From the May 1999 issue of Startups

Bill Martin took the bus from Manhattan to his parents' home in New Jersey every evening while working as a summer clerk at Wall Street's prestigious investment banking firm Goldman Sachs. During the grueling commute, he'd muse over the day's events. It was mid-1996, and many young entrepreneurs, some just a few years older than he, came traipsing through the offices on 85 Broad St. in New York City looking for investment banking services or to launch an Initial Public Offering (IPO) on Nasdaq or another stock market. "I used to get them coffee or a Coke," says Martin. "I thought 'Hey, I can do [what they do].' "

He started thinking up business plans on the bus. Finally, he came up with an idea he liked: Create an Internet service that focuses on financial news and stock quotes. Offer users a message board so they can chat with each other about hot stocks or financial news. Sell advertising. Make money. It was as simple as that. Or so he thought.

That fall, back at the University of Virginia, Martin and a college buddy, Greg Wright, cobbled together a primitive Web site (http://www.ragingbull.com). When the site started attracting interest, they brought on another college friend, Rusty Szurek. By mid-1998, the site had some 8,000 registered users-but no money. The partners worked 20 hours a day, blew off classes continually and didn't make a dime. "We were crazy to keep doing it," admits Martin.

Crazy? Eventually, the tireless effort began to pay off. Clients like Ditek Financial, a mortgage services firm, began to advertise. The company was also courting investment offers from Acton, Massachusetts, financial company CMGI Inc.-the same firm that financed Internet success stories Lycos Inc. and Geocities.

By fall 1998, Martin, Wright and Szurek, all 21, decided not to return to college for their senior year. "We were still negotiating the [CMGI] deal," explains Martin. A few weeks after the start of the fall semester, the deal was done. CMGI's @venture II Fund gave the partners $2 million in exchange for 40 percent ownership of Raging Bull Inc. in Andover, Massachusetts.


Gene Koprowski (74203.1677@compuserve.com) covers technology for Entrepreneur and The Wall Street Journal Interactive Edition. He is producing a series for PBS/WCEU-TV called Digital Visionaries.

Don't Believe The Hype

Persistence, strong financial backing and a solid niche put Raging Bull's Web site on the path to success. But not everyone who hangs a shingle out on the Internet is so lucky.

So let's get real. What's really going on? All too often, online retailers launch e-commerce sites only to find themselves competing with a dozen similar companies or having their concept copied. Web storefronts come and go due to lack of marketing, financing and consumer interest. Online retailers must also deal with government regulations (think taxation) and issues of privacy, poor customer service and security.

"Customers are still very concerned about putting their credit cards [on the Net]," says Andy Sernovitz, president of the Association for Interactive Media, a Washington, DC, organization that represents business interests on the Internet.

No doubt there are plenty of lessons to be learned and mistakes to be made. But if you can navigate the treacherous e-commerce waters, your potential to succeed-and succeed handsomely-is enormous. According to International Data Corp., commerce on the Net is expected to increase tenfold to a whopping $400 billion by 2002. The number of Web buyers will expand from 18 million in 1997 to 128 million in 2002.

"More people are online today than had TVs when man first landed on the moon," Sernovitz marvels. "There's an unbelievably big market online, and it's unbelievably cheap to reach them."

Just who is buying online? As with brick-and-mortar storefronts, there's no general rule. But for the most part, it's still consumers in middle to upper-level income brackets who can afford computer equipment and online services. After that, though, anything goes.

"People of all ages, all over the world, men and women-they're all buying online," says Sernovitz.

Books and magazines, computer software and hardware, music CDs and tapes, movies, specialty clothing items, and travel-related products and services remain the hot-ticket items being purchased online. The 1998 Christmas season also saw an online buying surge in specialty gift items like perfume, flowers and candy, says Sernovitz.

But while much attention focuses on the consumer sector, in the near future, the truly big gains will be made in business-to-business e-commerce. According to Forrester Research, within the next five years, online business-to-business commerce will account for $327 billion annually, compared to $17 billion for online consumer commerce. Forrester projects online business trade will find its way into all business supply chains, particularly computers, electronics, aerospace, defense, utilities and motor vehicles.

"In the near future," says Sernovitz, "customers are going to expect businesses to sell online and answer their questions electronically, much as how they [now] expect them to have an 800 number."

Building Blocks

How can you enhance e-commerce success? Differentiation comes first. Raging Bull faces three competitors in the online financial advice field: Yahoo! Finance, Silicon Investor and Motley Fool. Raging Bull differentiates itself by offering online stock discussions-searchable message boards on dozens of industries and market segments. Users can also customize the site to fit their own needs. For example, they can track and link to discussions relevant to their own interests, notes Martin.

All initial hires were friends of Martin who believed passionately in the project. They helped develop the prototype that was on the Web for a year before an investor took notice.

Click Interactive Inc. in Chicago pursued a differentiation strategy as well. As a result, founder Michael Ferro, 32, has seen the firm grow 500 percent over the past two years. Sales are near $15 million, and several buyout offers have been floated. A former manufacturing executive, Ferro put up about $100,000 of his own money to pursue his Internet concept back in 1996, when his then-employer rejected the idea of selling goods on the Internet as "too radical."

In addition to differentiation, Ferro says, there's another rule new entrepreneurs should follow: Develop a demonstration of your product, then find a leading company to buy in to the demo and serve as a reference for you. "Having a great reference sets the stage for everything else you do," says Ferro.

Click builds extranet software for industrial clients like Motorola and Ameritech. Their product enables clients' customers to order new products online, check the status of previous orders, order repair parts and even check their credit level with the company. "The idea was to replace customer service calls," says Ferro. "With the Web, customers can also serve themselves at any time. They're not restricted to doing business when you're in the office."

Ferro's demonstration success came from a deal with Mercury Marine Corp., an international manufacturer of inboard and outboard engines. Mercury Marine implemented the extranet concept across its worldwide network of 2,500 dealers in late 1998, says Andre Busch, information technology manager for Marine Power Europe, Petit-Rechail, Belgium.

Ferro notes this approach to Web site design is dramatically different from that of other Internet companies. Many focus on the consumer market, but the business-to-business niche of the Internet is "four or five times that size," says Ellen Carnahan, a managing director at William Blair Capital Partners, a Chicago investment banking firm that funds Internet start-ups. "We're looking at projects that increase interactivity [among] consumers, employees and vendors."

Another company that has pursued differentiation is search engine Excite. For close to a year after it was founded in 1994 in a Silicon Valley garage, the firm was rejected by financiers. But after figuring out how to differentiate their search engine from the competition, Excite's founders reached a deal with a leading venture capital provider and took the company public in 1996. Since then, the company has attracted big-name talent to put it on a new, strategic path.

"We're redefining ourselves as more than a search firm," says Graham Spencer, 26, a co-founder of Excite. "We're essentially becoming a proprietary online service for the Web. We now have mail, chat rooms, bulletin boards, stocks, news, weather and channels, just like AOL."

At press time, @Home Network and Excite had announced plans to merge in an all-stock transaction valued at some $6.7 billion; those involved say Excite's recent personalization and community strategies will continue.

None of these companies-Raging Bull, Click Interactive or Excite-were guaranteed success when they launched. Most people were skeptical of the concepts at the time.

"There were many times we didn't think we'd make it," admits Ferro, who didn't take a salary for more than a year during Click's launch. "But we stuck with it. You have to be like an artist, committed to your work, committed to creating something new in the world. That's the key."

The Rules

Every year, hundreds of young entrepreneurs eye the Internet as a place to earn their fortunes. Many fail, but others succeed spectacularly. What differentiates the winners from the also-rans? Successful e-commerce entrepreneurs say there are five key rules:

  • Find a niche market that no one else is exploiting, or differentiate yourself from the others in an established niche.
  • Develop a prototype product. This makes it easier to find your first customer.
  • Get a great reference from your first client and use that to market yourself.
  • Be careful about hiring employees. When you're small, everyone's contribution is magnified, so good hires are critical.
  • Stick with the project through the ups and downs common to all start-ups.

Go There

  • The CommerceNet site (http://www.commerce.net) has general information and news on the e-commerce industry, vendor contacts and links to popular e-commerce sites.
  • Web Commerce Today, a monthly online newsletter (http://www.wilsonweb.com/wct), helps merchants plan, design, manage and promote retail or business-to-business Web stores. An annual subscription costs $49.95.
  • Association for Interactive Media's site (http://www.interactivehq.org) boasts the latest e-commerce market research and news, a free monthly newsletter and more.

Contact Sources

Click Interactive Inc., (800) 899-2641, http://www.clickplanet.com

Excite, gspencer@excite.com

Raging Bull Inc., krista@ragingbull.com, http://www.ragingbull.com