Dot-coms are predicted to be the well of wealth for the new millennium. A booming economy, a potent supply of venture capital and increasing customer reliance on the Internet are some of the reasons companies are clamoring to launch electronic-commerce sites.
Whether used as an instrument of specialization, a tool for brand-building or as the ladder to an IPO, businesses are lining up to compete at the breakneck pace of the dot-com world.
While many firms are starting up to operate as dot-coms, many well-established companies have integrated e-commerce strategy to enhance their overall corporate agenda. Despite their rationale for taking advantage of all things Web-related, these firms have something in common: Suited in technology, they’re revving their engines at the dot-com start-up gate, eager to speed their Internet identities.
And whether the purpose is to secure a long-term future or go for short-term glory and cash in quickly, they all share the hope that their presence on the information highway may lead them to a pot of gold.
Raison d’tre
E-Debt Exchange Inc. in Fairlawn is an example of a company established as an e-commerce operator. After almost six months of due diligence, Morton Stone, chairman, and Michael Zoldan, president and CEO, co-founded the firm in August 1999. This March, they debuted E-Debt.com as a long-overdue development in the debt-trading industry.
Steven Lefkowitz, chief operating officer, explains that E-Debt Exchange Inc. is not a buyer or seller of debt; rather, it’s an intermediary.
“E-Debt.com is a business-to-business site that enables financial institutions, investors and collection agencies to buy and sell distressed debt through one centralized location, in real time,” he says.
The site uses advanced search engines, proprietary data-mining tools and transactional software so buyers can instantly find debt portfolios that match their criteria — and E-Debt’s collection process scrutinizes and culls from current data to eliminate debt that buyers avoid.
Lefkowitz says E-Debt systematizes the process with impartial, fair price comparisons, due-diligence mechanisms and security-ensured transmissions. Sellers of debt can sell portfolios at price, at auction or through private online negotiations. And since transactions — which typically take a month or more using traditional methods — are completed within four to six days, users get reduced search costs, competitive pricing and accurate information.
E-debt.com is the first site of its kind, says Lefkowitz, and destined to be a winner because of its capabilities.
“What we truly want it to be is the online marketplace for distressed debt, and we’re going to provide value add-ons to streamline the process,” says Lefkowitz.
Initially backed by private placement funds and their own money, the partners have ambitious plans for global growth. In early March they secured $1.25 million in first-round financing from investment bankers at Cleveland-based Brown Gibbons Lang & Co.
“This initial funding allows us to establish the E-Debt brand as the marketplace buyers and sellers of debt should use to flow their transactions through. We’re trying to mass market our message to educate potential users about the benefits of E-Debt.com,” says Lefkowitz. “But we’re also looking for strategic investors willing to put money behind this, to enhance the site and to support our sales team.”
Lefkowitz laughs at the prospect of selling out.
“Everybody thinks the reason people do this is to get rich,” he says. “But we’ve put together a management team that truly believes in this business and we have no plans to go public. Our agenda is about growing our company and we don’t have an exit strategy.”
But if a public offering eventually becomes an option, Lefkowitz says, “Obviously, we’re not stupid — that’s a road we’ll take if it makes sense to us for a lot of reasons. But for now, we’re in it for the long term.”
e-enhancement
Integrating e-business strategy wasn’t part of the initial plan for Akron-based 4TechWork.com. Behind the e-com identity is an established business that completely rebranded itself as a dot-com after five years of operating under another name.
Eric Schlueter, Steve Kokitka and Mike Seed established the firm in January 1995 as Enterprise Alliance Consulting, to pair corporate clients with information technology consultants for short- and long-term projects.
“Our initial plans were to develop a full-service IT consulting company to service Fortune 500 companies in Northeast Ohio. We planned to grow in that way, addressing hot spots in the market, such as staff augmentation consulting, enterprise resource planning and data warehousing,” says Seed, general manager.
Then, last October, the company regrouped as a dot-com, after a year of developing its 4TechWork.com site.
“We wanted to use the Internet to present the experience of our consultants in a convenient fashion for hiring managers, and to raise the credibility of our business as a whole,” Seed says.
In turn, the firm simplified the staffing process with a comprehensive, searchable Web-based database. The dot-com has also become the primary growth engine for the company, says Seed.
“We’re in an aggressive brand-marketing campaign to drive potential clients to our site where they can just point, click and hire.”
Eric Schlueter, e-commerce practice manager, explains that clients keystroke the skills needed for the job, the project’s timeframe and pay rates. A list is generated that specifies certified professionals capable of doing the job within the client’s preferred parameters.
Steve Kokitka, recruiting vice president, says that since 4TechWork has already evaluated the applicant’s skills, verified credentials, performed background checks and conducted standardized testing, clients can view the data and read appraisals of other clients who’ve employed them. Photographs are included and plans are underway to add 30-second audio/video clips. These value-added offerings differentiate the 4TechWork.com from other staffing sites, he says.
“It’s an easy, no-pressure process, and once a client makes a selection, 4TechWork.com will arrange in-person interviews,” says Seed. “We’re also using the site to recruit consultants. They can apply for work over the Internet by describing themselves, their skills and taking the tests.”
In February, 4TechWork merged with Callos Technical Partners, part of The Callos Companies — a 35-year old personnel recruitment and consultant firm. As equity partners, Callos principals John Callos and Tom Walsh serve on 4TechWork’s board of directors, but as minority investors, are not active in day-do-day operations.
Seed affirms that the dot-com is not a prelude to an IPO; rather, it was conceived to better assist IT and human resource managers and to enhance the firm’s core specialty. Primarily, funding has been generated by company cash flow. But the partners may consider seeking venture capital to expand the endeavor.
“We restrict our business to Northeast Ohio, but if we can prove the success of our dot-com’s concept, and as we start to get more brand equity, we’d like to roll it out to other geographies. At that point, we would look for some type of financing, whether with partners, venture capital, or even an IPO.”
If an IPO becomes a reality, the dot-com identity couldn’t hurt, he says.
“The dot-com certainly creates a lot of excitement in a company name, but even beyond the hype, if we can use the leverage of the Web to drive business, we can grow our company without the associated overhead.”
Learning how
Even some established high-tech firms are finding that, despite systems integration expertise, there are inherent hurdles in launching a dot-com — and an e-com identity doesn’t always lead to an instant payoff.
Joseph Chou established his first endeavor, Pony Computer Inc., back in 1988 at age 30 — but it was only last year that he attempted to blast off a dot-com as a separate entity from his Streetsboro systems integration firm.
Incorporated in March 1999 as AtHowTo.com, the name was changed to PlanetKnowHow.com early this year. The site, still in a developmental stage, is on the Net in beta format.
The site’s mission is to provide answers to information-hungry consumers on myriad subjects. Each answer, which will be presented in a step-by-step “how-to” format, will link users to vendors who sell products or services related to the topic. PlanetKnowHow plans to sell Web site design and maintenance services to those vendors, as well.
“The core business is to provide simple Web strategy solutions for small- to medium-size businesses that have the potential for rapid growth, using the Internet to create a competitive advantage in the marketplace,” Chou says.
But like many dot-coms, he admits, the scope is evolving as the market rapidly changes.
Matthew Reineke, chief operating officer, says that while Chou intended to use in-house capabilities to create the technology, programming and integration to implement his dot-com, “that tactic has proven to be too slow and too costly.”
While funding has come primarily from the dot-com’s founders and private individuals, Chou discloses plans to take PlanetKnowHow public before year-end, to speed international growth. To that end, Reineke confides that the firm is trying to align with partners to acquire enough funding.
“We have found that the easiest way to overcome the biggest challenges is to make partnerships and alliances with other companies and benefit from their experiences, while sharing our unique capabilities for their benefit in return,” he says.
Reineke says that the buzz behind the dot-com trend is part of the reason there’s a wealth of investment capital just waiting to back an Internet company, particularly those that provide a service. With that in mind, PlanetKnowHow.com is positioning itself for an IPO payoff.
“The Internet itself facilitates the publicity by making information so easily available on any company that an investor may be interested in,” says Reineke. “When investors hear of a good idea, they can immediately check it out by navigating the company’s Web site and seeing the potential for future growth. And that gets people excited.”
Solid plan
Similar to Silicon Valley, many of Ohio’s high-tech execs have huddled in the Twinsburg area. That’s where Edward Tromczynski, 37, and Bruce Harris, 52, are capitalizing on their dot-com concept that naysayers predicted would never make it.
What sprang as an idea to take their industry to the high-tech level has positioned PlanSoft Corp. as the leading Internet-based business-to-business solution provider in the $100 billion meeting and convention industry.
Their point-and-click solutions is made up of two elements: the Ajenis product suite, a software program the partners developed in 1992 that enables event planners to arrange meetings electronically;
and their Web-based PlanSoft Network, found at www.plansoft.com. Users can link to venues to view photos, images and capability specifications of selected national and international meeting facilities.
They can arrange every detail, from meeting site and supplier selection to housing, registration and other services, to bidding, contracting, and purchasing. Instant event reports enable planners to track up-to-the-minute registration and other details.
Tromczynski, PlanSoft’s president, says that while the site is free to planners, PlanSoft profits from property and supplier listings, banner ads and commissions earned from hotels and facilities booked.
Harris, as chairman, confides that at first, industry critics said the concept was too futuristic to make it to the finish line.
“Everyone involved realized that this connectivity and communication would take place electronically on the Internet via what is now referred to as a “dot-com” solution,” he says.
The partners brought key buyers and sellers to the table and made believers — and supporters — of them.
“Understanding the magnitude of unifying a $100 million vertical market, we recognized early on that it would require more than our individual efforts. So we secured equity ownership by the two largest groups of industry buyers — Meeting Professionals International and the American Society of Association Executives — and sellers — specifically, Hyatt Hotels, Marriott International, Starwood Hotels & Resorts Worldwide, as equity owners,” Tromczynski says.
Starting with an initial investment of $1 million, then a few million more in private commitments, the partners have secured more than $42 million in funding through strategic and venture capital investors, bringing the total investment to $46 million. An IPO is inevitable, says Tromczynski .
“Our plans and all subsequent investment activity are aimed toward considerable growth of the company, and we consider an IPO as a potential branding and growth financing event. But we haven’t yet established a definitive timeline,” he says.
When that time comes, PlanSoft’s dot-com moniker will be invaluable to the IPO, he says.
“We view an initial public offering as a branding event, and as we all know, dot-com companies and solutions providers are receiving high evaluations.”
While companies used to wait to publicize IPOs until the eve of going public, times have changed, says Tromczynski.
“Beyond idea, opportunity and management team, companies leveraging the Internet and considering the public market will need to secure and announce strong, relative partnerships, show multiple secure recurring revenue streams, identify existing revenue traction.”
While it may look as if PlanSoft is already on Easy Street, Tromczynski says there are inherent challenges in launching a dot-com.
“All Internet companies face awareness, adoption and retention issues. While we have a very targeted vertical market, we face many of the same challenges of moving the marketing, selling and buying process to the Web.”
To those who believe the dot-com trend will eventually die, Tromczynski declares, “The Internet is not a choice, nor a fad. Accept it, embrace it, and invest in it as it is a significant part of your future.
“Without it, it will be a significant part of your demise.”
How to reach: E-Debt Exchange Inc., (330) 670-8446; 4TechWork.com, 877-4TECHWORK, (877) 483-2496; PlanSoft Inc., (330) 405-5555; PlanetHowTo.com, (330) 528-3898
