Internet Strategies That Work (Maybe)

That doesn't mean that all big companies are eager to get with the program. For one thing, many CEOs are a lot less worried today about being blindsided by a gutsy new Net competitor. "The heat is off these guys now, and it's leading them to make some bad decisions," says James Allen, 40, eVolution's CEO. "When we talk to corporate executives, we tell them, 'Don't get smug, because the real lesson of the new economy is that talent will flow where there is equity and empowerment. Don't presume that you can build these businesses within the old corporate structures now, because it won't work.' "

Governance Matters

From the beginning, eVolution's role at LevelSeas was to ensure the independence of the venture. BP Amoco, Cargill, and Shell had already joined forces in February 2000, but until they brought in eVolution as an investor and partner the following June, LevelSeas was regarded with suspicion by many in the shipping industry. That's because part of LevelSeas's promise is good, old-fashioned disintermediation. Shipowners and brokers have profited from a lack of visibility about where in the world to find ships that are available for cargo -- which amplifies the normal swings in supply and demand. The same ship carrying the same cargo along the same route can jump five or six times in price over the course of a few months, because the charterer doesn't know where else to find an empty ship. "Brokers that continue to provide good advice and good reads on the market will continue to get business," Hext predicts. "But the more liquid and open the market becomes, the less the nudge-nudge, wink-wink world of brokers operates."

Even after LevelSeas assumed a lead role with Miranda as chairman and Hext as CEO, the company had to work hard to counteract the perception that it was designed to serve the interests of its founders first. That's why eVolution worked with Kleiner Perkins and Texas Pacific Group to develop a distinctive blueprint for corporate governance. It calls for granting the management team 20% of the equity, with provisions for a hefty payout if the shareholder companies fail to pull the trigger on an IPO. A contingent of independent directors (including eVolution's representatives), and bylaws that require a two-thirds majority to make binding rules, mean that there is "enough independence on the board to block anything silly," Miranda says.

But there's more to the structure of LevelSeas than blocking bad ideas. There is also a set of incentives in place to build the business intelligently and quickly. An exchange like LevelSeas lives or dies by how liquid it is -- that is, by how large and numerous the transactions are that pass through the exchange. LevelSeas needed a mechanism to reward the partners who channel more of their business into the system, while discouraging free riders. To hardwire the commitment of its corporate partners, eVolution came up with a novel way to tie the equity of its shareholders to the volume of their transactions with the new company. The board would set targets for each strategic investor: either a dollar amount or a percentage of the volume of business that is passing through the operation. Every time shareholders hit a target, another chunk of their equity vests. This way, heavy users can quickly build their stakes.

Ultimately, however, LevelSeas adopted a more modest scheme, which allocates equity on top of each company's original stake when it brings more of its business to the new venture. Because eVolution arrived after LevelSeas had been established, it was unable to push through the higher-octane plan. "That proves how difficult it is," says Miranda. "Sometimes when we're called in, the company is already in motion. Then we have to use the carrot instead of the stick."

Fast, Yes -- First, No

LevelSeas may be the most-powerful player aiming to bring ocean shipping to the Internet, but it wasn't the first such operation to launch. A U.S.-based company called

SeaLogistics Inc. actually completed an Internet-based charter transaction on November 1, 2000. A year ago, that difference in timing would have been a big deal -- the most powerful advantage, after all, was first-mover advantage. No more. When your partners and your customers are among the biggest players in an industry, time to market isn't the only priority. What really matters is being best to market. "It's all about integration," says Miranda. "Big companies in particular don't want to have to reintegrate their computer systems and redo all of their procedures. You can be the first out there, but if your customers take a look and say, 'That's only 10% of what I need,' then you haven't helped yourself in this arena."