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.

Crum works to keep his brokers well armed from a technological point of view. He spends more than $12,000 a broker on telecommunications setups. In the spring of 1995, after he finally got tired of watching APB's several dozen brokers tracking prices and trades-in-progress by shouting out the details and scribbling them down on a series of whiteboards, he began designing a system that he named True Quote. It automatically kept track of what was being offered and bid on in natural gas and, later, electricity, and then automatically executed the deal when a buyer's needs matched a seller's offerings.

The brokers were still noisy -- Crum had to spend $7,000 to soundproof the walls and ceilings to avoid complaints from other businesses in the building -- but True Quote relieved them of their more mundane responsibilities.

That the True Quote system was a boon to the business was clear from APB's rocketing revenues and profits. Or it seemed so, anyway, until November 1998, when Duke Energy, one of the largest energy-trading companies in the United States, as well as one of APB's biggest customers, heard about True Quote and asked Crum for access to the system so it could sharpen its own trading and marketing. APB wasn't obligated to let that company on, of course. But how do you say no to a killer customer? "It scared me," says Crum. "I thought if they had all the prices in front of them, why would they need us?"

On one hand, knowing everything that APB knew about energy pricing and availability would reduce Duke's dependence on APB for at least the straightforward deals. On the other hand, those were the lowest-margin trades. Crum had long since realized that the real profits for APB would lie in brokering the complex, multiplayer, forward, derivative deals -- the sort of deals that can't be worked out from prices on a screen.

APB brokers are experts at figuring out which traders to bring together at what moments to make those often byzantine transactions fly and at getting all the players to go along. "It's a sales process, even if it takes place in a few seconds," says Crum. Personal relationships can figure heavily. Crum spends about 5% of APB's revenues each year on entertaining customers; his annual Kentucky Derby party alone runs $300,000, or more than $3,000 a head for the close to 90 traders invited. "Some of these traders know their brokers better than they know their spouses," he boasts. "When it comes time to make a deal, we know how to get them to belly up to the bar."

That talent for finding and closing the complex deals commands high commissions, while customers negotiate lower cuts on the high-volume, routine commodity trades (mostly by playing brokers against one another). If the True Quote system swallowed up all the smaller or simpler deals, APB could thrive all the more by being freed up to focus on the larger or tougher ones, where it could add more value and rake in higher profits. "Our customers won't abandon us for a screen," Crum says. "These relationships are the killer app behind the screen."

The year turned out to be a good one, with the bad trade representing 5% of revenues -- a tough hit, but far from fatal.

OK, Crum figured, Duke Energy could access the system. In fact, why not come out with a Web-based version of the system that would be available to all his customers? Hell, why not even allow them to execute simple trades online? "Our competitors were worried about what E-commerce would do to them," says Crum. "I saw it as an opportunity."

Besides, Crum thought, if APB didn't come out with a customer-oriented version of True Quote, then it might end up a sitting duck for the first brokerage that introduced something similar. But if True Quote caught on, it might help lock out rival brokers. Crum decided to turn True Quote into a dot-com.

In March 1999, Crum committed some $2.5 million to the development of the system, eventually hiring 12 full-time employees and 20 software-development contractors. He spent 90% of his time on the project, turning over most of the management of APB to president Ed Pierangelino. By June of that year the first version (software for natural-gas trading only) was released. The Web-based application followed about nine months later.

Meanwhile, Crum started negotiations with news and other information providers, with the intention of bringing them in as partners to beef up True Quote with ancillary services.

Crum had been ignoring one angle, though. The costs of setting up a sophisticated Internet company placed a drain on APB's cash flow. APB brought in enough money to cover it, but just barely; for the first time, Crum was operating without a comfortable cushion. And it is a fundamental truth of life, of course, that losing your cushion is the best way to make sure you'll need it.

Sure enough, just as the company was preparing to launch the electric-power-trading version of True Quote, Crum found himself facing a white-faced broker who told him that an "out-trade" on an electric-power deal had turned up in the accounts from the afternoon before. An out-trade is basically a miscommunication between a broker and a trader; one believes that a deal was verbally agreed to, as signified by the word "done," while the other doesn't. Out-trades are relatively rare, and when they do occur they are typically picked up by normal auditing procedures within a few trading hours, so that neither party is dinged for more than a few thousand dollars. In this case, however, the per-megawatt price of the electric-power market had gone berserk overnight, shooting up from $110 to $700 and leaving APB facing losses of $200,000 on the deal. Unless, of course, APB tried to force the customer to take or at least share responsibility for the error, a legally defensible position.

But the trader, as it turned out, was megacustomer Enron, one of the largest energy-trading companies in the United States, as well as one of APB's biggest accounts. And the news just got worse from there. In the time it took APB to shut down the deal, the market continued to balloon, raising the loss to $750,000. "It was the blackest day of my life," says Crum. "People were crying on the trading floor. They didn't think we were going to be able to stay in business."

Crum agonized over whether he should press Enron to cover some of the losses. Finally, he went to his former boss, David Doctor, for advice. A similar event had occurred at EnTrade, according to Crum, who adds that, at the time, "David negotiated a settlement. But he said the whole thing ended up hurting the company's reputation so much that he always wished he had just sucked it up and taken the medicine. So that's what we did." (Crum himself had been in the EnTrade group that entered the earlier, costly out-trade.)

The loss left APB temporarily cash starved. Several managers were willing to forgo their paychecks. But then a funny thing happened: a lot of com- panies suddenly started shifting some of their trading away from rival brokers to APB.

"It was as if the industry felt bad about what happened and wanted to make sure we recovered," says Crum. The company ended up bringing in more than $1.5 million in commissions for the month -- its best month to that point. Ultimately, the year turned out to be a good one, with the bad trade representing 5% of revenues -- a tough hit, but far from fatal.

Feeling revitalized, in November 1999 Crum went to the Ernst & Young Entrepreneur of the Year International Conference in Palm Springs, Calif., to pick up an award. He says the hot topic was the Linux computer operating system and other "open architecture" software -- that is, software that could be had at little or no cost, that wasn't tightly controlled by any one company, and that could be freely modified. "It hit me like a ton of bricks," says Crum. "I'd been talking to the wrong partners. I saw I needed to make True Quote an open system, so that traders would feel like it was their system and other brokers would feel like it was their system."

Under the new vision, True Quote would embody what Crum calls an "open-access, broker-assisted model." Instead of requiring that traders do business through APB, True Quote would allow them to see information from and execute trades through any broker that chose to be part of the system. APB would have no explicit advantages or control.

Which raises a question: can True Quote make money? The system will be free to traders for a trial period, after which the company will begin charging a modest commission on transactions or a flat access fee, though Crum says that players who bring a lot of action to the system are likely to receive steep discounts. He believes he'll also be able to sell the vast trove of pricing and trading data that the system will accumulate if it's widely used.

Yet according to Crum, neither of those potential revenue streams figure significantly in the business plan. Instead, he says, the real money will come from two sources: first, from a partnership with a systems-integration company and taking a cut of the fees that that company earns from helping other players tie their computers into the True Quote system; and second, from licensing the software to companies in the energy-trading or other industries, so that they can build their own real-time electronic marketplaces.

"What we've really built here is a widget-trading system," says True Quote's chief operating officer Chris Edmonds. "It's good for any business that has to track anything in real time -- cargo, metals, bandwidth, airline tickets, auto inventory. It's a huge market." He estimates that license fees and integration for the energy industry alone will run as high as $300 million, and for all markets the figure goes "into the billions."

Meanwhile, competition is springing up fast. Enron, for instance, has put up a system open to all traders, although users can trade only with Enron. And electronic energy-trading marketplaces have emerged from start-up companies focused on the Internet, including such sites as;; and, a consortium of energy companies and a B2B E-commerce engine named ESpeed. TradeSpark alone is said to represent 20% of all gas and power trades in the United States. But even if one or more of its competitors take off, True Quote will still thrive, insists Crum. "If other companies create good systems, I'm pretty confident we'll be able to connect to them," he says.

Crum concedes that other brokers are likely to offer some initial resistance to joining up with True Quote, but Edmonds predicts that "traders will drive brokers in our direction," in much the way that customer demand ultimately forced the airlines to cooperate with American Airlines' Sabre reservation system.

True Quote's license fees and integration for the energy industry alone could run as high as $300 million.

Those arguments may very well prove true, says David Khani, senior energy research analyst at investment bank Friedman, Billings & Ramsey, in Arlington, Va. "Customers worry that doing business on Enron's site could be giving an edge to other parts of Enron's business," he explains. "That's not a problem with True Quote, because APB doesn't have proprietary trading. But because True Quote has a brick-and-mortar business behind it, it can leverage the flow of cash and information in a way that Internet start-ups can't." Khani points out that it remains to be seen whether True Quote can take off without cannibalizing APB's commissions, but he concedes that the idea that APB will be able to hang on to the higher-value deals "sounds good, at least in theory." (But he also says that True Quote might be late to the game -- Altrade, for example, was online a year earlier.)

The latest version of True Quote, with full trade-executing capabilities, was launched in late October. "There wasn't much revenue from True Quote in 2000," says Crum, "but I believe it will be profitable this year." And True Quote scored two major boosts to its credibility in 2000. In April, PG&E National Energy Group, the $20-billion, unregulated arm of giant West Coast utility PG&E Co., announced an equity investment in True Quote of an undisclosed amount, but which Crum says is worth "several million dollars." And in July, Enron announced that it would feed its online pricing data into True Quote. (At the same time, Enron announced an identical arrangement with Crum thinks taking the Enron out-trade on the chin may have helped seal that deal.

Meanwhile, in June, APB tapped into a $3-million line of credit (thus assuming debt for the first time in its history) and acquired North Carolina electricity brokerage Chapel Hill Brokers, which specializes in energy-options trading.

But Crum is convinced that True Quote will be his big play. "I know we have the right model here," he says, "and we'll go down in flames to prove it."

David H. Freedman is a contributor to Inc.

My Other Company is a Dot-Com

You'd think that building one of the fastest-growing companies in America would provide enough entrepreneurial excitement. And yet, like APB Energy's Dennis Crum, a number of last year's Inc. 500 founders have flung themselves into the wired economy, rolling out one or more Internet start-ups.

In some cases, those second efforts are natural and even inevitable spin-offs from the mother ships. Consider Intertech Inc., for example, which holds three- to five-day hands-on workshops for Web developers and programmers. CEO Tom Salonek found that more and more midsize and small companies were looking for services to help them launch E-businesses, so he launched (#243 on the 2000 Inc. 500 list) to provide them with turnkey Net-commerce systems. "We're getting set up with an offshore partner in Asia so that we can work around the clock on the software by sharing code over the Internet," says Salonek.

Some of the newly dot-commed moguls have found ways to build online businesses that play off their existing businesses -- but with a strong twist, as APB did in building an electronic energy exchange. InfoNXX, for example, made the Inc. 500 list (#334 in 2000) by handling directory-assistance services on behalf of wireless-phone-service providers. But president and cofounder Evan Marwell came to recognize that cell-phone customers were eager for more. So he and InfoNXX CEO and cofounder Robert Pines started up Quixi, which puts cell-phone users in touch with an operator who can look up numbers from a user's personal Rolodex, make restaurant reservations, and buy books and other items over the Internet. The seed money came from a loan from InfoNXX, and though Quixi may market directly to consumers, Marwell says the com- pany will also team up with InfoNXX to offer a complete Quixi-like service through wireless- service providers. "Quixi has the technology expertise, and InfoNXX brings the call-center expertise," says Marwell. "It's a symbiotic relationship."

Rick Kearney, founder of five-time Inc. 500 company and mainframe computer reseller Mainline Information Systems, seems at first glance to have reached into the stratosphere for his new project,, which allows customers to order custom-made shirts online. But there's a method to the madness. Even though isn't exactly turning the garment industry on its ear -- it's taking 10 or so orders a day -- Kearney claims that the site's sharp user interface and well-managed order-taking and fulfillment capabilities allow it to serve as a showcase for Mainline's E-commerce-development business. "Our customers all need E-business solutions, and this is a demo tool for our field force," he says.

As it turns out, may yet be a profitable enterprise in its own right., a start-up rolling out a national dry-cleaning service, is talking to about offering its shirt-making services to customers of After all, will have people's existing shirts in hand for measuring. That sort of deal could send orders into the thousands each month, says Kearney. Still, he says that rushing into an Internet start-up wouldn't have made sense if he hadn't owned a solid business to back it up. "Dot-coms are sending a lot of people to the poorhouse," he says. "It's nice to have another business to pay the bills and lend you credibility. In other words, don't quit your day job."

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Published on: Mar 1, 2001