Jane Applegate—Alliances, Fundamentals Stabilize Year’s Bumpy Ride

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Riding the entrepreneurial roller coaster in 2000 required seat belts and crash helmets.

It’s been a wild year for anyone trying to start, grow or manage a small business especially for those who burned through millions of investor dollars and have nothing to show for it. Former dot-com millionaires are broke and selling their sprawling homes in Silicon Valley. Companies that raised millions to sell products and services to entrepreneurs, including Onvia, a business-to-business marketplace, and BigStep, which builds Web sites, have watched their business models falter and valuations plummet.

Other companies serving the small-business market have joined forces to withstand the shakeout. For instance, AllBusiness.com recently joined forces with Bigvine, a major online bartering company backed by American Express, to strengthen its position.

One visual image that stands out as we look back at 2000 was the mock graveyard set up at a recent computer industry trade show in New York City. It featured headstones representing dozens of dead Internet-oriented businesses.

“It was sad, but really, really funny,” said one attendee.

Despite the media attention on dramatic failures in the high-tech and Internet arenas, some companies flourished in 2000. Openpages Inc., which sells content-management software to large media companies, completed a $40 million second round of financing in mid-December.

“We were successful in being financed because we have a standard business model,” said Warren Huff, president and CEO of the Westford, Mass.-based company, which employs about 250. “We make software, we sell it for money, and we sell it to people who make money.”

Huff, who began his career as a corporate lawyer and worked with Dell Computers in its early years, has been involved in several entrepreneurial ventures.

“We were in a really unusual financing environment for a lot of 1999 and 2000,” said Huff. “What you’re seeing in the latter half of 2000 is a much more typical environment.”

Looking back, Huff said the country’s dot-com mania was fueled by several factors.

“There was a high degree of enthusiasm for the Internet,” said Huff. “There was legitimate exuberance about its potential, combined with an unprecedented and strong stock market.”

Huff said the soaring stock market fueled huge contributions to private equity funds. These private funds were in turn invested in Internet companies by aggressive venture capitalists who tended to follow the pack and invest in the same industries.

“Things all came together in this witch’s brew, and it led to a lot of poor investment decisions,” said Huff. “You give people too much money, and they start placing bad bets.”

He also pointed out that the people making the investment decisions for venture capital funds are compensated based on the size of the deals. This creates a strong incentive to make bigger and bigger deals using other people’s money.

In contrast to traditional venture capital deals, Huff said, the principals of some of the firms investing in Openpages also invested their own money. While not specifying which firms have principals investing in the deal, he said his investors include JAFCO Ventures, Matrix Partners, North Hill Ventures and Goldman Sachs.

“We’re working with funds where individuals are putting money into deals,” said Huff, who joined the privately held company about three years ago.

Looking ahead to the new year, Huff said he’s “very optimistic.”

“I see a healthy adjustment back to normalcy,” he said. “I expect the economy to perform extremely well. What drives the economy is people, and we have a lot of extremely productive people in this country.”

Personally, Huff intends to shift his personal portfolio away from health care stocks and invest in more technology stocks, which are currently selling at bargain basement prices. His advice to entrepreneurs in 2001: “Build a real business, have a real plan. It’s OK to run at a deficit, but you have to have a plan to get to breakeven and gain profitability. Focus back on the fundamentals and not the hype.”

Steve Papermaster, chairman, CEO and co-founder of Agillion, based in Austin, Texas, said people will remember 2000 as the year when uncertainty about the outcome of the presidential election paralyzed the business community for weeks.

“The whole U.S. economy was operating as if it was under a yellow flag at the Indianapolis Motor Speedway,” he said. “You couldn’t get on, you couldn’t get off, and you couldn’t pass anyone. We needed a green flag before everyone ran out of gas!”

Agillion, which provides small companies with customer-relationship management software, hardware, consulting and technical support, recently announced a deal with IBM. Together, the companies plan to offer CRM support for as little as $130 a month.

Papermaster said many small companies, now in dire straits, spent millions of dollars promoting their products and services to confused customers.

“Companies spent a lot of advertising and marketing dollars on new products and services,” he said. “But, it was like walking around in a sandstorm trying to read a billboard.”

To end on a positive note, there were many good things about 2000, including the plethora of new, affordable toys and technologies available to busy entrepreneurs. Hand-held devices like Handspring’s Visor were eagerly purchased by business owners on the run. (My chief operating officer presented me with a Palm Pilot as a birthday gift because she was tired of seeing notes scribbled on the back of my left hand. “It’s my version of the Palm Pilot,” I joked.)

Several online services offering practical help at a reasonable price also attracted happy small-business clients.

Ivan Rosenberg, president of Frontier Associates, a Los Angeles-based consulting firm that helps companies increase productivity, can’t say enough great things about a site called Intranets.com.

“It’s a terrific site with a great service,” said Rosenberg, who communicates with his four associates online via the site. Rosenberg and his colleagues post work assignments, calendars, research reports and other critical information online and can access it 24 hours a day. Best of all, a certain amount of data storage is available at no charge. He also recommended that the 25 members of an organization he belongs to start using the site to keep in touch with each other.

Jane Applegate is the author of “201 Great Ideas for Your Small Business,” and is CEO of SBTV.com, a multimedia site providing small-business resources. She can be contacted via e-mail at [email protected], or by mail at P.O. Box 768, Pelham, NY 10803.

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