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Fork in the Road: New Economy upstarts could learn a thing or two from Old Economy stalwarts Listen to your elders Thursday, March 01, 2001 By Ramesh Mehta
On Jan. 7, Mark Kurtzrock of the Pittsburgh Regional Alliance rightly argued that the region's future was tied to a mix of the old and new economies and pointed out that the area's venture capital community was investing in our traditional, less high-tech industrial base.
The fact that old-line industry is attracting new investment capital is a double-edged sword to those of us in the region's technology industry.
On the one hand, having old-line industrial companies in the portfolios of the venture firms will have eventual, indirect benefits for the newer, technology-based firms whose products and services are as applicable in machine tooling as they are in health care and robotics.
On the other hand, new technology-intensive companies that haven't yet established a reliable revenue stream must now compete for investor attention in a greatly expanded field.
The February issue of Fast Company, a leading chronicler of New Economy ideas and trends, features on its cover a photograph of the quintessential computer geek (we can identify him by the tape on his glasses) wearing a sandwich board with the hand-painted slogan "www.repent.com" and an I've-been-a-bad-boy look on his face. For those of us in Western Pennsylvania, his contrition is a reflection of our own chagrin about an industry that, until last spring, seemed to hold unbounded promise for our economy.
The question put to us e-business entrepreneurs by the venture community and by Fast Company is this: How do we demonstrate our "repentance" and make ourselves the most attractive possible investment for new capital? By following some Old Economy basics:
While Pittsburgh e-business entrepreneurs never had a chance to become so jaundiced, there's no denying that a toned-down version of such bravado existed even here. Capital is an important step -- whether from a venture firm or an IPO -- but it's just the first one. After that, you need everything you learned in business school.
Those of us who are in the business of providing e-business tools must avoid the trap of seeking revenue growth at the expense of providing lasting customer value. Lots of dot.coms went public with rocketing revenues and found themselves with no cash on hand when the ax came down because the online "solution" it sold really solved nothing at all.
Some of the best new opportunities will spring from established businesses. Jim Breyer, the managing partner of Accel Partners, a West Coast venture firm, has made his mark in investment circles by investing in only companies that can demonstrate stand-alone profitability. In an interview in Context, Breyer -- who did not join the rush to invest in online companies during the late '90s -- explains that his emphasis is on the bottom line, and that frequently the big winners in technology are not necessarily the first to market.
Obviously, by investing in traditional industries in Western Pennsylvania, venture capitalists are telling us they can raise the capital when an investment is sufficiently attractive.
But perhaps it's time for some of us in the New Economy to relearn a few lessons from our Old Economy brethren and come back to the basics -- unique product/service values to customers. No frills, no hype -- simply solid customer service/marketing, and sustainable revenue and earnings growth, powered by intense customer focus.
Ramesh Mehta is chief executive officer of Medebiz Inc., a Pittsburgh-based health care e-business service provider.
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Capital gets you started, but revenue keeps you going, and earnings really get you respect. During the boom in technology stocks that began in the mid-'90s and continued frantically until April, many very young e-businesses seemed to wander in a daze of available cash. According to BusinessWeek, one Silicon Valley entrepreneurial peer group actually met to discuss the topic, "Money, Money Everywhere: Entrepreneurs Learn to Look Beyond the Cash Curtain."