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Heart Of An Economic Transformation Copyright
1998 Morino Institute. All rights reserved. Edited for length and
clarity.
"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:
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:
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.
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 Amazon.com 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:
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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