo
  • a revolution in communications that makes it far easier to connect, interact, collaborate and transact in new ways

The institutional distrust became apparent during the downsizing waves of the late 1980s and early 1990s. The social contract was broken at all levels of the work force. In 1992, a Harvard Business School professor did a study of the MBA class of '74. More than one-third of the graduates had been fired or laid off at least once in their careers. Here is a group that's at the top of the business world, the elite. What is the class of ‘74 doing? The majority now work for themselves or in small companies. Only 23% work for big companies.

I grew up in southeast Cleveland on the other side of the tracks. We didn't have much—my family comes from the mining towns in western Pennsylvania. I watched when the mines shut down in the 1950s and I saw families with educated people starve. I watched my cousins get in a car on Sunday night and drive to Cleveland to work in a factory Monday through Friday in order to survive. They'd come back home on weekends to see their families. This went on for two and three years until the economic climate in Pennsylvania changed. I watched Ohio go through a 13% unemployment rate in the early 1980s. People are sick of this dependency, and the Net is a remarkable enabler, if you want to reach for the brass ring.

Harvard MBAs are just the tip of the iceberg. We see a lot of netpreneurs who are people in their 20s and 30s. They jump from very secure jobs into start-ups because they're bored with traditional organizations. The pace of change is simply too slow; it's too hard to get things done; they aren't getting opportunities to learn new skills fast enough. Does this sound familiar?

It's not just the young; it's the young at heart. At a recent Netpreneur Program meeting the importance of team building was being discussed. Someone drew a connection between youth and the fast pace of Net businesses, and an older gentleman stood up to say, "I'm 65 years old, I have just become a netpreneur, and I'm reborn!" It has nothing to do with age; it's attitudinal. Are you ready for change? Are you ready to deal with change as a constant? The kids are almost adjusted to it because they accept it as the status quo.

Ironically, the Internet levels the playing field, but it also increases our dependency on one another because of the emphasis on communications. While it frees us from traditional institutions and intermediaries which have limited us, it simultaneously makes our collaboration skills paramount. Some people catch this and others struggle with it.

Symbols Of The New Business Model

Who gets it? Which companies are showing us the way to the digital economy? Look at some of the companies right here in Greater Baltimore:

  • There's the stunning growth and success of Sylvan Learning under Doug Becker's leadership, an example of the new hybrid business models that are evolving. Now in a distance learning venture with Johns Hopkins, MCI and Sylvan's Caliber partnership plans to deliver the Johns Hopkins "Business of Medicine" course to doctors through their network of high-tech classrooms linked nationwide by interactive video and computer technology. Just yesterday, Caliber announced it would be working similarly with the Wharton School at the University of Pennsylvania. Whether it's Sylvan or Phoenix or the Governor's Virtual University on the West Coast, we're watching the educational market get turned on its ear.
  • Consider the resourceful and innovative service provided by Community of Science, led by Huntington Williams, III, which offers Web information products and publishing services that link researchers, universities, R&D corporations, professional societies, government agencies and foundations around the world. It's a classic Internet-enabled service.
  • In many ways, Craig Ziegler and his team at GR8 typify the opportunity of this new economy. Originally, a graphics design firm, this is a group that truly reinvented itself. They recognized that technology would become a core part of the graphics design area and jumped in with both feet. Today, they are positioned as one of the top graphics and marketing design firms on the Web. When I first met Craig almost two years ago, he described what their graphic artists had done with the technology—projects more complex than some of my technologist friends are capable of doing, yet they were graphics people. It's a perfect model for what's happening in this world, and why this revolution is so different from the PC revolution. People from other disciplines grasping the use of the technology, adapting it, reinventing themselves and moving to the head of the parade.

Education. Research. Graphics design. What's most appealing about the transformation is that it is opening up new economic opportunities to a very broad base of our population, that spans diverse industries, cultures and socio-economic levels.

The companies I mentioned are not the only ones here in Baltimore, not by a long shot. There's CSTI, CyberSystem Technology; Infinite Technologies; Riparius; Information Resource Engineering; Proteus; Glows in the Dark Studios; CyberStrand Cafe; Final Touch Software; Skyline Network Technology; K2 Design; Original Reusable Objects—the list goes on and on.

You can go to almost any city in the country today and find this same phenomenon. Why? Because it's based on individual, human intellectual capital.

 The Unique World Of Netpreneurs

What possesses men and women to become netpreneurs? A sense of independence, innovation and a willingness to overcome seemingly insurmountable challenges are traits which first come to mind. In this regard, they stand firmly in the stalwart tradition of American entrepreneurship. If you get discouraged easily, this is not the space for you.

What sets netpreneurs apart is not that they are different from other entrepreneurs, but that they are operating in a universe of transforming change. As pioneers of the new networked society, they are both defining and learning new ways of doing business that will, in turn, cascade down to change how all of us will earn a living, learn, take care of our health, govern our jurisdictions and interact with our family, friends and communities. What they are doing today is what the world will be doing 10 and 20 years from now.

So what makes this world unique? Here are the eight attributes we see most often.

1. Speed
With advances in computing, the impact of globalization, changing expectations of stakeholders and the emergence of the Net, the pace of change is faster than ever. Simply put, speed has become a defining characteristic of the new business culture. Once people talked about product design in two-year cycles. I'm working with an incubator group up in Boston that wants to turn out Web products every four months—every four months. Another group we work with has a product release cycle of 120 days. Five years ago, it took us 120 days to figure out what we were going to put in a product; now it's the release cycle itself.
2. Adaptability
The pace of change around the Net requires that a business be much more flexible and adaptive than ever before. You must be adept at reading, interpreting and responding rapidly to changes wherever and whenever they occur—whether in technology, new competitors or shifts in markets and buyer patterns. I'll give you a case in point. Those who have been in the Web long enough know that we went through a period when it was thought that sponsorship would be a significant way of supporting Web sites. That thinking eventually disappeared—after only six months, I might add—but one company we were involved with got caught on the wrong side of the argument. They didn't read it right, and they were done when the sponsorship trend died. If you aren't ready to come off a wrong idea fast and change your business plan, boom, it's extinction.
3. Experimentation
Netpreneurs must be willing to try out new ideas in the marketplace. You don’t have the time or the empirical base for traditional "market research" to evaluate an action. Experiment and be ready to move quickly to adapt to what the market tells you. The best firms today realize that you have to do your research in the marketplace. You have to get the product out the door, experiment, live with it and adapt. Oracle and Microsoft are good examples. They have always pushed their products to market as fast as possible, because they know a designer can never, ever understand what the market ultimately wants. The longer you sit in your lab designing, the further you are from your final solution. On the Net, especially, you've got to get out there rapidly, try a technique, be prepared to adjust it, pull it back, modify it, move it. We are talking about Web site modifications which are taking place in hours, while reading user patterns.
4. Constant Innovation
Today, getting the product to market is only the start of the journey. The market's unrelenting demand for improvement makes it imperative that businesses focus on innovation. As a result, what the netpreneur experiences today, in the demand for constant innovation, will eventually be business as usual for the organizations of tomorrow. I remember once in the late 1970s, in the days of time-sharing networks, I was giving a seminar on this topic and trying to illustrate to our clients how dramatic change could be. In a single two-week period, IBM had announced 1,800 products. Today, we are seeing product announcements by the minute. If you are trying to keep all of this in your head, you don't stand a chance. No one's that bright. You must build human networks of people you can turn to for sharing and collecting this information.
5. A Multi-Disciplinary Approach
Net companies are creating successful solutions by integrating diverse disciplines—technology, content, graphics, services and relationships. The traditional business world calls these hybrids, but they may well represent the norm for the new economy., which is probably still frail in the long haul, has been so remarkable in this integration. You see the easy transaction involved in getting a book, but you may not realize the enormous market branding they've created in the process. Look at the subtlety with which they create discussion forums to help you with a purchase. Look at how they've used agent technology to automatically go out and find information for you. This is remarkable integration. When somebody oversimplifies the model, they are missing point. It's a great example of innovative, integrated work in the marketplace. It's not a hybrid model, it's the way sites are going to have to look and the way businesses are going to have to function.
6. Collaboration
The Net is inherently collaborative. You can't work alone in a medium moving at this speed. It enables you to engage and involve stakeholders at every step of the way. Simply put, the knowledge is too great, the markets and technology move too quickly, and the demands on netpreneurs are too high for one person or one business to go it alone.
As a creator of products, the thing I find most fascinating about the Net today is that you should never again have an internal question. What do I mean by that? If you are a developer, or even a development team, and you are making decisions about an option by yourself, you deserve what you'll get. You must have a network of clients and critics and people you can go to when you have an idea or a question. You should be able to say, "I want the opinion of these 15 people who know this space." The emails should go out and in two, three, 24 hours, you've got answers coming back. You're pulsing your market, every step of the way. This is not about marketing; it's about running a business, from product conception, through development, quality assurance testing, distribution, sales and support.
Pulsing is a whole new phenomena. Great Internet people have understood it as a norm. I believe the Web actually retarded the concept of pulsing for a while. Before the Web, you had to go to the Net and ask people for help. When the Web came along, we thought it was our best solution, but it was actually somewhat more of a display vehicle. We've come full circle now, where great Web sites are highly interactive, so you can ask people for assistance. They create the mechanisms for communication and collaboration.
7. A Distribution-Driven Model
The real challenge in today’s business world is distribution—the dissemination of your brand and identity and of your products or service. In one sense, the Net lowers barriers to entry with regard to distribution, but, to sustain success, businesses must focus their efforts and be aggressive in building their brand and distribution channels. As so many people have discovered, you can have the greatest invention in the world, but the person with the best channel wins. End of discussion. When you complain about a vendor who has inferior product, woe to you, because you're the one using the channel. You're buying because their channel is reaching you.
In the Net world, this means you can't just stick something on the Web and expect people to find and buy it. Great Web sites cultivate brand and reach in a market. The businesses or organizations find you and cultivate a reaction. That's a distribution channel. You, or your competitor, can have an entire physical sales force using phones and email as well, selling the same product you are selling on the Net today. How do you build your channels? Who are you working through? How do you reach the target audience? These are the most critical factors of success in the Net world today.
Some years back, I was on a keynote panel at UNIX Expo when somebody in the audience made a comment about how distribution costs would drop because of the Internet. Another panelist, who ran the QVC Network in its early stages on the Net, replied that QVC was spending two dollars in marketing for every dollar they saved in distribution.
Depending upon what you want to do, it can be expensive to market on the Net. If you are Jean Armour Polly, and you're going after a target audience of 20,000 people for an income of $150,000 a year, you don't have a big marketing problem. If, however, you are going head-to-head with America Online (AOL), you'd better be ready to write some seven- and eight-digit checks for marketing. That's why Steve Case is so brilliant. He understands branding and market channels. AOL has become the de facto portal site for consumers. That's why, when Bob Pittman came in, he changed the whole revenue model of AOL. Instead of paying people to come on AOL, people now pay to get on AOL because they own the eyeballs.
8. Niche-Focused Markets
The Net’s reach and distribution open up new market opportunities. Netpreneurs focus on well-defined market sectors—niches—where they can achieve a dominant position or discover unserved markets. In fact, the really exciting opportunities lie in creating new ones. Look at again. They went after the hard-to-find, seldom-referenced books. They're not making their money selling the titles from the New York Times Bestseller List. Barnes & Noble and Borders do that. They went after the niches and back list books, then they grew from that niche. You have to know the niche you're trying to reach and how you are going to reach it.

Who's Got Your Back?

These eight traits which characterize the netpreneur's world are each daunting. Together they represent a powerful force and a paradigm shift. Yet, for both netpreneurs and established players, the real risk lies in the embryonic nature of this economic frontier. Their greatest threat may come from a company which has not yet been formed or a technology which has not yet been introduced—the next generation browser, a successor to Yahoo! or a new "killer app". That's the uncanny part.

There's a line that Andy Groves has made famous, "Only the paranoid survive." In the Net world, only the really paranoid survive. You can be cruising along as the glamour child when, suddenly, someone comes up with a new idea and, bingo, they've got your market. The way you combat this is by getting brand and entrenchment—like Yahoo! or AOL have done, or to a lesser degree. You hold off penetration by creating a barrier to entry that's vested in a psychological brand.

Growing A Coral Reef

Don't let that last thought diminish your paranoia, however. The next product may be in development right now in a student dorm at Johns Hopkins; a teenager's bedroom in Towson; the basement of a person who recently got laid-off in Bel Aire; one of the new-age incubators, like the American Can Factory; or over coffee by two people at the CyberStrand Cafe. Don't expect them to come from typical places.

Some years back, James Roth, the CEO of GRC, a technology services firm, was discussing the delicate and fragile nature of entrepreneurial environments. He used an analogy to drive home his point saying, "Entrepreneurial areas are similar to coral reefs. We don’t know how to create them, but we can nurture them with support or kill them with neglect."

The key to helping netpreneurs flourish is to build a support network of other netpreneurs around them, then adding a second support network of venture capitalists and funders. Advisors, professionals, service providers and everybody else will fill in the open spaces. It's the community—collectively you become powerful, not individually. You must understand the core competencies of the region and build from there, because the geographical centers of innovation and entrepreneurship have forces that create the core—the critical mass of technology firms in Silicon Valley and Austin, Texas; the knowledge and wealth of Microsoft in Seattle; the universities in Boston/Cambridge; the convergence of telecom, Internet, biotech and content in Baltimore/Washington—these are the cores from which a new generation of entrepreneurial start-ups emerge.

We must nurture communities that support netpreneurs to help them help themselves—much like the high-tech industry in Silicon Valley has done. This is about human networking, getting to know one another, building trust, using Web-based forums, email discussion groups, chat rooms and old-fashioned, face-to-face meetings like this one.

It is not about public policy, not directly, nor is it about giving an entrepreneur a crutch. I think that's the worst thing you can do. An entrepreneur has to learn to jump the hurdles or he won't succeed. Anybody who is helping you the wrong way can be doing you a disservice. The greatest thing we can do, sometimes, is to help someone realize that they're not an entrepreneur or that they're not ready yet. The other great thing is to encourage them when they are, and to help them keep going when they're down.

Exciting Times And Exciting Opportunities

These are exciting times and there is much underway in Baltimore and certainly across the broader Baltimore/Washington corridor. Consider, just for starters:

  • the enormous base of bio-informatics and genetic research that sits here at Johns Hopkins and in the rest of this region, as well as telemedicine delivery and remote diagnostic capabilities which will fuel growth for many years to come
  • the investment leadership of New Enterprise Associates (NEA), GroTech, JMI, Anthem Capital and others
  • recent technology financings such as those by BT Alex Brown and Legg-Mason
  • cottage industries blossoming around such areas as the smart agent technologies coming from the University of Maryland, Baltimore
  • Neil Kleinman's new era communications program at the University of Baltimore
  • the incubation activity of the American Can Factory
  • educational partnerships such as the Maryland Information Technology Institute
  • the newly-established Abell Fund as they begin to work closely with Baltimore-based netpreneurs
  • the Greater Baltimore Council and the Mid-Atlantic Venture Association continuing to nurture the tech community
  • and, most importantly, the scores of young netpreneur businesses emerging in the area

Things are happening. It's an exciting opportunity. Actually, it can sometimes be numbing to see so many exciting things in a day. When you're struggling at night, trying to figure out why you're doing this, when it seems like you're beating your head against the wall, keep something in mind—we're talking about nearly $10 billion of net worth in this region from companies that did not exist when this decade started. The next Yurie or Ciena or Yahoo! or AOL may be sitting in this audience tonight. I wish you all the success those companies have had.



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