Dennis Crum, founder of an energy brokerage firm, has started a dot-com that might kill his original business. So why does he think that's just what he needs to make his old company grow?
This energy broker has spun off a dot-com that, by all rights, should kill his original company
You approach APB Energy's Louisville headquarters through a classic corporate lobby whose sleek, dark-wood-accented lines suggest recent economic boom times filtered through Southern gentility. Then you crack the heavy doors leading into the company and instantly realize they are thickly soundproofed. They have to be, to contain the startling, soccer-riot-like cacophony within. The tightly clustered 80 or so people perpetrating this aural violence even look a little like soccer hooligans: most are male twenty-somethings with short haircuts and beefy builds, though the look is softened somewhat by the polo-shirt-and-khakis attire. These folks seem delirious, some angrily, some happily, all loudly. A few are slowly rising out of their seats in concert with their increasingly shrill voices, as if levitated by the commotion. It's hard to understand what any of them are shouting, except when four of them spontaneously burst into a few bars of the "Thong Song."
The crowd is positioned around huge communal desks that sport two or in some cases three flat-screen computer monitors -- most displaying a riot of blinking color bars, though one is plastered with a head shot of Elvis. The people in the room all have at their fingertips a control panel that would look impressive in a fighter plane. It looks as if NASA has rented out a mission-control room for a fraternity blowout. But then you enter a room off to the side and close the door behind you, and the sudden quiet seems almost as jarring as the noise was. Here three guys sit, two of them chatting casually, the third reading a magazine, while a bank of computers hums softly behind them.
This is where the real action is.
The exuberant trading floor and the placid computer room represent two separate but intertwined businesses, both founded and run by Dennis Crum, a former natural-gas trader without a college degree. The first business, APB Energy Inc., is an energy brokerage much in the style of a conventional commodities house. It's also a two-time Inc. 500 company, with revenues for 2000 estimated at $19 million. The second business, True Quote, is an APB spin-off that is creating an automated electronic marketplace for the energy products that APB trades. It is a system that will place APB's dealings on a screen alongside those of its customers and its competitors.
"If our customers had all the prices in front of them, why would they need us?"
Most owners of conventional businesses by now have taken at least the first steps necessary to extend their operations to the online world. Many have been sufficiently enamored of and emboldened by the excitement of the new economy to actually form separate and even unrelated dot-com companies. (See "My Other Company Is a Dot-com," below.) But few owners of successful companies have gone as far as Crum has. Not only did he create and spin off an Internet company, but he started up the very sort of virtual business that you'd think would be his worst nightmare -- that is, a business that provides services like those of his original company, except at lower margins, and one that eliminates a huge competitive advantage.
But Crum, a stubby but fit-looking 34-year-old with slicked-back hair and a twangy basso, sees things differently. In his worldview the companies that sit around and wait nervously for a new Internet business to spring up and invade their turf are the ones most likely to take it in the gut. Being proactive and actually creating that new invader, on the other hand, affords a conventional company an opportunity to shape the way the game is played online. Sure, your original company will lose some business. But if you set it up right, insists Crum, the new company can actually boost the original's bottom line by focusing on higher-value-added products that aren't well suited to the Web. And meanwhile, you've got a fresh shot at hitting it big.
Being a college dropout confers on Dennis Crum a sort of ahead-of-the-curve status in the high-tech, entrepreneurial culture he's embracing. In Crum's case, he was a highly computer-literate student at the University of Louisville who was being offered big money to help companies set up their information systems. But then he took a full-time job as the computer guru for EnTrade, a Louisville company that bought and immediately sold natural gas. EnTrade profited on the fleeting price spreads that can open up between producers, utilities, and corporate consumers in various parts of the country. Crum couldn't simultaneously attend daytime classes and show up for work, so he left the university in 1988.
After Crum spent six months creating trading systems for EnTrade, CEO David Doctor recognized that Crum had the makings of a good trader. "He persuaded us," Doctor says. "He has an amazing intellectual capacity for visualizing the convergence of physical activity and data. He also was intense and insistent, always pushing my buttons and everyone else's about why we didn't do things in a different way."
In about a year and a half Crum had worked his way up to head trader.
When Houston's Tenneco Energy acquired EnTrade, in 1993, Crum, then 26, decided to strike out on his own. He scraped together $16,000 and opened up APB. Unlike EnTrade and other energy-trading companies, APB is a brokerage -- that is, instead of actually taking ownership, if only momentarily, of the natural-gas and other energy commodities in the wholesale market in which it deals, APB merely puts buyer and seller together. The company takes a commission based on the size of the deal.
APB started off brokering natural-gas trades and soon broadened into electrical-power trades as that industry began deregulation. Most of the deals were straightforward enough -- a large energy-marketing company on the East Coast might buy several megawatts of power from a Midwest utility that happened to have some excess capacity, for example. But some trades were becoming increasingly complex, especially as pricing volatility rocked many segments of the energy industry. Prices for electricity could rise or fall by a few thousand percent in a matter of hours. "A heat wave hits, and boom, you've suddenly got a huge price spike," explains Crum. "Or a hydroelectric power plant has a huge glut of power, but it can't just shut down, so it practically gives the power away for a while." Some of the trades played out months in the future -- what's called "forward market pricing" -- and involved multiple players and geographic locations.
