Enclosed is a full-transcript of the interactive Q&A session.
Copyright =C2=A9 1999 Dow Jones & Company, Inc.
Q: How does a high-tech company located in the Midwest go about getting a=
n
Angel investor, or venture capital once revenue streams are in place?
Petzinger: Where angels are concerned, I'd say you should look very close=
to
home. Wisely, angels don't like to invest at a distance. They are builder=
s,
and they like to see what they are building. The good news is that there'=
s a
LOT of risk money for high-tech out there today, probably more than you
imagine in your own community. As for VC money, you may have to travel to
bigger cities, but there are plenty in the Midwest. Cleveland, Indianapol=
is,
Pittsburgh, Twin Cities, etc. -- with lots of VC dough.
Q: Any advice on how to keep technical employees happy in such a tight la=
bor
market?
Petzinger: You've GOT to let them be themselves. If they want toys, let t=
hem
have toys. They want to work odd hours, let them do it. Culture and work
environment are critically important to these folks. Then there's the iss=
ue
of compensation. This may go without saying in the high-tech citadels, bu=
t
elsewhere a lot of owners fail to appreciate the importance of equity. In=
a
small tech firm a single employee can make a huge difference in outcome -=
-
and to that extent, equity is a huge personal motivator and a way to lock=
in
loyalty.
Q: Do you think Storm Systems will take same path as Lycos and eventually
leave Pittsburgh?
Petzinger: Good question. I think not, because location in Pittsburgh was
built into the company's very strategic foundations. If the firm does qui=
t
Pittsburgh, it will be Pittsburgh's fault, not Storm's.
Q: A broad network of contacts is certainly helpful, but how can a compan=
y
like Storm build up a high-tech workforce in a place like Pittsburgh that
doesn't have a strong high-tech infrastructure?
Petzinger: Another great question. Though Pittsburgh is barren of high-te=
ch
infrastructure and support -- lawyers, etc. -- it actually DOES HAVE a
high-tech work force. You know, every college teaches programming, and ev=
ery
city has nerdy kids who started programming their Ataris at a young age a=
nd
for certain senior-level tech positions, Pittsburgh also has Carnegie
Mellon, Pitt, many other great schools.
Q: Valley connections can't hurt but aren't there networks of startup
resources, advisers and capital in just about every metro area? What are
some of the better gateways to those resources in, say Atlanta, Chicago, =
the
DC area?
Petzinger: Yes, of course, most major metro areas do have high-tech suppo=
rt,
and there's no reason why they can't be more or less self-contained. It's
critical, however, for firms even in these advantaged locations to mainta=
in
lifelines to Silicon Valley because that's where the to turbulent change =
is
bound to happen first. Even the folks in Boston and Austin and Bangalore
know better than to turn a blind eye to the Valley.
Q: Do you think that you can relate the market price of high-tech compani=
es
to their cash flows?
Petzinger: No, absolutely not. Cash flow is no indicator of long-term val=
ue
creation where creative, knowledge-based products are concerned. Also, in
technology industries, it's possible to "lock in" a standard in the early
going that will reap huge rewards later. Early-state financial indicators
tell you nothing about long term prospects.
Q: What is your current thinking on the changes occurring in the
front-office area, specifically sales compensation?
Petzinger: Frankly, I don't see much change happening there. To be sure,
some outfits have gotten much more sophisticated with their commission
structures to reflect the growing importance of collaborative selling. Bu=
t
unless I'm missing something, the paradigm is the same as ever "What you'=
re
paid depends on what you sell."
Q: A friend of mine at a high-tech Silicon Alley start-up complains that =
new
people being hired for the business functions of her job are being paid m=
ore
than the programmers and developers of the software she's working on. Wha=
t's
the proper way to place a monetary value on talent in these situations?
Petzinger: Well, one way to obviate much of the issue is to make generous
use of equity, because when the big payoff comes the differences in award=
s
tends to shrink, but to be honest I don't consider myself much of an expe=
rt
in such pay issues.
Q: In your opinion, what two issues would be most important when deciding=
on
a VC partner for an e-commerce start-up?
Petzinger: Issue Number One: What connections do they bring to the table.
Issue Two -- the perennial issue -- is valuation. In the latter point, yo=
u
certainly want to find a VC who sees the long-term potential of your
business -- not that dreaded cash flow.
Q: How much control do VC's expect you to give up in return for the
investment?
Petzinger: Again, it depends on valuation. I know many entrepreneurs who
have gone many rounds with VCs, and I can't think of one who didn't come =
to
swords' points over control issues. This is expensive money -- another
reason why it's important to get extra value from the VC, such as the
connections he or she brings.
Q: So at what point in time does cash flow become important? What metric
helps us see which companies are hype and which are solid?
Petzinger: Cash flow becomes important when technologies and markets are
stable, when the business reaches some level of maturity and when it has
some competitors. Sometimes that point is YEARS in developing. Sometimes
it's never fully reached. Netscape never really "ripened" in profit-and-l=
oss
terms -- but it was worth $4 billion in someone else's hands. Frankly, I
think your own vision and gut are better tools for evaluating these
companies.
Q: Is the location of headquarters (if determined by angel capitalists be=
ing
local builders) a major factor in success of Internet-based businesses wh=
ere
staff size is not that large (at least at startup) and "consumers" are no=
t
local at all?
Petzinger: Sure. An Angel wants to look you in the eye when you tell him =
or
her that everything is going fine.
Q: Do you think Sun will lock in its JAVA as a standard?
Petzinger: I think Java has an excellent chance. Now that it has seasoned=
a
bit more, developers love working with it, with the notable exception of
those in Redmond -- and we haven't seen the last chapter yet -- open,
interoperable platforms are the ones that survive and flourish.
Q: Most VCs want their money in five years, right?
Petzinger: Yes, they want a quick exit. Fortunately, today's high-tech
trajectories are so steep it's very often possible for them to get out th=
at
fast.
Q: Are there any specific case studies on this topic?
Petzinger: Not sure what topic you mean. There have certainly been famous
cases done on why some regions "lock in" as technology centers, but I can=
't
readily think of one delving into the opposite.
Q: What do companies include in their bundle of practices that help to
encourage strategic thinking in lower levels of the organization? What is
the relative effectiveness of the various practices? Who outside of the
corporate center and further down in the line should have this capability=
?
Petzinger: To begin with the end, everybody can and everybody must have t=
his
capability. Strategy is everybody's business today. Those firms that best
succeed in tapping the strategic thinking of lower levels. As well as the
sharp eyes and ears of those folks, are those that sincerely act on what
they hear from below. It's not sufficient to say, "We want you guys to gi=
ve
us your ideas." You have to show how those ideas make some kind of
difference. The Japanese have been exemplars of this. BTW, the best book =
on
this topic, I think, is Hamel and Prahalad's "Competing for the Future."
Q: Have you read the work of Michael Goldharber on the "economics of
attention"?
Petzinger: I confess not. I'll add it to my list.
Q: This relates to the "economics of attention" comment. Every one can th=
ink
strategically, not all have equal influence. There is a "firehose of
information" out there and only part of it can be ingested!
Petzinger: I couldn't agree more.
Q: Does the popularity of high-tech start ups make it more difficult for
biotech companies to get venture capital financing?
Petzinger: No way. There's way more VC money today than VC opportunities.
And biotech is the future of technology. As the VCs themselves are acutel=
y
aware.
Q: What, if anything, do you think is the long terms significance of the
FreePC and similar product giveaways? I wonder if it will complement the
work pioneered in Germany on concepts such as "products of use," which
de-emphasize ownership of products.
Petzinger: We're headed inexorably in that direction. In the future reven=
ue
will be generated by relationships rather than transactions.
Q: What are the links (URLs) for becoming more connected to the Pittsburg=
h /
Silicon Valley Entrepreneurial activities discussed in today's article?
Petzinger: It's amazing how many of you there are out there. Please send =
me
a note ([email protected]) and I'll pass along some resources.
Q: Your comments sound a bit like Warren Buffet's thinking, what do you s=
ay?
Petzinger: Yes, we're exactly the same, but for a few zeroes.
Q: Will your upcoming book draw from your columns?
Petzinger: Yes, I've expanded on a number of my columns and added some ne=
w
cases as well. I try to explore the common denominators of success in the
people I write about, and search for the underlying historical, cultural =
and
even scientific themes revealed in the stories.
Q: In your research for the book, did you find that intranets and the
Internet had had much effect on the relations between employees and
management?
Petzinger: Yes, absolutely. These media begin to disintermediate manageme=
nt!
Q: Any ideas on how to get angel money to the researchers at the universi=
ty
level?
Petzinger: All I can suggest is a little salesmanship. Come up with a gre=
at
"story" for the technology or business model. Angels won't discriminate
against you because you're working in the bowels of an academic instituti=
on.
Q: I recently read that the biotechs burn money at a greater rate than th=
ey
can sustain through external financing. Thus, there may be VC startup mon=
ey,
but the biotechs have trouble surviving due to their long time to
profitability. The issue isn't VC funds; it's operating capital.
Petzinger: Yes, that quite a conundrum in biotech, which is why so much o=
f
it occurs within huge organizations. Sometimes the only route is to sell =
to
a major firm -- or seek government $$$.
Q: What if you encourage your staff to be dynamic but your supervisors do=
n't
see the benefit in tapping into your insights or including you in their
business decisions?
Petzinger: Then it's time for new supervisors. That is the layer that has
the most trouble with this approach. If you can't change their mind-sets,
maybe you have to change them -- replace them, I mean.
Q: Do you believe that the workplace in general is becoming more stressfu=
l?
Petzinger: Yes and no. Yes in the sense that people are held to tighter
measurement and accountability, and yes to the extent that change and
turbulence are the orders of the day. But it's become _less_ stressful to
the extent that we see more recognition of human factors -- personal need=
s,
wants, concerns. I also think the workplace is becoming more flexible whe=
re
family matters are concerned.
Q: In fact, is it possible to preserve traditional, hierarchical manageme=
nt
once you introduce an intranet? I can't think of anything more
destabilizing. Yea, technology!
Petzinger: You're right. It is certainly possible, and perhaps necessary =
in
some cases, to preserve hierarchies, per se, but the command-and-control
that go with them is becoming a thing of the past.
Q: Who is the target audience for your new book?
Petzinger: Anyone trying to make sense of the changes swirling around
business.
Q: As a veteran of 25 years in technology, I feel that profit sharing is
very effective in motivating younger professionals to share ideas for
innovation inside the large corporation. You cannot mandate innovation or
get it with just a salary.
Petzinger: Agreed. One hundred percent.
Q:What you say about equity for talent is true, but what if more equity i=
s
being paid to the business staff coming in later, rather than the
programmers who've built the actual product? Or is this just a classic
labor/management split? Also, do you think high-tech workers might unioni=
ze
over these types of issues?
Petzinger: I'd say that's a problem. It is hard for me to imagine the
prospect of much unionization among high-tech workers, though. There's
simply too much variation in skill and contribution.
Q: Tom, the Senate just acquitted the President Clinton of both impeachme=
nt
articles. Are there any management lessons we can learn from the trial
process?
Petzinger: The first is, don't use Washington as a model for anything in
management. In business we do things that make sense, not that play out a
certain way. The second larger lesson is never lie!
WSJ_Host: On that note, thank you Tom, and thank you all for joining us
today.
Petzinger: This has been fun. Thank you one and all for coming and for
reading my column.
Tushar J. Mehta
email: [email protected]
voicemail: (425)558-1101