Fast Talk: Lessons From The New Economy

The 1990s were about greed, lying, and stupidity. There was a very smooth system for VC-ing ideas and then taking them through the banking pipe out to the public market. A lot of people and a lot of institutions got really, really rich during that time. The backlash that we supposedly saw was basically institutions dumping their shares.

But the rules of business never changed. You have fixed costs, you have variable costs, and you have profit margins. And that's it. If you don't have a handle on that stuff, then there's nothing else to talk about. If there is no profit margin, you're in trouble.

In my next endeavor, I will stay more emotionally distant from the company. It's hard to describe loving 2,100 employees so much that you'll do anything. You'll buy $1 million of stock on the open market, like I did, to show you believe in them. That was a dumb move, straight up. The stock was tanking. And as a gesture to my employees, well, a million dollars is a lot of money.

The IT-architecture firm Razorfish, founded in 1995, had revenues of $260 million by 2000. It was acquired by SBI in 2003 for $8 million.

Bob Paul

CEO, Covisint LLC
Southfield, Michigan

Here's the number one lesson that we've learned at Covisint: Unless you have laserlike focus on the problem you're trying to solve, technology is irrelevant. Don't create a product and just expect that people will come. Solve well- defined problems that your customers need solved. In its first couple of years, Covisint didn't do that.

The founding vision of Covisint was pretty accurate. By having a single entity deploy processes and technologies to improve the auto industry's supply chain, member companies could gain efficiencies for far less investment than they would on their own. The problem was that Covisint got a lot of funding. And with all that money, we tried to solve too many problems. We launched many partnerships and built infrastructure without considering exactly what the business problem was.

The whole boom around the Internet, the dotcom hype, intuitively made a lot of sense. But it was impossible to win a very quick return on investment--because technology in and of itself does not solve problems. That's what we've learned. Now it's not only conceivable that this technology extends beyond automotive, I think we expect it to. We've definitely been humbled because of our history, so we're not thinking of ourselves in Microsoft terms . . . yet.

Covisint was launched in 2000 as a joint venture between Commerce One and automakers to connect their supply chains via the Internet.

Ann Winblad

Cofounding partner
Hummer Winblad Venture Partners
San Francisco, California

The most important thing we learned is that optimism cannot outweigh execution. A lot of people who jumped into new opportunities in the 1990s not only lacked discipline, they lacked experience. They're gone now. And shame on us--the established venture capitalists who already had the discipline and the experience--for performing like amateurs. But if we sat on the sidelines, I don't think that any set of venture capitalists would have been able to put the genie back in the bottle.

In hindsight, should everyone have been enormously disciplined about sticking to his core competencies? Yes. Would it have paid off to be a naysayer? That's hard to say. There were actually a lot of good companies that simply disappeared when the capital markets stood still between 2000 and 2002. And no amount of sweat equity or sticking low to the ground could have prevented that.

I think every venture capitalist is better off after the 1990s for the following reason: It forced every VC to look at his disciplines and to institutionalize them. Now that we've all said, "Gee, how did these failures happen?" venture firms are asking, "How do we achieve some successes?"

We have a lot of untapped "new" in the New Economy out there. If you look at a company like Google and ask how much of the Internet they've crawled, it's a very small percentage. In terms of the "economy" part of the equation, we might have less efficiency in the economy now than we had before. The costs of Sarbanes-Oxley are causing companies to wait even longer before going public. I'm not saying they're wrong, they're just costly. So yes, there is a New Economy, but it's not quite the one we were talking about before.

Hummer Winblad's many technology investments include Berkeley Systems and The Knot.com.