an evening with the stars of e-commerce
part 7: Jack McDonnell: you have to be a
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 ityou are a lot smarter 15 years
laterit 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 >