Guy Kawasaki likes to throw money around.
Especially other people's money. The Hawaii-born-man-about-cyberspace is the chairman and CEO of Garage.com (www.garage.com), a Californian company that uses the Web to connect high-powered investors with innovative startups. Kawasaki, who first made a name for himself as chief evangelist for Apple Computer, is also the author of seven books, among them Rules for Revolutionaries (Harper Business, 1999) and How to Drive Your Competition Crazy: Creating Disruption for Fun and Profit (Hyperion, 1996). Recently, he spoke with CIO about business, the Internet and why the two should be inseparable at any company.
CIO: People toss around the phrase "the 'dot-comming' of America" to make both positive and negative points, but nobody really explains what that means. What does it mean to you?
Kawasaki: Negatively stated, it should be called "dot-conning." It means that everyone has gone Internet crazy, like tulip mania a few hundred years ago in Europe. The accepted wisdom would be that all a company has to do is add "dot com" to its name, lose a lot of money and go public.
Positively stated, dot-comming stands for a curve-jumping new way of life that involves the removal of mouths in the food chain that don't add value (also known as disintermediation); it involves perfect information in terms of price-buy dot com versus Amazon.com-and quality-The Motley Fool and stocks; and it involves infinite power and bandwidth at zero cost.
CIO: The Internet still isn't a proven medium for business, yet Web startups are getting financed all over the place. Are investors who back Web-based companies doing so because it's hip and exciting or because it's financially wise?
Kawasaki: Who says the Internet isn't a proven medium for business? I think it is, although I guess people thought computers were a fad when Digital, Data General and Wang started.
It's true that certain markets within the Internet aren't proven, and some companies that are capitalizing on hipness without fundamental business models will have problems. But in any revolution, there are fatalities, and some investors will lose money. The Internet will come down to the survival of the fittest-or the fastest-too.
Would it have been financially wise to invest in General Motors in the year it started, when horse-driven carts had 99.99 per cent market share? What's better? Investing a dollar in an Internet company, watching it climb to $100 and then "collapse" to $50, or putting the dollar in a brick-and-mortar company and watching the dollar grow to $1.10 because you believe the Internet is a fad?
CIO: Still, the minicomputer companies you mentioned are gone too. What happened there?
Kawasaki: They didn't get to the next curve. They kept making better and better minicomputers for their current customers. Meanwhile a whole category of new customers, personal computer users, appeared who had different needs. Needs that were off the minicomputer curve.
Death will-and should-happen to companies that are Internet dinosaurs too.
CIO: Are some business ideas more suited to the Internet, or is it just that the lure of the Internet sometimes edges out good business sense?
Kawasaki: That is a silly question. Pretend it's the 1960s; it's like asking, "Are some businesses better suited to using information systems or is it just the lure of information systems that edges out good business sense?" The Internet is going to permeate every pore of successful businesses. It's not a dichotomy: Internet or good business. It's a prerequisite: Internet is good business.
Until now, much of the Internet involved doing old things better. It's where computers were when VisiCalc was created. What the Internet has done so far is sell stuff better, but people were already selling stuff. We just moved up the curve some.
The real action starts when you can do things with the Internet that could not be done before. This is when it gets interesting.
CIO: Can you give me an example?
Kawasaki: How about selling information via the Web? Check out a company called InfoRocket [InfoRocket is a client of Garage.com.] It's making a market of selling information-that is, the eBay of information. People post bids for answers. Other people post offers.
For example, suppose an entrepreneur seeks advice on how many options he should offer a board of advisers. He's willing to pay $20 for this advice. Jane Doe offers to answer for $25. But an experienced entrepreneur or a securities lawyer at a world-class Silicon Valley law firm offers to answer for $100. The lawyer's offer comes in with information like, "I incorporated eToys, Amazon.com, Netscape and Yahoo. I will tell you what works based on my 20 years of experience in Silicon Valley."
CIO: But isn't there enough information available for free on the Web that people will pay for it only as a last resort, if at all?
Kawasaki: If you wanted the phone number of someone in New York, do you want someone to hand you five free phone books? I think there's great value in getting the actual answer rather than getting pointers to 25 places where the answer might be.
CIO: What specific steps can traditional companies take to incorporate the Internet into their business models without risking too much of their stability?
Kawasaki: Here are the crucial steps:
First, purge your idols. That is, get rid of the stuff that you've been worshipping-for example, multiple-tiered distribution systems. Dell Computer is a great example of this world-class curve jumping.
Then get top management buy-in. The Internet isn't an experiment anymore. It will be an integral part, if not the central focus, of business going forward.
Throw serious money at the problem. Let's talk in units of $1 million. Anything less is a joke in the Internet economy.
Find the right people. The right people can't get through airport metal detectors because so much of their bodies are pierced. They bike or skateboard to work. They certainly aren't the people who created our Y2K problem 20 years ago. Then give those people free rein. Buy a pallet of Jolt and Twinkies, stick them in a building at least a mile away from headquarters, and tell them to build the company that would kill your company. It's better to be cannibals than to be carrion.
CIO: What exactly does Garage.com do?
Kawasaki: We're a venture "gapitalist." We fill the gap between the three F's (friends, fools and family) and venture capitalists who like to put in $5 million to $10 million. Our sweet spot is $2 million to $3 million. We help two guys in a garage, two gals in a garage, and a guy and a gal in a garage get seed capital so that they can quit their day jobs, build a prototype, bring up a Web site and get their first customer.
After that, they can go on to raise their first big round of venture capital-we're AAA baseball. We do this by helping entrepreneurs find highly qualified angel and institutional investors using the Internet.
CIO: How is Garage.com different from a traditional VC? Are those differences primarily Internet-inspired or are they a byproduct of the vision and experience of its founders?
Kawasaki: A venture capitalist has a fund that he or she invests in companies. We are a market maker-we use the Internet to help entrepreneurs find investors and investors find entrepreneurs. So we're trying to make the whole process more efficient and based on merit than ever before.
Also, philosophically, Garage.com's goal is the democratization of venture capital so that entrepreneurs with good ideas but no connections can get funding and so that people who aren't running huge pension funds can invest in startups.
CIO: Do you need to expend a lot of effort convincing potential investors that Web-based businesses are viable or do they come to you because they know you will help them support viable startups?
Kawasaki: We have very sophisticated investors. Not only must they qualify for Regulation D net worth or income requirements, but they must be highly sophisticated technology investors. [Regulation D is a Securities and Exchange Commission regulation concerning the issuance and sale of private and unregistered securities. Investors are restricted to those who can demonstrate a high tolerance for risk.] We don't have to spend a nanosecond convincing them that Web-based business is viable. We do, however, have to convince them that any specific company is viable. And this is how it should be.
CIO: What would you tell people from big companies who say they have nothing in common with (and little to learn from) the types of companies you foster at Garage.com?
Kawasaki: I'd tell them they're ice factories.
CIO: Meaning?
Kawasaki: In the 1800s, there used to be an ice harvesting industry. People would cut blocks of ice from frozen lakes and ponds in the northern part of the United States. The ice harvesters were put out of business by the ice factories. They could freeze water in any city at any time of year. Then the ice factories were put out of business by the refrigerator companies. People didn't have to buy blocks of ice, go to the ice factory or have the ice man deliver ice. No company went from ice harvester to ice factory to refrigerator company.
Big companies that don't look at Internet startups are ice factories. They should jump to the next curve or they will melt.
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