Fast Talk: Lessons From The New Economy

Everyone learned, or relearned, something from the epic boom and bust. We ask five of that era’s luminaries for their insight.

Sue Bostrom

Senior vice president, Internet Business Solutions Group and Worldwide Government Affairs
Cisco Systems Inc.
San Jose, California


At Cisco, we have stayed close to the core of the technologies and products that we want to bring to market, and also to our culture. That was a stabilizing influence during the telecom meltdown. I look at the team we have now, and our focus and our orientation, and I think it has been quite a reaffirming experience. I’m not saying I want to go through it again, but it has been fulfilling to see things play out in the way that they have.

What we learned: Internet productivity is real. Internet technology can produce huge returns. Even in challenging economic times, business leaders found that phenomenal levels of productivity were being generated by many of the Internet applications they experimented with in the late 1990s. The growth in U.S. productivity tracks at about a 99% rate with the growth in IT investment and capital investment.

When I got my MBA here in Silicon Valley in the mid-1980s, you maybe had to take a programming course. But you didn’t think about technology in the same way you do today. Much like human resources, physical plants, and finance, information technology is a real way to change your business and enable your competitive advantage. That is a phenomenal shift. And we’re just at the beginning of it.

At the end of the day, what really matters is your competitive differentiation, your human capital, and your financial capital. Companies are differentiating themselves by how they use technology to supercharge the assets they already have. Over the past five or six years, companies have been experimenting–and seeing success–with specific applications, and I think that will continue. The opportunities we see over the next five years could be even more significant.

Cisco calculates its own bottom-line impact from the Internet at $2.1 billion for fiscal year 2003.

Robert Shiller

Professor of economics
Yale University
New Haven, Connecticut


What we had in the 1990s was a classic bubble. It’s the biggest one we’ve ever had. You would think that people would have learned about bubbles by now. But they’re hard to see as they’re happening.

The essence of a bubble is that people sense something is fundamentally different now than before. And they tend not to appreciate past advances. So they think things are going to grow much faster now than they have in the past. The history of the past couple of centuries has been one of enormous technological progress. Every decade shows advances over the previous one. The question is whether the pace is accelerating now.

It could be that this time the technological revolution is, in fact, different. The ability of computers to do what people used to do is accelerating very fast. It’s amazing how much our lives have changed in the past 5 or 10 years. We’re spending our days sitting at these computer terminals now. But it’s hard to know where that’s going. I think that new business methods are gradually going to be discovered that rely on this new technology. I say “gradually discovered” because realizing the impact of info tech for a business is something that takes time. It’s just hard to understand what’s coming up.

I worry that the acceleration of computer technology is finally taking a bite and eliminating jobs. Improved information technology could create a winner-take-all effect. I’m sure there will be more Bill Gateses–really rich people who are not rich today. But I don’t know if that is going to affect the whole economy favorably. I worry about millions of people being left behind and falling in their standard of living. I think that widening gap may be the most important issue of this time.

Shiller’s latest book is The New Financial Order (Princeton University Press, 2003).

Jeffrey Dachis

Cofounder and former CEO Razorfish Inc.
CEO, chairman, founder, and managing director Studio Holdings LLC
New York, New York


We had the best company in the world. Period. The fastest growing, the most profitable. But I had to learn about humility. Telling everybody we were the best–that worked really well in the beginning and then it worked absolutely against us in the end. If you come off as too aggressive, you risk this backlash.

The time was right to start Razorfish because people needed the services that we were offering. I was like a shovel salesman in the gold rush. I didn’t care what you were trying to do with your B-to-B, or whether your VCs were funding you, or whatever. Just pay me cash–that’s how it worked.

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