It's crunch time. On Wall Street and in the popular imagination, the new economy is facing its first big test. We gathered some of Silicon Valley's brightest thinkers and toughest executives to sort through the critical issues that are facing companies and their leaders. Just what does it mean to have an "Internet strategy" these days? Which ideas are venture capitalists stillprepared to fund? How do organizations attract and retain the best people in a brutal business climate? Listen up: Here is tough talk from a fast crowd about the changing future of the Internet economy.
The new economy is facing its first big test — on Wall Street, where Internet share prices have plunged; on the Web itself, where fears about the growth of online advertising are jeopardizing countless business plans; even in the popular imagination. "Dot's All, Folks" seems to have replaced "Who Wants to Be a Dotcom Millionaire?" as the defining sentiment of the times.
But wait. The fundamental plotline of the Internet economy has never been about guaranteed success, even during the glory days. It's been about risk and change, twists and turns, stops and starts. The challenge for leaders and companies that want to play and win over the long term has always been to anticipate the next wave — and then to modify strategies in order to ride it. The only sustainable form of leadership is thought leadership: generating more good ideas and making smarter adjustments faster than the competition.
In that spirit of thought leadership, Fast Company recently gathered 17 Silicon Valley business leaders, strategists, and thinkers in a TV studio in Cupertino, California to brainstorm about the future. The topic: What will it take to win in the next phase of the Internet economy?
That gathering — our first-ever Fast Talk forum — was the debut of a series of conversations that we'll be having every two months with businesspeople from around the world. Not all of those discussions will appear in the magazine, although they will all be available on the Web. But because the stakes of this first conversation were so high, and because the insights were so timely, we've chosen to feature highlights from the session in print.
What follows is an edited transcript with contributions from 10 of the 17 people who participated in the Fast Talk forum. To see the full transcript and to get email addresses for the participants, click here. And remember, the best way to follow up on fast talk is with swift action.
What's next for strategy?
Mark H. Goldstein, CEO, BlueLight.com LLC: Bad news for other people can be good news for us. During the past three weeks alone our résumé flow of super-talented people has increased by something like 200% or 300%. All of the people who came to the Bay Area to join a dotcom — even those who were the titans of their industries — are starting to second-guess themselves. Many are beginning to make themselves available to more secure companies, seeking refuge in organizations that might have floors. At BlueLight.com, we have a floor: We are the e-commerce company for Kmart, one of the country's giant retailers. So our worst-case scenario is becoming part of Kmart again.
Paul Saffo, Director, Institute for the Future: You have to credit Silicon Valley's founders with a key decision: Most buildings here are less than two stories high, and they are surrounded by grass.
So when the market dropped, everybody jumped, sprained their ankles, took the day off, and said, "I should change companies."This is the latest chapter in the Valley's history. New industries will emerge from the rubble. People are sadder but wiser, and, fortunately, they are just as visionary as ever. So I think that this is the start of another big wave.
Helen K. Whelan, President, MyPrimeTime Inc.: Working at a big company is the kiss of death for your career. If you want to be a paper pusher, then you should work at a big company. History will note that the start of CNN's demise was when Time Warner bought it. I was there at the start. We first pitched the idea of a TV network to Ted Turner when he was coming out of the bathroom. He gave us his approval within a week. Six months later, we had created a network.
You can't do that today. With MyPrimeTime.com, we were able to create television programming and a Web site. We're into our third revision of the site, and it hasn't even been up for a year. At CNN, we did a redesign, but it took us three years. So to me, it's market, shmarket! I believe that living your life — and having it be a very robust life — is about pursuing your dreams, starting your own company, or working for a company that you are passionate about.
Mark Goldstein: All of the excitement is in the startup. Everyone has opted to be in the Bay Area to make an impact, and we're creating more of an impact faster. Kmart explicitly decided to set up a new company in San Francisco to take advantage of the Internet, rather than choosing to start it in Troy, Michigan. Now we have approximately 200 people moving superfast, acting like our company is a startup, which is what we are. We all have equity in the company, and everyone comes from startups. But philosophically, it's all about how we can change things and how we can have an impact. That's still such a big part of the culture here, and it's what makes our work so much fun.
Helen Whelan: You need to have large companies to support you, but if you want to get something done, look at the model that smaller companies set. The massive number of people and the massive egos involved at large companies mean that you just can't get things done. Bigger companies are better at supporting people like us: letting us do things, rather than trying to do things themselves. They are always getting in their own way.
Alan Naumann, President and CEO, Calico Commerce Inc.: Some larger companies get it, and here's what differentiates them from those that don't: individual leadership. I attended a series of meetings today where there was a battle between one leader who was making an aggressive play to adopt e-commerce technologies and another leader who wanted to go slowly, study the technologies, and be ready to implement them by March 2001. There was an enormous difference between the two approaches.
Take John Chambers of Cisco Systems. I heard him speak recently, and it's clear that he's a leader with a clear direction who has embraced the Web aggressively over a couple of years. It's going to come down to that same leadership element for all of us. Some people are using the recent setbacks on the Web as evidence for why they don't have to move quickly. That's a fundamental mistake that some big companies are going to make.
Ron Ricci, Vice President, Market Positioning, Cisco Systems Inc.: The next phase of the Internet economy means that we are no longer involved with the "what"; we are now in the "how." The most important question that we get every time someone visits our campus is How do I do it? Going forward, the companies that help other companies with the "how" are going to be the companies that win. We've got to remember that 80% or 85% of our economy is not yet engaged in the Internet — and that's just within the United States.
The most important factor that keeps big companies from being Internet companies is how they transition their culture. Talking to top management is the easy conversation. The hard conversation happens when top management leaves the room, and you've got 5,000 or 40,000 employees who are used to doing things the same way that they've been doing them for 20 or 30 years.
Culture is all about getting that larger group of people to move in the same direction. That's really the challenge of the "how": to help companies understand how to transform their cultures so that they can do some of the things that they dream of doing.
Laurie Coots, Chief Marketing Officer, TWBA/Chiat/Day: We're going to start seeing an interesting evolution of the relationship between those who invent and those who execute. Over the past 18 months, the assumption has been that, because I invent, I have to become a company, and I have to grow and get bigger. What I see in the future is an inverse of a parasitic relationship: People invent something, and then, rather than trying to get bigger or trying to do it all themselves, they become the idea factories for the larger companies. At the same time, there will be people who are really good at getting inventions into the pipeline, and they will be part of the equation. What's going to happen is the formation of a wonderful new kind of ecosystem of cooperation and helpfulness that will allow people to do what they do best.
Mark Goldstein: What we've seen during the past few years is what I would call sloppy entrepreneurship: People have gotten money for ideas that were good but that weren't genuinely unique. The recent correction will give us a chance to focus on entrepreneurs who are great, who focus on execution, and who are able to win. The market isn't going to allow room for all of the "me-tooers."
Regis McKenna, Chairman, The McKenna Group International: I pointed out the same thing to Bob Noyce, inventor of the integrated circuit and one of the founders of Fairchild Semiconductor International Inc. and of Intel Corp. I said, "You know, a lot of companies in the Valley fail." He said, "Maybe not enough fail." Then I said, "What do you mean by that?" "Well," he said, "whenever you fail it means that you're trying new things."
The most marvelous thing about our economy is that all of these trials are going on, and a lot of people are participating in the process of moving the technology forward. There is an environmental learning process that goes on — almost a geographic history — that continues to recapitulate itself here in the Valley.
What's next for venture capital?
Paul Saffo: The other shoe is about to drop in the venture-capital world. There may be a bloodbath within the next 12 months. We're going to see very deep turmoil, and out of the failures that happen will come new venture-funding models. There's likely to be a "species radiation" in which different kinds of models with different players find different niches. I think that the process of figuring out how to liberate intellectual capital in large companies has been overlooked. Everybody seems to be blind to the role of big companies.
But big companies still have a huge role to play. Everybody says that big companies aren't hip and that small companies are the way to go. If those startups are very lucky, then they will end up as big and as clueless as the companies that they now disparage. We're in the middle of a shift from an old economy, where economies of scale mattered, to a new economy, where economies of structure are what count.
It doesn't matter how big you are, it's how big you behave. Can you move fast when you need to and behave like a big company when it's necessary? Funding is at ground zero for that shift.
Nirav Tolia, Cofounder and CEO, Epinions Inc.: The recent correction has had two results. First, we're being forced to present a real business story, which is something that we didn't have to do before. Now when you go to raise money, they don't ask about your users or your traffic. They ask about your revenues. They look at comparable companies in the public markets. That shift in focus has forced us to build a real financial model and to say, This is when we think we can be profitable; these are the drivers of our business. Then the entire company focuses on doing the right things, instead of the dream-oriented things.
What I don't like is that there is also a wholesale dismissal of market spaces, types of ideas, and entire opportunities just because they don't happen to be in vogue anymore. There was a time when everyone had a business plan tucked in her back pocket. If you presented it — bang! — you could get financed. Now the opposite is basically true. If you say, I'm a consumer company — bang! — VCs just don't want to talk to you. You can say, I have a very high leverage model; I'm going to be profitable in a quarter, and they'll say, We don't care; it's B2C.
That's an unhealthy phenomenon. I would like to see more of an equilibrium.
Alan Naumann: I agree with Nirav that funding is driven by trends right now: This is in, that's out; it's black, it's white. I don't think that's very healthy. There are some other things that are happening in the venture community as well.
One is that the pendulum is swinging back to frugality. That's not to say that VCs won't make big bets on companies anymore. But they're expecting entrepreneurs to use the time-tested principles that built great businesses in Silicon Valley in the past. Frugality means saying, Look, we're a small company; we can't spend like drunken sailors until we get some sort of revenue stream. It's not about spending $10 million on your first day on a Super Bowl ad or an Olympics ad.
The other thing is that when we asked our venture friends why they were slowing down, they said something very astute. They said, We're slowing down because we can't add the value that we used to be able to contribute. What these young companies need are great business minds and experience to help guide them away from the rocks and into safe water.
Managerial-coaching skills are hard to come by in the venture community. There are about 200 CEO searches in the Valley right now, on top of 300 CEOs who have been on the job for a year or less. We're reaching down deep into the managerial skill set and experience. If the venture arm is going to be effective at nurturing its investment, it's got to have operational skills. One of the upcoming crisis points in venture is that we need experience. Where is it going to come from?
Ron Ricci: It's also important to consider what skills the venture people bring — or don't bring. Are there people in the venture community who get what customers care about? That's the critical issue and a skill set that appears to be missing. During the past few years, we've seen some major marketing mistakes. Anyone who thought that those multimillion-dollar awareness campaigns were going to translate into $5 billion worth of customer value was wildly off base.
It's very clear to me that there are a lot of companies that don't understand the difference between raising money and going public and this thing called delighting customers. The critical skill that's missing on the venture side is the ability to help companies understand how to serve customers well and how to keep them happy.
Roger S. Siboni, CEO and President, E.piphany Inc.: There has been more capital in Silicon Valley in the past five years than I've seen in any previous cycle. And my experience goes all the way back to 1985, when there were big booms happening in venture capital and companies were proliferating.
A lot of bad things can happen when there's too much capital. Too many companies are formed, and there is too much hubris. Silicon Valley has gotten a bad name because of the arrogance that has prevailed during the past couple of years. Too many companies were started with people who were fresh out of school and who didn't have any notion of how to build a company. Now the well for management talent is really tapped out.
The push toward profitability is just another way of saying that only the strong survive. We're going to see a lot of companies struggle, and the next three or four quarters are going to be very challenging. If you think that stock prices are low now, just wait.
Things are going to get very tricky. There is going to be a consolidation, and people are going to rush to buy companies. There are going to be a lot of bad companies on the market as well as some jewels. There is going to be an incredible premium in Silicon Valley for companies and organizations that can find a way to navigate through this shakeout.
What's next for talent?
Roger Siboni: Growing our company from 100 people to 1,000 people was hard, but we're looking to be a survivor. We'll need to be 2,000 strong next year, and we'll have to keep growing from there. The question is How do we recruit? Do we try to hire people one at a time? Or do we buy companies? We actually bought a company in order to get 20 engineers. We threw away the product, but we wanted the engineers. We told those 20 engineers, Your product is nice; it's interesting, but now you work here.
Lynne Waldera, CEO and President, InMomentum Inc.: My firm recently compared the cultures of the best, fastest-growing Internet companies with those of companies that were struggling. We saw behavior from big, successful companies that was remarkably similar to that of small startup companies.
For example, Cisco Systems has been able to maintain a frugal value system even though the company is an execution machine. Some 90% of the employees that we talked to — mind you, Cisco had 35,000 employees at last count — said that they understood very clearly what the company's vision and direction were and how they personally contributed to them. Cisco is a company that has grown rapidly through acquisition, and that's an amazing feat that takes incredible leadership and focus.
Nirav Tolia: Every problem that we've talked about — whether it's the difference in leadership styles between a company that's successful and one that's not, or VCs who haven't actually built companies, or entrepreneurs who have been sloppy — goes back to people. The real challenge, and this is not a new one, is all about people.
Lynne Waldera: What we found in our study was that companies that have soft and fuzzy behaviors (companies that make their employees feel like owners and make them feel connected to the visions and values of the company) were growing at 141%. The companies without these behaviors were growing at 10%. Those "nice things" ultimately produce dramatically different economic results.
These very strong cultures also enable employees to execute their ideas. In some companies, there are internal-funding mechanisms that allow employees to act on innovative ideas. In this next phase, that's what's going to enable companies to retain their best talent. Smart, passionate people won't have to go to some venture-capital fund with their business plan. They'll be able to get their plan funded internally.
Alan Naumann: We adopted eight leadership values for our company and put every new hire through a two-and-a-half-day workshop on how to be more of a leader than an employee.
A fascinating thing has come up during the past two or three months. In the past quarter alone, we've hired and trained 70 people, and some of those people have started saying, Hey, I'm a leader, but my manager isn't keeping up. There has been a groundswell in the employee base. People are saying, I feel empowered, but either train my manager to deal with this problem, or get him the hell out of my way. Now besides creating leaders and creating a set of common values, we also have to invest quickly in management development. We have a lot of first-time managers or managers who have been promoted to levels that they haven't been at before without a big safety net around them.
Lynne Waldera: Of course, there is an alternative to middle management: intranet technology. Some of the best companies we looked at are using their intranets to funnel information to employees, enabling those staff members to make decisions. The companies that have the strongest intranets have the flattest organizations. In response to that observation, somebody said to me, That's obvious, because middle managers suck at delivering information. They just aren't good at it. They've never done it before. Why should we think that we can train them and get them to do it now? Why not channel all of this information into the flow of employees' daily lives so that they can access it?
That's not to diminish the value of strong, heroic leadership from the top. It's not an accident that Larry Ellison and John Chambers have the kind of leadership styles that they do. It takes a visionary leader to set the direction and turn the organization on a dime.
Mark Goldstein: You may have the vision, but as the CEO of a company, your responsibility is to be out of the office at least two days each week. You should be selling, strategizing, and speaking. That's why the most valuable people we have in our organization right now — although admittedly, we're an organization of just 150 people at this point — are the managers. This is especially true in the Valley, where our talent is young. The average employee age in our companies is about 27.
People look for leadership, but they can't always look to the CEO, because the CEO has other responsibilities. The vision needs to come from the CEO, but the in-the-trenches management needs to come from the managers. The thinning out of startups will allow us to hire some of these managers who may have been VPs and CEOs of other companies. They can help take us from 1,000 people to 2,500 people more easily.
George Anders (firstname.lastname@example.org) and Polly LaBarre (email@example.com) are Fast Company senior editors.