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an evening with the stars of e-commerce

part 7: Jack McDonnell: you have to be a little crazy

Thank you very much. It's nice to be the last speaker of the night. I know you are hoping that they saved the best for last, unfortunately, that's not the case. The fact is, the reason I'm last is that I get to introduce no speakers. I know too much.

You have heard a lot about the various relationships that built up over the years amongst the panelists, and it is true. Aside from my wife, the longest relationships I probably have in this world are sitting here at this table. It's interesting that they have survived some crises that would have folded many a marriage.

I have to go back to the start of Transaction Network Services (TNS), and really to the phase before that, which was Digital Radio Networks (DRN). At DRN we built this wonderful radio network in the late 1980s, with lots of money from Citicorp. I was actually handed the business plan, I was not the entrepreneur. I was supposed to execute the plan, and we did a terrific job. We built a radio network that worked in 66 cities. The business plan said we broke even at about 10,000 radios. When I left three years later, we had 1,200 radios. When they folded their tent 18 months later, they had 1,800 radios. It was an absolute technological success, but it was a marketing disaster. The banks simply would not buy into the radio technology.

If I had stepped back and looked at it—you are a lot smarter 15 years later—it was obvious that this was not the right market for radio. We had a great telecommunications network; it worked. It was relatively inexpensive compared to other countries. 300 baud was the fastest terminal that Bill had figured out how to make. There was no need for the radio network, so there was flawed market analysis that went into that business plan, but I did take one thing away from the plan. It was clear to me that the merchants absolutely wanted faster transactions. I figured out a way to use my X.25 background and a lot of other things to leverage a service that had been used by the calling card industry. Calling cards were not generally available for the public, but First Data Corporation (FDC) was now one of my biggest customers and they had fought a battle with the Federal Communications Commission (FCC), that said that this service needed to be sold to anybody, not just to exchange carriers. I actually jumped on that FCC ruling and went out and bought this group, Feature Group B, which was a fast connect to the local phone company. It was used by MCI and Sprint for their calling cards. It took a great deal of effort, but I won't bore you with the war stories about getting the RBOCS to deliver the service to me. That was the fundamental block on which we built TNS.

The original business plan for TNS called for break-even at five million transactions. Last month we did 240 million transactions, so this one's been a real winner, and John's right. This is the point in the program where I'm going to say, "Everybody up here who is making money, raise their hand."

When I did finally come up with this idea and wrote the business plan, the next magic thing was finding the money. Well, the obvious place to go is venture capitalists (VC). Unfortunately, when you want to build a network, there are some very bad vibes in this town because of Telenet. Today, everybody thinks that Telenet was a huge success. As a private company, it never made a nickel, not until GTE bought them and threw bunches of money at them. Then, they did become successful, and then they became part of Sprint and continued to be successful. As an entrepreneurial company, however, they never made a nickel. Since building data networks was not a really hot topic with the VCs, I asked, "What's the next best thing?"

This is an object lesson for the entrepreneurs. I sat down and I said, "Who would benefit, if I really did build a faster, better, cheaper network? Bill Melton, he's going to sell more VeriFones because I'm going to open up some new markets. We 'll start putting VeriFones in movie theaters and parking lots and all these places that wouldn't take credit cards, because they were too slow."

So I went to Bill and said, "I've got this great idea. I'm going to build this network." And he said, "Well, who are you going to compete with? I said, "AT&T, MCI, Sprint, CompuServe, Telenet, Tymnet. You know, the usual guys."

He said, "You've got to be crazy."

Well, you have to be a little bit crazy, I think, to be an entrepreneur. But then I hit him with the punch line. I said, "But you don't understand. If I really pull this off, you're going to sell more VeriFones. I'm going to open up all these markets to you where the process is so slow they won't accept credit cards." He said, "It's a hell of an idea, where do I sign?" He wrote a check for a $1.5 million. He doesn't look like much of an angel, but he was my angel.

Basically, we executed that business plan and it still represents 61% of our revenue. Then I found out something else about being an entrepreneur. You can't stop being one.

How do you stay interested when your original business plan is successful? Everybody says, "That's a terrific deal." You go public. You make all this money. But, how do you stay interested when you really like to start things?. So, today, we're four businesses. The original one still represents 61% of the revenues, but every year I have to start a new business. The last one we started a year ago and it's one that probably has the most germane application to this audience. We built a secure IP network using Cisco technology for the securities industry. Today, we have 125 brokerage firms and money managers connected to that network, and it is making money after less than a year. We are also the back-end network for CyberCash. It's a wonderful thing, doing these transactions on the Internet. There are no processing companies connected to the Internet. Did you ever think about it? How does a transaction get off the Internet and actually to the place where it needs to be authorized and settled? That's us. We're the back-end network. We have the gateway between ourselves and CyberCash. To his credit, even though I'm needling him about CyberCash's slow growth to the profit line, I have watched this business grow over 10 times in the last year.

It is happening. Whether it's happening fast enough, only time will tell. We handled three million transactions on the Internet last month. We handled 300,000 of them a year ago. It is happening. No one can predict exactly where it's going or how fast it'll get there, but it is now an integral part of our life. I have to tell you, I was a skeptic. I have been down the network path so long that I just couldn't believe there was one out there that would change all of our lives. Yet, today, the first time I encounter a company that I don't know about, whether it's a prospective customer or a prospective vendor, the first thing I do is to search for whatever I can find on the Net. Frankly, if there's nothing available on the Net, I'm not interested in that company. It has actually become a driving force, an integral part of all of our lives. Whether or not you are actually doing e-commerce, if you are not using the Net as a tool, you are falling behind. That's really, the message I came to deliver. The train has left the station. If you are not on it, entrepreneur or otherwise, as a business you are going to be left behind.

next: part 8: The Audience: questions and answers >


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.  

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