The Minds Behind the Madness

The Internet-startup boom continues to create lots of fast-growing companies, several high-profile meltdowns and first-mover advantages. The pace is dizzying and the excitement is electric.

We don't, however, hear much about the key players -- founders and CEOs -- behind these new companies. What compelled them to get out there and play the dot-com shuffle? Obviously, it's more than a dance. If these key players are to keep the promises of the new economy -- growth, transformation of business processes and models, greater business efficiencies and much more -- then they must know that today's business adventure is riding on their success. More than ever, achieving long-term success means mastering the timeless fundamentals of business (serving customers, motivating employees, crafting strategies).

But, so what if we hear the story of a few adventurers who started a new economy company? How does that help us become better B2B buyers? Where's the proof that some of these companies can transform the way we purchase and streamline the efficiencies of our supply chains? The old economy-new economy dichotomy has a deeper meaning than "better way to buy." What these stories uncover is that the minds conceiving some of these new companies discovered the weaknesses in the old economy and tried to fix them in a new economy way. Their stories tell us we're all on the road to better business in the buy and sell ... or should we say we're all heading to the dance.

Linking the Construction Industry: Buzzsaw.com
Buzzsaw.com

Though he had been involved in startups before, Bass feels he underestimated the time investment required to start Buzzsaw.com. "At the beginning, you get caught up in the idea and excitement. It was something I wanted to do. The emotion sweeps you through the rational part of thinking about it. But that is the real challenge in startups -- how do you do your job well and maintain a family life?"

Bass, Buzzsaw.com's CEO, handles these concerns by trying to get home in time for dinner at least a couple nights a week and also conserves as much of his weekend as possible to spend time with his wife and sons. But of course, meetings and travel sometimes cut into family time.

"When I told my wife I wanted to start this company, neither of us realized how much work it would be," Bass says. "You have to want to do this for the right reason. For a lot of people, getting rich is not a good enough reason. It requires people who are willing to spend a lot of time and deal with chaos and keep it fun. Sometimes you need to be in three parts of the world on the same day. Whether a company fails or succeeds, it's important that you've learned, enjoyed yourself and grown, otherwise it's a waste of time."

Today, Buzzsaw.com provides the building design and construction industry with online tools and resources. Housed in the middle of downtown San Francisco, within a few-block distance of about 100 other dot-com companies, Buzzsaw.com operates out of a 1926-ish gothic building. But that's the only old-fashioned thing about this organization that brings players in the construction industry online.

"We saw early on that the industry needed help in managing the flow of information and getting it to all the people in the process," Bass says. "There's no doubt in my mind that three years from now people will be managing projects online."

Some areas of the construction industry are already more technologically savvy than others. "The general contractors and architects are pretty wired," Bass says. "Other parts of the industry are slower to sign on but I've been surprised with their pace." The construction industry offers tremendous opportunity for his company, Bass believes, with its $700 billion market in the United States and $3.2 trillion market worldwide.

Starting out, the Buzzsaw.com team focused mostly on larger commercial builders. "We knew commercial construction was big and had the infrastructure to do things online," Bass explains. "If we can help people save time and complete a commercial building sooner, it's money in the bank for us."

Bass and the other Buzzsaw.com founders wanted to remain private as the organization started to mature. "It's better to live your adolescence as a private company," Bass says. "It allows us to round out our team and nail down our business plan so that when it has to live through the scrutiny of the public market, we're ready." Buzzsaw.com completed its second round of funding in March 2000 for $75 million.

Because the company started off with backing from Autodesk, well known in the building industry, and from Bank of America, they had a solid start. At other startups, Bass remembers sitting by the fax machine for two months waiting for funding to come through. With Buzzsaw.com, he hasn't had time to sit by the fax machine: "There's too much to do here. If one thing doesn't work out, it's on to the next. We look at what else we can pursue."

Bass and his team sought employees familiar with the building industry -- so even in today's competitive hiring market, they've been able to attract and retain those passionate about facilitating change in building and construction. At least half of Buzzsaw.com's employees come from within the industry, which also helps the team stay in touch with the needs and wants of users. They have an advisory council of several dozen firms that pilot developments to the Buzzsaw.com system and become users.

About 200 other companies have started to offer some kind of e-commerce product for the construction industry. "I think the market share for all of us is a fraction of what it will be three to five years from now," Bass says. "With other evangelists and people promoting e-commerce, it helps people think about online stuff. If we were the only people out there selling this, it wouldn't look like a valid idea."

Upside magazine recently included Buzzsaw.com in its list of "Hot 100" web sites and Forbes listed Buzzsaw.com as one of the "Best of the Web."

Bass' future plans include planning ways to increase his company's profitability, as well as expanding and enhancing Buzzsaw.com's offerings to provide end-to-end solutions. He also wants to expand his organization's currently small presence in the European and Asian markets. "The most fun part about all this has been creating a new business," Bass says. "I've enjoyed the challenge around the problem solving, creativity and imagination as we look at how we build a compelling set of services. We started with a blank sheet of paper. We had some constraints and borders but a lot gets to be figured out the first time."

In the next few years, Bass expects to see consolidation among startups and some companies may have trouble raising their second or third rounds of funding. But there should still be ample opportunities in the dot-com startup arena for the creative and persistent: "Startups are a great way to deliver innovation and take advantage of new technology. There are huge opportunities created around that. People continue to come up with more ways to use the Internet, not less."

Providing Resources for MRO Buyers: PurchasingCenter.com
PurchasingCenter.com

Why does he keep this schedule? "I wanted to see if I'd be able to do it -- see if I could put together a team and create products and services that people wanted to pay for," Baier says of starting PurchasingCenter.com. "It wasn't as important to me to be my own boss -- there are a lot of delusions about being your own boss. I still have investors that I need to keep in the loop. The reality is that there's always a higher power somewhere -- Wall Street or investors - even if you start your own company."

Baier balances the excitement of starting and leading a dot-com company with the reality of family life, keeping him fairly focused: "It's exciting and fast-paced, and there's never a shortage of strategic issues to think through and work through."

But as a dot-com CEO, something has to give. "What suffers are friends and your health a little bit as you give up sleep," Baier says. "I try to work out, too, but meetings almost always supercede my workout schedule."

Previously working at a company that provided software to manufacturers and distributors, Baier noticed a great deal of fragmentation, lack of resources and other problems in the purchasing process for the $187 billion market of industrial and facility supplies. This prompted him to co-found PurchasingCenter.com in mid-1999 to meet the needs of maintenance, repair and operation (MRO) buyers.

Before starting PurchasingCenter.com, Baier and his wife beefed up their savings account so he could go for a year without income if needed. Fortunately, this hasn't been necessary. "Venture capitalists want the early folks starting a company to have some salary so they stay focused on the business and are not figuring out how to get a couple hundred dollars each month for food and rent."

Located in a suburb of Boston, another high-tech hotbed, PurchasingCenter.com is surrounded by individuals and companies interested and involved in e-commerce. As of last summer, the area boasted a 1 percent unemployment rate for high-tech jobs.

The high-tech savvy in the Boston area and around the country equalled opportunity for Baier and PurchasingCenter.com. "We realized that use of web browsers had increased significantly by purchasing agents," Baier says. "Some 90 percent were using them compared to 20 percent three years ago. We saw it as an opportunity to get online without needing a lot of tools."

PurchasingCenter.com offers a consolidated purchasing process for sourcing, buying, summary billing and reporting, along with group purchasing power and pre-negotiated contracts. In "My Purchasing Center," purchasers can automate requests for quotes (RFQ) with their individual lists of suppliers; set up a list of "favorites" or frequently purchased items; and view purchase and quotation history and a list of pending and closing RFPs. The site also offers news articles, message boards and purchasing-related job postings.

Baier started PurchasingCenter.com as a private company and raised about $34 million through venture capitalists. "There are nervous moments as you're closing financing," he says. "Despite the fact that people give verbal OKs, you never get comfortable until the money is wired over. There is some anxiety over that because people quit good jobs to come work for you."

Over time, Baier found the need to change the company's business plan in response to drops on Wall Street. "It's amazing how changes affect public and young private companies just as quickly," Baier says. "We changed our spending plans. For example, we reduced our marketing budget from $8 million to $2 million and slowed our hiring plans."

For others interested in starting dot-com companies, Baier stresses the importance of being able to build a good team quickly. "Time to market is so important," he notes. It's also important to talk to enough people -- potential customers -- to validate the idea.

When PurchasingCenter.com first started, the main focus was on building tools for the purchaser. Now, the team is also focusing on tools for suppliers and distributors. "We've moved away from the customer acquisition mentality to the profit mentality. It's a land grab at all costs," Baier says. "We, and many other companies, are currently in that mode."

But MRO buyers' needs still provide Baier's main focus. To stay in touch with their needs, the PurchasingCenter.com team holds focus panels of MRO buyers every couple of weeks to review products and web site capabilities. During the development stage, PurchasingCenter.com staff also paid purchasers to come in for three to four hours for more extensive feedback sessions.

"This is a very literal group," Baier says of MRO buyers. "They tell us they don't like sites with too much information. And they want to know that this is an industrial and not a consumer site. If there's anything that feels consumer-ish, they will hold it against us." Baier mentions a "$5 off if you buy today" type of promotion is one that would smack of consumerism and turn off an MRO buyer.

Baier's future plans include investigating international opportunities for PurchasingCenter.com, possibly early next year, as their focus to date has been on the U.S. market.

Domestically or internationally, Baier's main focus will continue to be determining and serving the needs of MRO buyers. "The things purchasers like about our site are the standing shopping baskets where they can identify frequently purchased items. They also like the approval and group accounts features," Baier says. "They can push purchasing off to other people in their companies and monitor it. They can get detailed reports by cost center on what's being purchased."

This enables MRO purchasers to focus on more valuable areas than routine buys. Baier mentions a purchaser that orders 20 percent to 30 percent of his company's needed products on PurchasingCenter.com, saving him 10 to 15 hours a week to work on other projects. "Our site gets rid of that endless cycle of phone and fax tag," Baier says. "We help them get the job done."

Overall, Baier expects dot-com startups to continue with the same frenzy over the next few years. "There is still a tremendous amount of capital out there," he says. "Lots of people are looking to start ideas and are getting tremendous returns. There's a huge velocity of innovation and change, which means more automation, more new products and more new companies. The treadmill doesn't slow down at all."

While heading PurchasingCenter.com does take valuable time away from his family, Baier says he can't imagine running a dot-com without having a family. "No matter how hard a day I've had, when my precious little daughter runs into my arms yelling "Daddy!" I get rejuvenated. It's wonderfully therapeutic. It forces me to keep things in perspective."

It’s More than a Meat Market: FoodUSA.com
FoodUSA.com Rodney's Great Adventure

"It's not exactly a hotbed of dot-coms here," Heller says. "The culture is very conservative and traditional." That hasn't limited Heller or FoodUSA.com. In June, the online meat and poultry exchange announced that it had achieved $10 million in closed transactions only 46 days after its launch.

Self-employed for several years of his career, Heller had been a food broker of canned and frozen vegetables. "I kept getting hit by industry consolidation," he says. "Customers and suppliers were being swallowed up and I was losing accounts. I knew that if I wanted to stay self-employed I would have to do something radical. I like to be in control of my own destiny." Heller tried to launch an online vegetable exchange in mid-1996, but found that he was a little ahead of himself and that it was too early for the industry to be thinking about online commerce.

"Back in 1996 and 1997, when I first came up with the idea to take supply chains on the Web, everyone thought I was nuts," Heller says. "It was horrible. It's pretty humiliating to take a five-hour flight home with your tail between your legs. But many of the companies that showed me the door then are the companies making the biggest deals today."

Heller kept refining his ideas and one of his early backers, a poultry distributor, suggested he consider an online meat exchange. In December 1998, Heller started his research. "I had never sold an ounce of meat in my life but I knew enough to be dangerous. Once I focused myself, things were easy."

He knew, for example, a huge market exists for chicken breasts but not for the rest of the chicken. Other parts are frequently sold on the spot market, about a $100-billion market. Heller secured venture capital and then began to hire experts in the meat industry before launching the site in April.

While Heller's site deals with meat only, other exchanges spread themselves out among meat, fish and other products. FoodUSA.com must be doing something right: While Heller says they have a ways to go, his company is on track to have 0.1 percent of the market as of late June. And Forbes magazine named FoodUSA.com as one of the 10 best agricultural e-commerce sites.

Working with a board of directors also proved a challenge for Heller who, as an entrepreneur, was used to implementing whatever ideas he could dream up. "I've always been able to call my own shots," Heller says. "Now, I work with other people's money and a board of directors. I think stuff up in my head but now I have to put it on paper and present it. That has been some of my most humbling experience, but my board says I'm getting better."

FoodUSA.com has remained private so far, which has benefited them in today's climate, Heller believes. "Today, investors are getting smarter. They understand what to look for. It got rid of the junk in the marketplace but it also tightened up the money for everyone." FoodUSA.com was going through its second round of financing this summer and may look toward merger and acquisition possibilities. "It's almost easier to get acquired than to do an IPO," Heller says. "IPOs are a lot of work."

Starting FoodUSA.com meant that some of the people who wouldn't listen to Heller before now take him seriously. "All of a sudden, I'm not a crazy guy anymore," Heller says. "I'm the same person but now I have a successful company going. But people look at you differently. The people that showed me the door before now say 'We should listen to this guy.'"

Heller says his family life is intact after starting a dot-com, although family vacations with his wife and 10- and 12-year-old children frequently revolve around locations where he has speaking engagements, and he totes a cell phone or laptop. Heller's social life is "nonexistent" but he does occasionally make it to the golf course with friends.

To others interested in starting dot-coms, Heller suggests starting a second round of funding as soon as they close on the first. "People are always squeamish about money and losing percentages of their company to an outside investor," he says. "Take the money and get as much as possible. It takes a ton of dough to start a dot-com."

In his company's brief history, Heller has stuck to his original game plan for the most part. He plans to start a branded exchange this fall, which would enable sellers to list their product brands and prices, sending this information out to buyers. If the products don't sell this way, the sellers can then opt to use FoodUSA.com's traditional auction-style exchange.

FoodUSA.com also recently partnered with a logistics company to offer transportation to its customers.

Employees at FoodUSA.com keep in touch with end-users through constant contact. "Our exchange is really a glorified bulletin board," Heller says. "It's manned by people who know the meat industry. Our trade facilitators have 20 to 25 years of meat-industry experience."

This gives FoodUSA.com users a much-needed comfort level. "They have been buying by telephone since the telephone was invented," Heller says of FoodUSA.com’s users. "I knew I wasn't going to get these buyers to go straight into Internet purchasing. We give them a happy medium: They can look at the computer monitor, and they can still use the telephone too. There's a comfort level in talking to a trade facilitator whose reputation is on the line. If the goods don't show up, the customer has someone he can call."

"It's all about bringing customers along at a speed they are comfortable with," Heller adds. "As they get more comfortable, it'll be easier to introduce full-fledged electronic trading. There's no question we will change but we have to do it at their speed."

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