Franklin looks for people with "broad circles of influence." Two of his advisers are Dan Nordstrom, a co-president of clothing retailer Nordstrom, and Janice Sears, a divisional vice-president of catalog planning at Eddie Bauer. The two executives offer Franklin expertise--and access. Nordstrom knows the CEOs of most major apparel vendors, Franklin notes. "This is someone who can help you jump the time warp. He can get you quickly to a potential strategic partner," he says. That's crucial on the Net, where a smart business model can be knocked off in six months. "With the right person on the board you can cut the cycle of developing a relationship with a partner from one year to two months," says Franklin. "It can amount to just a phone call as opposed to having to go out and prove yourself."
Growing the Money Tree
E-commerce companies, despite the popular image of treading lightly across the filigree of the Web, burn money by the bale. Members of corporate boards, by offering access to investors, can keep the vital flow of money coming. Dwayne Walker, CEO of Seattle-based TechWave, an E-commerce service provider, says for an E-commerce company to really thrive it must ascend to "the first tier"--an elite group of well-heeled and well-connected companies that can afford the rapidly rising price required to establish brand identity and prime position on the Net. TechWave has raised nearly $35 million to date, and, Walker says, "fund-raising for me is a full-time job. It never ends. It's the most intense part of my job."
Walker sits on the advisory board of FreeShop, a Seattle-based company that specializes in trial-product offers. Of Walker's nine fellow board members, three are from the financial community. In a similar vein, Skip Franklin says his board of directors' primary mission is "to help me get funding." Adding to the mercenary flavor is an unwritten rule that board members themselves are expected to vote with their wallets--Franklin says that 80% of his board members have invested in the company. "A frequent mistake small companies make is they get someone in to champion the company, but then he doesn't invest," Franklin says. "That doesn't look good."
Cross-investing is, in fact, more than a show of solidarity. It has its practical side, representing a hedge that allows Internet entrepreneurs to bet on an industry, not just on a company. "I picked seven of my friends from the industry as angels," says Mark Goldstein. "They understood the high risks, that one out of three of these companies fails abjectly. You get none of your money back."
Despite the free flow of ideas and money, E-commerce companies, given the industry's breakneck pace, must often base crucial decisions on incomplete information. That sharpens the search for an edge, an insight.
"The driver for me is education and learning through networking with people," says TechWave's Walker, who is indeed a driven man. Walker routinely logs 14-hour days, and, he acknowledges, "I'm usually thinking about this stuff at 7 a.m. in the shower." He recently invested in Doke's on-line accounting company--and became a member of its board--because the business had built a strong "vertical market" in its industry. (Vertical markets are based on "peer to peer" selling, in which a product recommended by one professional is bought by many of his or her peers because of the recommendation.)
Doke, meanwhile, scarcely discouraged Walker's interest. "Dwayne knows a lot about acquisitions and finance," he says. "You have to go after the best." Walker had recently raised $25 million from venture capitalists and acquired three companies. Doke saw Walker's skills as integral to his own future growth; he needed to learn as much as he could from him.
Meanwhile, Walker was courting another company, Major Connections, which sells software in supermarkets. Sensing that some of those buyers could be converted to buying software electronically from TechWave, Walker called Major Connections' CEO, David Lonsdale, out of the blue. Lonsdale said he would be on the West Coast in two weeks. "I'll meet you," replied Walker, who subsequently hopped a plane for San Francisco, where the two men talked for three hours nonstop.
Two weeks after that they hammered out a joint-marketing agreement with plans, as well, for Lonsdale to sit on TechWave's board. Lonsdale instantly saw how he could benefit from affiliating with Walker. "Dwayne's an extremely flexible and lateral thinker," he says. "He's intellectually stimulated by casting his thinking in a variety of directions at the same time. He's always touching and feeling as much of what's going on around him as he can."
Perhaps the drive by the likes of Doke and Walker to reach out to peers will subside as the industry matures. Competition will soon intensify, and consolidation will roll through the industry. The old gang will break up, and people will recall palmier times when they all shared time and talent so freely. One Seattle-based Internet entrepreneur, Martin Tobias, remarks that people in the industry are "friendlier" in his hometown than they are in Silicon Valley, where some of his colleagues "want to get paid like consultants for information we'd give away free up here." After talking about how open the industry is, another CEO, Ariel Poler, declines even to elaborate on what his company, Topica Inc., does.
People are now, in effect, choosing allies to fight the war. "There will most emphatically be a massive consolidation as we move downstream," predicts Lonsdale. While no one really knows where E-commerce is headed, industry leaders do know "they need to have good counsel around them," Lonsdale adds. And he further warns, "If you remain insular in this business, you'll get eaten alive."
Edward O. Welles is a senior writer at Inc.
