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Building an e-community Featured

9:38am EDT July 22, 2002

“Business-to-business trade isn’t growing up in high-tech centers like Silicon Valley; it’s developing in industrial hubs like Cleveland and Detroit. As B2B trade expands, there will be a flight of talent and venture capital money to support these efforts, leaving the coasts feeling a bit of a frost — while middle America experiences the Internet boom in 2001.”

— Forrester Research, February 2000

It’s words like these that make Jim Cookinham smile. As director of the Northeast Ohio Software Association, Cookinham has made it his mission to drag Cleveland, kicking and screaming if he must, into the e-revolution.

With that goal in mind, Cookinham brought Seattle-based David Bluhm, co-founder of 2way Co., to Cleveland to talk about what it will take to make this area a player in the online world.

Bluhm has the credentials. In addition to 2Way, he is on the board of several businesses and plans four Internet start-ups this year. He is a member of the Northwest Venture Group and has worked at Motorola Semiconductor Products Sector, Mosaix International, Davox Corp., Mammoth Micro Productions and Hewlett-Packard.

His venture, like those of many entrepreneurs, started with him watching every penny. Desks were made of doors from a local lumberyard, with four-by-fours for legs. They cost $68 each.

The company now boasts 75 employees with between $7 million and $10 million in annual revenue. Bluhm recently completed $25 million in mezzanine financing and plans an IPO later this year.

With Microsoft as a neighbor, the Northwest has an advantage over the rest of the country, but despite its reputation, many angel investors in that area are just as tech unsavvy as those in the Midwest. One such angel brought in for a presentation by Bluhm and his partners appeared a bit dazed by the information. The man, Bluhm says, appeared as though he didn’t want to let on that he had no idea what they were talking about. He wrote a check on the spot, despite the fact that sap from one of the desk legs oozed all over his pant leg.

But you can’t count on investors too embarrassed to confess their ignorance to write you a check. What will make this area a viable contender is a healthy diet of education.

Investors, entrepreneurs and service providers must understand how business has changed.

The first thing people need to learn is the speed at which business takes place today. It took Hewlett-Packard 47 years to reach $1 billion in market capital. It took Microsoft 15 years, Yahoo two years and NetZero nine months. The Internet is also changing the way business is done. Bluhm cites Amazon.com CEO Jeff Bezos as an example.

“He’s taken a low margin business and put it on a lower margin medium and gotten away with it for years,” Bluhm says. “The danger is not that computers will replace people, it’s that we have to meet them halfway.”

Existing businesses can’t simply add an Internet arm to their operations and be a success. To make the venture successful, he says, a business owner must develop an entirely new culture.

Northeast Ohio must also change its culture. According to Bluhm, there are five areas that must be addressed if the area is to join that e-revolution.

Education and consulting

There must be a regular series of seminars, classes and boot camps for Internet entrepreneurs. Organizations such as NEOSA, Enterprise Development Inc. and several area incubators are beginning to pick up the slack.

Develop a safe “failing” environment

Entrepreneurs must be able to present their plans and receive feedback. Bluhm remembers watching an entrepreneur fumble through a presentation before a group of venture capitalists.

Despite the merits of his idea, the man had completely blown any shot of getting funding from that group. Some retribution-free feedback before that presentation might have helped.

Access to investors

Whether it’s a five-minute forum or an early-stage investment program, entrepreneurs and investors must be able to get together. There are some Web sites that have tried to bring investors and entrepreneurs together. The Access to Capital-Electronic Network(ace-net.sr.unh.edu/pub/), created by the U.S. Small Business Administration and administered in Ohio by EDI and ohioangels.com, launched just last month, does just that.

The Innovest conference, produced by the Ohio Department of Development, Enterprise Development Inc. and the Columbus Investment Interest Group and sponsored by SBN, also tries to put venture caps and entrepreneurs together. But that program is only once a year and limits the number of presenters.

Service provider network

Often lost in the process are the service providers supporting the Internet start-ups. The accountants, attorneys, bankers, all the people who offer advice and assist the venture, must be able to communicate and work together.

Peer group review

The CEOs must be able to be able to talk to one another. Who better understands what an entrepreneur is going through than another in the same position.

Peer groups can offer understanding and answers.

How to reach: NEOSA, www.neosa.org; Northwest Venture Capital Group, www.nwvg.org

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.