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Q: During the past couple of years, venture-capital firms threw billions of dollars into me-too consumer companies that then all tried to compete by marketing madly against each other. Was this just the way things work in a new industry? A: In my wildest imagination, I wouldn't have expected this. When we funded Pets.com, I sat in this office with [Pets.com CEO] Julie Wainwright and sent out press releases about management, venture funding, and a deal with Amazon.com to let the rest of the venture community know that we were serious about Pets. We tried to communicate to the venture community, "Hey, don't be an idiot." It was beyond my wildest imagination that venture capitalists would fund people with no retail experience, no Internet experience, no CEO, and no Amazon. Within a few months five other pet companies got $100 million each. Q: How would this whole process have been different in the past? A: It used to be if you climbed a hill, everyone would say, "I would like that hill, but I've got to find another one." Let's hope this kind of nuttiness is over. Q: What's difficult for managers in this environment? Some seem to be trying to take positive strategic and cost-cutting steps, but all the consumer Net stocks are still down. A: There is an expectation on the part of entrepreneurs that if they do something rational that there will be an immediate and positive reaction by Wall Street. We've told our companies that the market is standing on the sidelines...anything that touches a consumer is over there in the "out" pile for now. Q: How are companies dealing with the changes? A: There was so much [leeway] before. Entrepreneurs are confused about what's acceptable now. Q: In talking specifically about The Knot: What do you think the company's strengths are? A: It has quite a good management team. What David Liu [the company's founder] has done is surround himself with people who have much more experience. [His team] isn't surprised about the issues they have [to face]: growth, competition, the swings in the market. The board meetings are great. Q: What is it about the management that you like? A: The company is analytical -- it has tied its vision back to an operating model. Management is extremely self-critical about what assumptions have turned into fact and what have not. They take the board meetings as a once-a-month time to step back and set strategy. This company is different: They have money. It's not a train wreck, [where] you're...trying to figure out how do you put the train back on the track. They had a vision and a strategy that they have executed against. They acquired a media company and a merchandising company. They are very good at not being distracted by the industry goat rodeo. It's not a company that needs first aid. They are quite sizable in revenue relative to many of the dot-coms. Q: What issues do they have to deal with? A: ...Performing well. That is a management challenge. David has to continue to keep his own employees working hard and motivated and working on their own performance. The problem with a low stock is it's hard to do acquisitions. If they were running out of money, we would be more focused on the stock price, and there would be lots of conversations about that. The advantage that David had was when he went to the public markets to raise that money, he was able to. Q: So what do you say to a company like The Knot, that's dealing with this whole new environment? A: I remind them what David Pottruck [CEO of Charles Schwab] told a group of CEOs of our companies last year. One point he made is that you just have to keep running these companies. He said Schwab had been under its IPO price for years. He said you have have to keep reevaluating your business and asking yourself whether you're providing real value to customers. Your stock will catch up with that value proposition. |
