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From out of the wreckage... Featured

10:10am EDT July 22, 2002

From out of the wreckage...

When Nets Inc. shut down last year, Dennis Caruso walked away with possibly the best part of the company in his head-his experience from the failed venture.

Interviewed by Ray Marano

Dennis Caruso could get away with lying about his age. At 50, he looks at least five or maybe even 10 years younger.

However, his experience at Nets Inc. (called Industry.Net before that), a start-up that had shown great promise, could just as easily have aged him enough to look like he was ready for retirement.

With more advance notice than most people get when being laid off, most Nets employees had enough time to polish their resumes and seek employment as the company plunged toward failure early last year. But instead of looking for new jobs, Caruso and five fellow employees from Nets, several of whom were officers in the company, formed Smart Systems Technology, a company that provides Internet-oriented information services and products to sales organizations. The game plan is straightforward: to use the lessons they learned at Nets to deliver some of what that company tried to accomplish for its clients.

Caruso, who signed on with Nets in 1990 (shortly after local entrepreneurial superstar Don Jones founded it as Automation News Network), ran the start-up's Target Market Services unit until last June. Shortly thereafter, Nets Inc. filed a Chapter 11 petition. In February, the company petitioned to liquidate any remaining assets.

The collapse of Nets was a particularly hard fall for Caruso and many others who put in long hours to make it successful, inspired by Jones' spectacular record in launching new ventures.

Nets, which started out modestly as little more than a print and electronic newsletter, was attempting to use the latest in information technology, including the Internet, to link buyers and sellers of industrial and high-technology products to a virtual marketplace. The high cost of sales and a shortage of cash, which Jones unsuccessfully tried to remedy by bringing in Boston software giant Jim Manzi to run it, doomed the company, says Caruso.

Although Caruso, the new venture's president, and his partners are running Smart Systems on a tight budget, he says that selling services will buy Industrial Research Services the time it needs to establish its first product, a sales lead-management software system, into the hands of sales organizations.

After seeing what the high costs of selling at Nets could do to bog down a sales organization, Caruso says he realized he needed to automate some of the sales activities that had typically been initiated by sales representatives.

"One of the lessons I learned at Nets was that, in the industrial marketplace, the selling cycles are so long that it's imperative that a company stay in constant contact with the customer," says Caruso.

The lead-management software is designed to allow sales organizations to automate much of the correspondence that sales people need to send to prospects and should preserve more of their time to concentrate on other aspects of selling.

"The whole goal is to get our phones ringing rather than having to go out and sell business," Caruso says.

In this month's One on One interview, Caruso tells what he learned from his experience at failed Nets Inc. and how he hopes to apply those lessons to his new venture.

Why did Nets.Inc go belly up?

Here we were, we were a publication, we had this great product [Locater] which was like a directory on disk on a regional basis, and it took a while for that to get implemented in the market. When we first were doing that, we heard "Gee, we don't even have a PC here." Then, we went from something that was being accepted, that was being utilized by the industrial/technical people as a tool, and the next thing you know we're doing away with it and using the Internet.

They needed access to the Internet to get this information. Then you need a program; it's easy to flop a disk into a disc drive-but access to the Internet is a totally different thing. That raised a lot of red flags within corporations about security and playing on the 'Net. Don [Jones] was right in seeing the Internet as a tool to do that. The concept was solid, as solid as a rock. The problem is it just didn't have enough time, it didn't have enough money.

You saw a lot of the blood, sweat and tears of these folks who worked 12 or 14 hours a day to make Industry.Net a reality. Overnight, it just dissipated. And there's really no one person to blame. We were a young company trying something that was totally revolutionary, and we were the leader. We just ran out of money. With the cost of sales being so huge, we couldn't replicate, we couldn't cookie-cutter what we were doing quickly enough to make it sustainable. It was a great idea.

It sounds like there might have been a lack of focus. Was there?

It wasn't that they lacked focus, it's that, because of the changes and the new technologies...the analysts said we were a mile wide and an inch deep. That was from their perspective. Whether it's accurate or not, I'm not sure, but we were off fooling around with different things.

We were a different company to different sets of people in the marketplace. Could you view that...as a lack of focus? I'm not sure if I want to say that, but it did teach me a lesson from the standpoint of really honing the things you do well and making them better, developing them to the degree that they're the best they can possibly be.

Was Nets Inc. a little too far out in front of the marketplace?

I don't really think it was that. We just didn't have the backing and couldn't do it on cash flow. And that's why Manzi came into the picture. Don needed someone with his kind of clout, I believe, within the financial community to take us to the next step. I mean, he was a presence, let's face it.

It was the wrong presence for the kind of company we were. Bottom line, he was from the software world, where they're used to working in thousands of percent of margin. He took a look at things differently: Develop something, put all of your money into development and, if it flies, then you sit back and collect. But this was an evolving business. There was no real hard and fast way to do it. It was trial and error.

Did you see what was happening, and, if so, how did you respond?

We were told in January [1997] that Target Marketing Services was going to be dissolved. That's when the publication was dissolved. Basically, my entire staff, other than seven people, were laid off in January. Manzi had a concept of spinning out target marketing, but I knew that wouldn't work.

Again, we would have had to rely on them, and they were having trouble with money. So the agreement that I made with them was that I would keep the six core people to manage all of the business that we had on the books, and we figured it would take about four to five months to satisfy it. We went about satisfying it using two call centers. One of them was Direct Response Marketing, Anita Brattina's company, and the other was Marketing Support Network in Bridgeville, which we were using because I couldn't hire enough people to handle the workload.

We were going to go public, so we had to keep our head counts low, you know, all of that game. So we were always forced into using contractors from the outside to satisfy the need. Well, when this all came down, I said, let's do it this way: We'll use them to get the business done, and we'll leave June 1. So that was the game plan. We had been talking all along about doing something similar to what we were doing at Industry.Net relative to target marketing, so that play was in the works from about February on. So when it crashed in May, it wasn't a surprise. It was painful, but it wasn't a surprise.

How did you get Smart Systems Technology started?

We had a couple of clients, even after [Nets Inc.] folded, that wanted us in some way, shape or form to continue working with them. While I was [consulting], Rick [DeMoss, Smart Systems Technology's vice president of sales] was maintaining relationships with these clients. One of them was Cattron, a company in Sharpsville, and another was a big multinational company called Keys Corp. of America. So we had to formulate putting this back together in some way, shape or form, but we were in a position where we had no data. How were we going to go back and build all this data?

We bought some data, we used the Internet to collect a lot of information, just putting together databases that we could utilize to service our customers. We put together an outline of a business plan, no formal thing to take to a bank to get money, but a working plan, if you will, that would get us from step one to step two and so on. Then we started promoting the fact that we were back in business and repackaging what we were doing from a services standpoint.

We started picking up the phone, trying to remember who in the heck we were doing business with. The first two months were spent doing nothing more than that, calling folks to see if they were still there, if they weren't, who replaced them, knowing all along we were going to be at least 18 months away from a product, so we were paying the bills with services.

What kinds of services were you able to offer coming out of the gate?

The one service we were very familiar with was special-event marketing or seminars. So we positioned it, repackaged it price-wise, added to the deliverables because of the mistake we knew we had made at Industry.Net, and that mistake was that the whole program was designed to get people to an event, to a seminar, so that the client would have a chance to meet with someone one on one, face to face.

Here we are on telephones, talking to all of these people every day, learning about their operation, what they need, what they like, and all that stuff was slipping through the cracks because all our client cared about was getting cheeks in seats, and we were gaining so much insight into these operations. So we said, 'let's package that, let's make that part of the deliverables.' So our campaigns not only derive attendance to the events, but also generate leads or collect intelligence, sales intelligence, for a unique set of companies.

We target 200 companies for every one of these projects, and these 200 companies are basically within a 40-mile radius of our client. We try to learn everything we can about that company that we possibly can pertaining to our clients' needs. So if our clients have widgets, we want to find out who uses widgets, where they're buying them, what unique thing they're looking for from that widget, whether or not our client can satisfy their needs or not, and what's important to that customer.

Then we feed that information back to our clients. It helps both sides of the equation. If there's not a fit, then our client's not going to pursue them and waste their time. If it is a fit, then they can present what the end-user is looking for.

Will you ever be doing the number of events that Nets Inc. was doing?

We never want to get to the point where we are doing 120 events a month. That's grueling. It's a marketing campaign where the deliverables are spread out over an entire campaign, rather than just the day of the event, so they're getting three or four times their investment. Over the course of the year, we want to do about 250 events. It's again where we have the strongest foothold in the marketplace, and we figured we'd capitalize on that foothold by some repackaging and going after that old client base.

That's really the core business we want to involve ourselves in. We believe that holds the greatest value not only for our business but for our customers. Very few companies conduct seminars on a regular basis. Virtually every manufacturer, distributor and reseller attends a trade show or exhibits at a trade show during the course of a year.

If you see the traditional methodology of trade shows, companies invest tremendous amounts of money in their booth, getting the booth back and forth, human resources, the show bash, hospitality suites and all this other stuff. Only the smart ones invest money into promoting their presence at the trade show. Most of the others leave that up to the association or the trade-show host.

We think that's a mistake. In fact, our marketing tells us that's a mistake. If you're promoting the fact that you're at this trade show and that you have these kinds of products, they'll walk right to your booth. The cost of participating and exhibiting has become so high that, if you don't get big value from it, you just throw marketing dollars out the window.

So our program is designed to get our clients on the must-see lists. It's a $1,500 program, very inexpensive when you consider the entire cost of exhibiting at trade shows. What we do is contact and promote your presence to 200 companies that you help us develop a list around; in other words, you've identified 200 companies as being prospects for your product.

To me, this is the product we have to focus on more than any other at this point in time, because it's a good lead-in to other types of services; for example, lead qualification. If I sent a lot of people to your booth, you may want me to qualify your leads after the show is over. We've developed a system that's proprietary to us that helps you extract a tremendous amount of information from that person that stopped by your booth.

We've learned that a number of these manufacturers at these trade shows are looking for distributors and rep organizations. We have a product that's called Channel Partner ID, where we'll work with companies, for example, that are looking to add to their distribution network in specific programs or territories. We've added that as an add-in option that you can get with your exhibitor promotion program. If that's something that's of interest to you, prior to the trade show, we work hard in driving those companies to your booth when they hold some reseller value.

What is your overall approach to the business?

We're going out to the market and asking, 'Would this be beneficial to you?' If we get enough 'yeas' vs. 'nays' or a high degree of interest, we'll implement it or at least work on it. But it still has to be within the core business, and that core business is to help efficiencies of the selling process, to help clients get from point A to a sale more cost effectively. It's really about helping our clients maximize the investments that they're making in lead generation Nothing happens until someone sells something.