All the Right Connections

The Customer Connection

The Internet has captured the world's imagination -- in business and in culture -- with promises of instant communication, global community, and a more-equal exchange of information and ideas. Which makes it all the more disappointing, says Hoegh, that the language used by most startups is so cold, so bloodless, so calculating. Web sites look to attract "eyeballs" and to maximize "stickiness." The people who visit sites are "users" that companies try to "monetize." So much for a people-centered Digital Revolution.

But the problem involves more than just words. The only way to build an enduring Internet company, Hoegh insists, is to build it not for customers but with customers. Companies that will win in the long run are those that invite customers into their enterprise, make it attractive for customers to offer ideas and to help create products, and share the value that gets created. "The next wave of the Internet Revolution needs to distribute wealth to both entrepreneurs and users in recognition of the role that users play in building the intellectual capital of the business," Hoegh says.

Arts Alliance has begun to enact this share-the-wealth principle -- literally -- with its portfolio companies. Sweden's Dobedo, a cartoonish world of virtual avatars and online mayhem launched in 1998, is a runaway hit with hipsters in Berlin, London, and Stockholm. Arts Alliance encouraged Dobedo to create a compilation album consisting of the favorite songs of the site's most-frequent visitors. The album, to be distributed by Sony Music late this summer, will feature the names of the people who chose the songs -- a valuable bit of real-world recognition. Another one of Arts Alliance's companies, AtomFilms, an online and offline distributor of short independent films and animation, actually gives equity to filmmakers whose work is shown on the company's Web site or distributed by AtomFilms. "You can't talk about community unless you give people ownership," Hoegh says. "And in a capitalist system, the only way to give people ownership is in financial terms."

Hoegh and his colleagues devote much energy to identifying ways to transform fuzzy notions about "online communities" into something that is both tangible and powerful in the marketplace. "It's not the Peace Corps that's investing," quips David Eun, 33, a New York City-based principal at the firm.

Indeed, building robust connections with users is the best hedge against adversity. "Community is about more than bulletin boards and chat rooms," says Hoegh. "It's about creating new norms and aesthetics, new kinds of relationships, new ways of behaving." Hoegh believes that companies that form such communities will be best equipped to weather the inevitable downturn in the Internet sector. If your relationships with people are emotional, rather than transactional, then people will be more likely to visit you when the economy slows down. "Every day," says Hoegh, "we ask ourselves, 'Are we creating something that can survive adversity?' "

The Business Connection

The partners at Arts Alliance know that they learn the most from the people who use the Web -- customers. But there's another source of valuable connections -- the portfolio companies themselves. The firm has put together a thick manual of business techniques, called the "Arts Alliance Guide to Best Practices," that executives learn from and contribute to. CEOs share tips for advertising on the cheap and for hiring. The partners treat this manual as something of a business bible. They insist that their companies maintain a clear strategic focus, set realistic expectations, and hit revenue milestones.

But even as the firm's companies are expected to operate by the book, they're also invited to swap big-picture ideas. The catalyst for these strategic connections is a biannual summit of all of the companies in the Arts Alliance portfolio. These gatherings aren't management reviews or financial audits. They're all about blue-sky thinking. The group brainstorms wild scenarios for the future, discusses the latest trends in business, and explores where companies need to be in order to remain relevant to their customers.

"If we backed me-too companies," says Catarina Norman, 26, a New York City-based associate, "we'd set ourselves up for an ad- and-marketing spending craze that wouldn't help our customers or our companies."

One of the high points of these summits, say participants, is mealtime. That's when the down-and-dirty strategic connections get made. Arts Alliance staffers decide who sits with whom and then eavesdrop on the conversations. "It's like a dinner party where the host knows exactly whom you want to sit next to," observes Sarah Vickers-Willis, 28, cofounder and vice president of business development at San Francisco - based Ububu Inc. (Founded in May 1999, Ububu was recently named one of three hot Internet startups by Jupiter Communications. It is launching a graphical interface with customizable "planets" that people can use to navigate the Web.) "There were people at the summit whom we wanted to meet and start talking deals with, and magically, we found ourselves always seated next to those people."