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Something Ventured:
October 15th


Insight For BC Technology Entrepreneurs

By Brent Holliday

A Whole New World

"Every time I pick up the paper it's harder to believe the news, oh yeah…
You can't do nothin that you don't put your mind to, oh yeah
Ooooh, I'm looking for clues"
- Robert Palmer, Looking For Clues "

 Q: When do trade shows become too big, too self-important, too Comdex?

A: When deals no longer get done and the event is more about PR than substance.

I've been to Internet World shows since 1995. Since they went Spring/Fall in 1996, I have only missed one. I am happy to say that the most recent version of Internet World in New York was not too Comdex. But it won't be long. A good sign that a show is about to get un-important is that Microsoft's booth covers more than 5% of the overall floor space. I measured it myself this time. 3.8% is all that they covered, including the Partner Pavilion.

From the exhibitor point of view, when a show gets too big, it loses its focus. As an exhibitor at a trade show, you want qualified leads trolling the aisles that you can lure with useless trinkets and attractive temp staff. You want decision makers from potential customers or partners. Just how focused is the word Internet today? How many categories of company can include the word Internet in their corporate tag line? Oh, about 100 different categories. There was a company there that was selling software to parents of school aged children to help block unwanted video games and web sites. Right next door was a company selling gambling site software. And many companies were selling bandwidth or web hosting or "complete outsourced e-commerce solutions". There was content and there was application development environment software. It was wide and it was big. But 1 out of every 10 people stopping to get a free squishy ball at your booth or to sign up for a chance to win the shiny sports car that you really weren't going to give away… really cared what you were doing.

From the attendee point of view, lack of focus is not an issue if you are there to get the pulse and meet examples of companies in various sectors of the industry. For general buzz and excitement, this show topped all of the previous ones. In my mind the Internet has turned a corner and is zooming towards ubiquity faster than even Gartner or Forrester could have predicted. For example, the floor was actually quite light on content or portal companies. The emphasis seemed to be on e-commerce and more on the software solutions and services that a company would need to transact or interact via the Web. The Internet has become a practical everyday tool for doing business. Whether you do all of your business on-line or only a small part of it, the Net is now your friend.

To help give you an overview of what I saw, I thought that I would do a couple of short essays:

Categories As Crowded As A Tokyo Subway

If you are writing your business plan for a start-up in one of these categories, you had better think twice:

Live Customer Support via the web - I saw a dozen companies with slight variations on the same theme. They say that consumers want live (or simulated live) customer contact either through chat, voice or automated response when browsing the on-line shop. So, a pushy sales rep will follow me in cyberspace now. Great. Can I create a hot key that sends "No thanks, I'm just looking."?

Unified Messaging Services for free - Just 6 months ago in LA, this was a hot new area. The idea was to have a universal voice mail, e-mail and fax inbox on the Net and charge for that service. Then, sure enough, some crazy entrepreneur with too much venture capital started giving it away. Now, there are at least 8 companies that I saw that are offering a variation of the free service. None of the free services offered compelling enough solutions for any more than the curious individual. Until the unified messaging is tied to my wireless phone, home phone and office phone as well as my fax and e-mail, and accessible from all of those locations, I am not interested.

Sticky Gimmicks - A clever buzzword someone came up with for this category is "apptent". The content that keeps people returning to your site because it is a useful or fun application that is re-used. If your site is ad driven, you want people coming back. On-line calendars are so, thirty days ago, you know. Now there are e-promotions, loyalty rewards, group surfing and much, much more. This is a category where the business plan says, "spend 95% of the money on marketing to get users, then sell to the highest bidding portal site" If you have the cash then it works, but it is busy, busy, busy in this space.

Emerging Trends That We All Should Follow

Wireless Internet -

As you know from the past few columns, I am a big fan of this area. The show had quite a few booths and companies showing off applications using cell phones, PDAs and next generation wireless devices. Another reason that I like this area is that a lot of Vancouver area companies are emerging in this space. Right now, we all think of a PC when we think of using the Internet. In a few short years, all of us will wonder why we sat in front of a screen to do our banking or do email or instant messaging. But it gets really cool when you think about an always on, always with you communications tool that can act as a locator beacon, too.

Payment and Billing -

Although payment methods companies are also as crowded as the proverbial Tokyo subway, the show offered some interesting innovations that point to a future of simpler, faster on-line payment. Qpass in Seattle is a new player in the micropayment space. You use their software to buy smaller (<$10) items or content and they bill your credit card when you reach a certain threshold. Your Qpass token authenticates who you are quickly and you don't need to fill out forms! Another small Seattle company, Microsoft, is really pushing their new technology coming in Windows 2000 that will have a lot of Qpass' functionality. Echarge, a former Vancouver company, has a different spin on payment. Their technology enables an ISP to let people charge goods directly to their bill. No credit card needed. Bill presentment is an emerging field and their were many companies showing their wares. I bank on-line and I can pay every bill through my mbanx account. Bill presentment is all about paying the bills, but also about receiving the bills on-line. For companies that bill monthly, the postage savings could be huge.

Digital Music -

The Real Networks booth was very busy. While I noticed a lot of new companies in the video delivery area, the real buzz is media is music. Over at the AOL booth, they were rolling out the new Spinner radio tool. The Creative booth was showing new versions of their MP3 devices (here's a scoop: they will call them MP3 players, but inside these tiny digital walkmans, there is a new chipset that allows the playback of other formats, too.) While the record companies figure out how to take the next step after setting the lawyers loose, the Internet community is setting standards and developing download solutions. Real is pushing hard with its Jukebox to ultimately try and get its format adopted as a download format and not just streaming. But the battle to get the format adopted will also hinge on who gets their watermarking technology adopted fastest. Watermarking makes the record companies happy, because they can tell if you bought or copied your music. Reciprocal is an interesting company that is enabling all of those music download sites that are appearing. Reciprocal provides all of the e-commerce tools you need to package and deliver the music.

A new company called Voquette is taking streamed formats and making them into MP3s so you can listen to them on your MP3 player. An Alberta company, Qsound Labs has some interesting 3D sound technology and an on-line tool to help you put music to those jpegs on your family site. A Nanaimo, BC company, Global Media, was announcing its new deal to provide radio station web sites with streamed content and downloading capability, like Reciprocal.

In the new year, go and buy a digital music device. Then enjoy the music.

The Need For A One Stop Solution Shop

One thing that struck me as I walked the floor, was the incredible amount of brainpower being used to create an entire new industry, in some cases, based on entirely new ways of doing business. There are thousands of companies with thousands of executives that are staying up way too late dreaming and scheming for a better way to make money on or using the Internet. It used to be that you had an executive retreat once a year to review strategies for your company. Now its daily. And the CEO may not even know that the strategy changed until after the first deal is done using the new business model!

I saw companies 6 months ago in Los Angeles that were selling a software product. Now they are selling a service. I see rapid consolidation of companies in crowded categories over the next few years. How can there possibly be enough demand from customers for 12 companies at this (still) very early stage of the industry? My favourite example of the mania of changing business models and potential for consolidation is in the customer service space.

Think of a customer. Now think how you get their attention, get them to understand your product/service, get them to buy, give them technical support, upsell and cross sell them to other products/services and keep them loyal to you and your brand. The customer life cycle starts in the real world by visiting them, having them come into your store, having them call you or having them come to your web site. Here is a short list of the companies that want to sell you their product to help you speed and improve getting money from your customers:

Sales Force Automation Software

InBound Call Centre Management Software

Customer Relationship Management Software

Marketing Campaign Management Software

On-Line Tech Support Knowledge Software

Inbound E-mail Management Software

Outbound E-Mail direct marketing software

On-line Customer Contact Software

Web Site Customer Tracking and Analysis Software

Web Site Customization/Personalization Software

All of these are offered by different companies. So, what do you think the chances are that any or all of the dozen or so companies in each of the above categories can easily integrate their software to your existing e-commerce site and internal ERP system? Fat chance. Even if many of the solutions offered above work through the browser, at some point it all has to share data. Looking at this mess, if you wanted to start a company that could offer a soup-to-nuts solution for a company's customer service, wouldn't you be a service yourself? I'm not talking about a one-off, custom systems integrator service. I'm talking a best-of breed, one stop shop. Make the best of the solutions in each category above actually work together and then offer a hosted service and provide the applications via the Net. Tie in an outsourced call centre with live agents, and you have a very interesting offering to companies that will never approve the internal integration of all of these disparate software products. ClientLogic is Canadian company doing most of what I have described. There are others in a new category called Application Service Providers. Many of these were at the Internet World Show. They don't just solve the problem of customer service, they offer hosted solutions for Intranets, E-Commerce and other areas.

If you have a jumbled mess of good technologies in an early and growing industry, creating a service model might make you very rich.



Random Thoughts

Do you read Industry Standard? If not, you should. Anyway, it offers a barometer of the Net Economy on its front page every issue. From 1 to 10, how hot was the Net Economy this week? They justify their score with some semi-scientific metrics on the inside. I was thinking of starting one of my own, indicating the temperature of the BC technology community, but from the early stage company perspective. After all, we have a good barometer of the public tech community through the T-Net 20 index. My metrics for the relative heat of the emerging technology economy in BC will be conversations with financiers, entrepreneurs and others associated with the early stage companies. In other words, what I do for a living…

BC ESTI (Early Stage Technology Index) is at 8.5 out of 10 this month.

1 would be the worst possible time to start a tech company, 10 would be the tech economy firing on all cylinders and virtually every decent start-up getting funding.

Why? The business plans for new start-ups are flowing in faster than anytime any of the VCs can remember. The tech economy has never been hotter here with the recent summer successes of Creo, Pivotal, HotHaus, PMC-Sierra and Sierra Wireless. The opportunities for being bought or going public at large valuations are definitely still there. It isn't a 10 because the overall climate for business in BC still sucks and we are still a long way from enough capital sources being available from seed to later stage financing. Having said that, it is nice to see ideapark get started to help seed stage companies and the T-Net Capital Connector to help bring angels into the early stage deals. All in all… times are good.




Response From Last Week's Column:

Brent,

I enjoyed reading your Oct. 1st column (Something Ventured: Why Investors Say NO). It is a bit of a sensitive subject among venture capitalists because the entrepreneurs read so much into the 'rejection' that they end up making personal attacks on the venture capitalists when they speak to other entrepreneurs (I found it amazing how many lies got spread about me after I entered this field - with the source mostly being bitter entrepreneurs). I think this reason alone is the reason many VC's are so vague with why they will not fund a particular deal. The nature of the job of being a VC is that they must say no to about 99% of the deals that get submitted (maybe less, a Silicon Valley VC I know does 8 deals a year from 2000 business plans reviewed).

You raised the specific issue of DOTCOM companies getting funded. There are special considerations for DOTCOM companies when it comes to VC investment. There is a MYTH that any good Internet idea can get funded in Silicon Valley ... the real truth is that any good idea with a WORLD CLASS team gets funded. Here is my short list for what makes for a good DOTCOM investment:

1. World Class People - good management experience, good technology knowledge, experience with building a start-up company

2. Unique, World Class Idea - can't be a MeToo.com, no one will fund an idea that has already been funded by deeper pockets elsewhere (ie. not another web calendar) ... create a new category or a new business model which will 'change the world' (or at least a high value niche)...

3. Realistic Expectation to Win - there has to be a realistic expectation that the combination of people, technology, strategy, and money will position you to dominate your category, to prevent new entrants to steal your idea, and attract the additional people, money and ideas you will need to grow the business

In my experience, there is often the 'build it, they will come' notion behind every DOTCOM business plan. It is never as easy as that (from personal experience) and any experienced investor knows that. These business plans need to address how the company will 'make it happen' as opposed to the naive notion that the 'net happens'.

Geoff Hansen
Company Creator
Western Technology Seed Investment Fund

Geoff:

Thanks for the great response to what you surely thought would be a flood of e-mails from the entrepreneurs suggesting that we investors are too negative. Well, the flood didn't come. What I have learned in raising money is that you need to know ahead of time what the financier's reasons are for saying NO. In other words, predict what would give them an easy way to say NO and avoid it. Focus on giving them reasons to say YES. The worst thing you can do is hand a financier a gold-plated reason for rejection by saying things like, "I know you're busy" or "I see your heavily weighted in my area". Be positive. As for your admonitions on DOTCOM plans, I couldn't agree more. If you don't have US$20 M to advertise and brand, don't assume that just being out there will attract millions of visitors. If I hear "viral marketing" one more time, I might be sick.

What Do You Think? Talk Back To Brent Holliday


Something Ventured is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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