Net Success and Excess

Last month Red Herring magazine ran a cover story with the title “For Love or Money.” It concerned a subject we’ve been pondering for some time: the motivational changes in Internet employees that have transpired over the past few years.

When Greg started at CNET in early 1996, the commercial Internet was an experiment in progress – not unlike interactive television of the early 1990s. To many big businesses, an online presence meant an AOL keyword – not an Internet domain name. Commercial Internet pioneers were on a mission to create a profitable business out of giving everything away for free.

Today only a handful of Internet businesses have become profitable. Regardless, Wall Street has showered stock market riches on the industry with abandon. This not only validated the Internet business model, but it made it so lucrative that businesses without one have been financially disadvantaged.

One week you’re General Motors, the next week you’re acquired by a web site that brokers Pez. dispensers in an exchange of stock.

As a result, the industry’s personality has changed far more dramatically than anyone has acknowledged. Over the past few years, the excitement of forging new ground and pioneering a new worldwide medium waned in favor of making a bundle on Wall Street.

In CNET’s pre-profitable early days, CEO Halsey Minor once said of their prospects for viability, “If we’re going to hit the wall, we’re going to do it at 120mph… and not 35mph.” Halsey’s metaphor represented CNET’s giving its all to establish a new business and industry. But if you were looking for a spin on his metaphor appropriate to what many new market entrants are doing today, it might instead concern how much they can fraudulently collect off insurance by deliberately running their cars into the wall.

Turn Left at the Brick Wall

This fundamental transformation is reflected in the influx of recent hires into the industry. Gone are the new employees who were going out on a limb, thinking they were more likely to be working for companies that would go bankrupt than companies that would make them millionaires.

In their place is a new breed of employee with different motivations and a strong sense of entitlement. Lured from the lucrative offices of corporate America, spurning their original medical and law school aspirations for web and software training, these employees – waves and waves of them – expect to make millions from their stock options.

The good news for the industry is that this new breed is much more experienced. They know how to run successful businesses, and they’re less likely to be the out-of-work bartenders who originally fell into Internet careers by accident.

The bad news is that many of the same people ridiculed “nerdy” computer-related careers until Netscape broke the Wall Street piqata (and Rosie O’Donnell wouldn’t speak to you unless you offered her pre-IPO “friends and family” stock). When the Internet gravy train slows down or threatens to derail, they’re also most likely to be the first to jump the train and hail the next cab out of town.

Help Wanted, Dead or Alive

Competition for employees is fierce. Watching the pre-movie advertising rotation at a San Francisco theater last week, we counted no fewer than six help-wanted ads for Internet companies.

Job applicants have picked up on this, resulting in a situation in which (as a fellow manager of Greg’s describes it) qualified candidates sometimes stroll in, lean back in their chairs, and expect a Swedish massage as part of the interview.

Emily sent flowers to Greg at work one day, and Greg’s initial suspicion was that a particularly aggressive executive recruiter sent them. This would be a completely ridiculous story if not for the measures that recruiters have been pushed to by venture capitalists (VCs).

Executive recruiters call Greg several times every week for open positions at a myriad of indistinguishable e-start-ups. Some of Greg’s professional associates have mentioned being offered executive positions for which they felt wholly underqualified.

For example, managers of HTML designers have been offered CTO positions. A bright, high school-educated, but very green former co-worker of Greg’s recently accepted one of these CTO positions not long after reaching the legal drinking age. Given the industry’s media coverage, why wouldn’t inexperienced engineers adopt a “why not me too?” mentality even if they’re in way over their heads?

One can only guess that venture capitalists, looking to create an attractive acquisition or investment as quickly as possible, are more interested in beefing up the appearance of a company’s management roster than in recruiting qualified talent capable of leading the company. Hence a word of warning to investors of future Internet start-ups everywhere: Do your homework and scrutinize the management team.

Who’s Minding the eStore?

Financial prosperity breeds discontent. Just like the many personal investors we know who griped if a stock pick returned only 40 percent last year, industry employees are incited to change jobs because it’s not enough to aspire to become a millionaire when there are multi-millionaires. (Greg should know – for a time last year he listened to recruiter pitches and caught this sickness himself.)

With this rampant job-hopping and VC willingness to fund just about any hair-brained Net idea, few entrepreneurs are willing to stick around long enough to grow their prototypes beyond the Tinkertoy. stage. This spells trouble for an industry with current market valuations based on imaginary profits projected long into the future.

“And we edited HTML pages with Notepad and we liked it!

We don’t intend what we write here to sound like the bitter musings of a crotchety Internet grandfather, going off about how great the Internet was before they came along and ruined it. Internet users overwhelmingly made that complaint of incompetent AOL users when the online service first linked to the open Internet in 1993, yet the Internet today is without question better for it.

Our point is that success has changed the industry greatly, and that should make everyone that much more careful about whom they partner with, acquire, or invest in these days.

Ironically, news such as the pre-holiday demise of CookExpress, a 1999 Global Information Infrastructure Award finalist, is probably a good thing – that not every company with a promising idea deserves millions of dollars of funding without effort.

Michael Douglas’s Gordon Gekko famously said in the 1987 movie “Wall Street”: “Greed, for lack of a better word, is good.” But conventional Wall Street wisdom also has it that “Bulls make money, bears make money, but pigs get slaughtered.”

It pays to listen, as there’s a lot of really loud oinking and squealing around the Internet these days.

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