New Rules for Net Entrepreneurs

Mario Morino turned $600 of seed capital into an $80 million fortune. Now he's teaching a new generation the rules of success.

Mario Morino has blue-chip entrepreneurial credentials. In 1973 he invested $600 and cofounded a company, Morino Associates, to develop management software for mainframe computers. He took the company public in 1986, then engineered a merger to create Legent Corp. in 1989. The new company took off; six years later it was a $500 million organization with 2,800 employees. In 1995, Computer Associates International bought Legent in a deal worth $1.7 billion -- at the time, the largest software acquisition in history. Morino's $600 had turned into a personal fortune of $80 million.

Today, Morino, 54, teaches other entrepreneurs how to apply his experiences in the Age of the Net. The Morino Institute, based in Reston, Virginia, is building a community of "netpreneurs" through a Web site (http://netpreneur.org) that maintains databases of Internet innovators, hosts online discussion groups, and links businesspeople with potential mentors, investors, and partners.

"There's an entirely new model of entrepreneur being created around the Internet," explains Morino. "We're trying to create a social fabric for this new entrepreneur."

The Institute also works to repair the social fabric of the country. Its public-service mission includes creating computer networks and Web sites for neighborhood centers and helping industry professionals identify nonprofits that need their skills.

In an interview with Fast Company, Morino explored how the Net has changed the logic of building companies.

Build products with other people's money.

A sound business model is still the most important part of any startup strategy: What's the product, who's buying it, and at what price? But once you've developed a compelling idea, you should try to sell it in advance. Let other companies fund your product development for you.

At Morino Associates, companies like US Airways and Boeing were our "homes" for years at a time. We developed products in the context of what those companies needed, but we always kept the intellectual property rights. Too many entrepreneurs spend too much time screwing around internally. Go find a customer! These early customers don't just provide cash flow; they also provide tremendous insights about how to improve what you're doing.

Hire part-time networks, not full-time staffs.

Today finding the right people is more important than securing the best financing. That wasn't true 10 years ago, when a company could make it with a good idea and solid funding. But now you need so many different skills to get things done. The scarcity of good people with the right skills is very real.

How do you deal with this scarcity? One approach is to assemble networks of part-time people rather than a staff of full-time employees. I know a startup that provides travel-planning services for companies. It needed management talent, travel-industry expertise, information-technology skills, and high-level graphics personnel. But rather than hire six full-time people -- which would have taken forever -- it created a partnership of six part-time people. Everyone got a piece of the business but none of them left their other jobs. It was much easier.

Also, recognize that valuable people come from unexpected places. In the PC era, most entrepreneurs were engineers with hardware or software expertise. The Internet era draws from a much wider talent pool. You don't have to master the technology to be a player.

Someone who used to work at the Federal Election Commission created a business that packages and resells FEC information. He's not a technical guy, he's a content guy, but he created a technology business around that content. There are thousands of people with deep knowledge about databases in government, education, and business. They can create valuable products, and they don't have to be engineers.

Partner early and often.

Great entrepreneurs exude persistence and doggedness, which means they will never be great collaborators. But they simply must get better at it. On the Net, the window of opportunity to turn ideas into products is so short that you have to start partnering from the day you start your company.

There's a group in Washington, DC called Cross Media. It spun out of MCI and is developing a "1-800" email service. One of the founders is a technical manager, the other is a marketing person. But they've outsourced all software development and have already signed distribution agreements with companies like Microsoft and AOL. That's the way to do it.

To learn faster, ask for help.

The pace of change is accelerating, so entrepreneurs need to learn faster than ever. Which means they have to change how they learn.

I was always a great networker. I knew the "right" two or three people to call about a particular technology or market segment. That doesn't work anymore. Things move so quickly that the odds of knowing just the right person are remote. Today great networkers know the right routing point -- people who are going to know the 10 or 20 best people in the world in a specific space, and who can route you to them. You don't learn by searching for answers; you learn by asking for help.

Bootstrap until it hurts.

Equity is like gold. You should hold onto as much equity as you can for as long as you can. It's not just about maintaining control; it's about demonstrating commitment. The ability to hold onto equity convinces people in a very distrustful world that you're for real.

We never used outside funding at Morino Associates or Legent until we went public. We bootstrapped everything. We'd sell some contracts, develop products for other companies, pay our expenses, build up our capital. Over time, we managed to generate very significant cash flow. Bootstrapping is tougher than ever today. But great entrepreneurs can still do it.

Email Mario Morino at mmorino@morino.org or visit the web http://www.morino.org .

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