Making Your Mark

Baldwin Louie — Mon, 09 Oct 2000 18:00:00 -0400

Do you have what it will take to lead in the brutally demanding market of the Internet Economy? Should you aspire to be like Jack Welch of General Electric (GE), who has pushed down responsibility, cut layers, speeded decisions - and added more than 1,000 percent to GE's stock value over the 17 years he has served as CEO?

Or should you do what the leading Internet CEOs have done? None laugh in the face of convention so readily as Amazon.com (AMZN)'s Jeff Bezos. What has Bezos drawn upon to grow Amazon to such a colossus - despite its famously unprofitable results and current disfavor on Wall Street? What capacities enabled Meg Whitman to multiply eBay (EBAY)'s market cap to $20 billion? What has Masayoshi Son brought to Softbank to build one of the world's great venture incubators? And what did David Pottruck do at Charles Schwab (SCH) to push the brokerage online before its competitors got there, making the company worth more today than Merrill (dossier) Lynch?

Identifying the skills that count - and then learning how to get them yourself - could be one of the most valuable exercises you'll ever perform. A number of stock analysts, investment managers, company executives and venture capitalists were asked this question: In deciding to invest in an Internet company, how important is the business model vs. the company leadership? The answers from this unscientific poll show that the right leadership is perceived as just as important as the right strategy in sustaining a competitive advantage.

To identify the skills of winning leaders, the best sources are often the people who recruit the top talent: venture capitalists and headhunters. Benchmark Capital (dossier), one of Silicon Valley's leading VC firms, had the foresight to recruit Meg Whitman, an experienced and proven leader, in the spring of 1998, two and a half years after eBay was founded.

Benchmark wanted a leader who could not only motivate employees but could also move markets, and they chose Whitman, given her track record of doing both at Procter & Gamble (PG), Bain & Co., Disney and Stride Rite (SRR), among others. Soon after reporting to work as the auction site's first CEO, Whitman found herself on the road to promote an initial public offering. With Goldman Sach's orchestration, she made her pitch to dozens of investors, and on Sept. 24, 1998, eBay's stock opened at $18 a share. Her articulation of the business plan worked. Mary Meeker, the renowned Morgan Stanley Internet analyst, told clients that the company would "outperform." By the end of the first day of trading, the stock closed at $47. Over the next two years, eBay's stock continued a spectacular rise, carrying its market value to well over $20 billion.

The winning ingredients of Whitman's road-show romp: With an ear to the market, she picked the banker, wrote the offering and targeted the date. With an executive coach, she rehearsed the show until her lines were flawless. With a quick study's instinct, she mastered an understanding of the site's underlying technologies. With an old-economy résumé, she explained why her experience in brand management at Procter & Gamble was ideal for positioning a new-economy service. And with a strategist's acumen, she showed how her auctions would operate, make money and crush competitors.

After the IPO, Whitman made another smart move: She became obsessed with both her customers and her competition. When Amazon.com entered eBay's turf of online auctions, she quickly learned what Amazon offered that eBay did not - easy-to-retrieve passwords and fraud insurance - and instantly added those features to the eBay site. She then went a step further, ramping up new product categories, adding a way for buyers to search for items in their own cities and installing an application that would notify buyers by e-mail when items they sought were finally listed.

Contrary to popular belief, as illustrated with the successful match of Whitman to eBay, old-school execs can transition to Internet positions if they can learn the technology and adjust to a faster pace and looser culture. Consider the conclusion of two principals at Spencer Stuart (dossier), one of America's leading executive search firms. James Citrin manages its Internet searches, and Thomas Neff serves as chairman. In their 1999 article "Digital Leadership" in the Journal of Strategy and Business, they claim that if Amazon's Bezos and GE's Welch suddenly changed places, they would be equally successful.

That's because the same leadership skills are required in both the traditional and new economies: leading by example, developing a solid business strategy, building a strong management team, motivating the troops, being flexible and proactive, and rewarding performance. If they really traded places, we'd probably find that Jeff is not really a Jack, and Jack not truly a Jeff, but the headhunters' point is on the mark: New or old economy, certain verities hold fast for both. But it is also clear that leadership in the e-commerce age requires an extra edge.

Citrin and Neff identify six capabilities for the new breed of leaders: focusing obsessively on customers; building a flat and cross-functional organization; managing with a business model rather than a strategic plan; promoting the model with customers, media and owners; fostering risk-taking throughout the company; and working extremely hard.

LOS ANGELES (Reuters) - Aimster yes. Napster (dossier) no.

As the music industry tries to stop song-swap service Napster, at least one major record label and a music retailer are forging ties with Aimster, a new player in the controversial Internet file-sharing sector.

EMI Group (EMI) Plc's (EMI.L) Capitol Records, home to the Beatles, teamed up with Aimster this week to promote a new album by the band Radiohead, said Johnny Deep, a spokesman for Aimster.

Industry sources also said a major music retailer, Trans World Entertainment (TWMC) Corp. (TWMC), is soon expected to announce an alliance with Aimster, which attaches a Napster-like browser to AOL's Instant Messaging service (AIM).

Trans World and Aimster declined comment, although Deep has said Aimster is talking with many companies, including Intel (INTC) Corp. (INTC).

"Obviously, the major retailers and record companies are looking for compelling technologies to connect with the consumers," said Jonathan Potter, executive director for Digital Media Association.

"Aimster appears to be more a manageable and limited form of file-sharing in terms of distribution. It doesn't surprise me that copyright owners are more comfortable with this sort of application," Potter said.

Capitol's Radiohead promotion ran for only two days, ending on midnight Tuesday, but it represented a big turning point for the evolution of file-sharing applications like Napster, Scour and Gnutella, which have for the most part been reviled and sued by the entertainment industry for allegedly facilitating copyright infringement.

Deep said he believes Aimster is well-insulated from lawsuits because it is used for many non-infringing purposes and because users have more control over files since they share only with people on AIM "buddy lists".

In contrast, Napster lets users download from anybody else on the service, which has drawn over 25 million users.

"We firmly believe that instant sharing is the killer app (application) on the Internet," said Deep, noting that Capitol wanted to exploit Aimster's program to notify users about the Radiohead album and direct them to a promotional Web site.

The Recording Industry Association of America (RIAA), which represents big record companies like Seagram (VO) Co. Ltd.'s (VO.TO) Universal Music, Bertelsmann AG (dossier)'s (BTGGga.D) BMG, Sony (SNE) Corp.'s (6758.T) Sony Music and Time (TWX) Warner's (TWX.N) Warner Music Group and EMI, has filed suit against Napster for copyright infringement.

Both sides will be at a court hearing on Monday in San Francisco where the record industry will try to convince an appeals court to reinstate an injunction that would prevent Napster from operating.

Some experts, however, claim that Aimster could actually represent the biggest nightmare to date for studios trying to stop film and music swapping online because of its ability to piggyback on AOL's popular instant messaging system.

Aimster is drawing attention from companies like Intel looking to invest in peer-to-peer (P2P) computing for use in businesses.

America Online (dossier), which has over 60 million AIM users, has said it was aware of the service and is monitoring it. Aimster has signed nearly 1.5 million users since its launch on August 9 and now offers file-sharing capabilities to a potential pool of 140 million instant messenger users.

Here are four more traits for that must-do leadership list:

Passion: If you don't believe in what you're doing and make your dream clear in compelling ways, nobody will follow. After all, you are asking workers to exchange paychecks for stock options, and 9-to-5 days for 24/7 weeks. Antarctic explorers Robert F. Scott and Ernest Shackleton recruited their expedition teams with their vision, not their wages, and you too are venturing into risky territory.

Listen to the advice of quintessential evangelizer John Chambers, CEO of Cisco Systems (CSCO), on how to reinvent a company around the Net: "Until the leader truly believes [in the idea] and truly takes ownership of it and drives it down through his or her company, it doesn't work. You've got to become a champion for it." Bezos, Pottruck, Son and Whitman have been among the truest of the true believers.

Speed: Fast-acting leadership is essential for staying ahead of the curve. Making decisions swiftly and revamping business models on the fly, if needed, will get you to a position of strength. Civil War general John Buford encouraged the Union Army to seize the high ground on the Gettysburg battlefield, a critical factor in the Confederacy's defeat. "When you're starting a business from scratch," says Yahoo (YHOO) founder and CEO Timothy A. Koogle, "speed is everything."

Humility: If a young engineer demanded to hear Jack Welch prove he's good enough to run GE, he would be shown the door. Similarly, in the Net economy, if you tell a hot candidate that it's not your job to explain yourself, she will be on to the next job interview. Job candidates now insist on seeing you, not just the front-line hiring manager. They will ask if you're really smart enough to make your business model work. They expect you to reveal your great plan for transforming the market. In the old economy, you interviewed the candidate; now it's the other way around.

Discovery: The future path is yours to define. "The key thing in e-commerce and the Internet is there's no road map," says Drugstore.com CEO Peter Neupert.

Who will be the Jack Welch of the Internet age and how will he or she define the new leadership? Mastering these skills and adapting them to your personality is the challenge, but the opportunity to make a difference is yours for the taking.

Michael Useem is professor of management at the Wharton School of the University of Pennsylvania and director of the Wharton Center for Leadership and Change.

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Making Your Mark