Want the Money? Show Me the Plan!

BOSTON (06/12/2000) - The Nasdaq Stock Market Inc.'s recent volatility may be worrisome for high-tech start-ups, but information technology managers aren't losing much sleep about not having enough new technology to choose from.

Business-to-business e-commerce companies are still going strong, while plenty of new technology - maybe even too much, say some observers - is in the pipeline from both established and emerging companies.

"The technology companies were going too fast," says Vladimir Mindin, director of information systems at Manhasset, New York-based Administrators for the Professions Inc., a medical malpractice insurance company that's a subsidiary of Jacksonville, Florida-based FPIC Insurance Group Inc.

Mindin says it can be hard for a midsize company to evaluate and implement new products, given the rate at which they're being developed.

"The market isn't capable of absorbing all the new technology," he says, likening software and hardware developers to a rapidly advancing army that gets too far ahead of its supply train and starts to fall apart. "They've become victims of their own success."

And while emerging companies are moving quickly to bring new products to market, even established software firms can get ahead of their customers.

For example, Mindin says his company was preparing to install Microsoft Corp.'s SQL Server 7 when he heard reports that the more advanced SQL Server 2000 was about to be released. "That means that the product we're making plans to use is already obsolete," he says.

Other IT professionals say they're relieved to see the shakeout they predict is about to occur among high-tech start-ups.

Mark Rivette, director of administrative systems and IT services at the Calgary Regional Health Authority in Calgary, Alberta, says he takes the long-term view. "We're watching for success or lack of success," he says. "We're watching the direction that Internet procurement will take."

Once the winners emerge, Rivette says he'll know what direction to take at the public health organization.

"Blips in the market don't affect us that much," he says. "In fact, they put us in a good position in that we can ensure longer-term success and more appropriate use of taxpayer dollars."

Despite the screaming headlines, the business-to-business e-commerce sector isn't really suffering, says Larry Penley, dean of the business college at Arizona State University in Phoenix.

"It is under restructuring at this point," he says. "But there is still lots of money floating around."

According to Penley, who works closely with venture capitalists in Arizona, investors plan to maintain their current levels of funding in dot-coms but with a more jaded outlook.

"They're just going to scrutinize the plans much more closely, apply a different set of decision rules," he says. "Companies have to have a valuable service or product that someone is going to want to purchase."

According to Penley, business-to-business e-commerce companies have the greatest potential for creating sophisticated services that were impossible before the dawn of large integrated data systems and high-speed communication networks.

But consumer-oriented start-ups are competing in a relatively mature Internet space full of established players. "They have market share and awareness," says Dick Green, president of Briefing.com Inc., a Burlingame, California-based firm that provides market analysis to online brokerages. "To come in and compete will be difficult."

But even business-to-consumer companies can still get funding, he says, provided they have a well-crafted business plan, a solid niche and a good shot at making a profit.

There are plenty of people in Silicon Valley who have made a lot of money taking companies public and are willing to put up cash to fund people with good ideas, Green says. As a result, he adds, there won't be a shortage of technological innovation anytime soon.

For example, the rate of initial public offerings (IPO) for dot-coms, which suffered a dramatic decline in the past couple of months, is still relatively strong - particularly in comparison with previous years. Twenty companies filed IPOs last month - compared with only four in May 1999 and 17 in May 1998, according to New York-based research company IPO.com Inc.

Still, companies' stock prices have plummeted following their IPOs, as have share prices for technology companies across the board.

That means less money from the stock market will be available to new companies to use to grow or invest in new technology.

In addition, many companies have delayed their plans for IPOs. Last month, 23 Internet-related companies withdrew planned IPOs, compared with 32 from January through April, according to IPO.com.

"Before, people felt if they had a superior technology or could get market share through advertising, that was sufficient to get a company to go" public, Green says. "And it was. But there were so many initial public offerings that went out with a lot of hype and advertising, and the stock did poorly. Now, they have to show a solid, profitable business plan."

Join the newsletter!

Error: Please check your email address.

More about FPIC Insurance GroupMicrosoftPhoenix

Show Comments