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Can E-Biz Become as Diverse as America? Five minority executives give their take on how to tap a wider pool of talent for e-business Business Week's Catherine Yang interviewed several minority and women e-business executives for their views on diversity in their industry. Some were pessimistic about the prospects of e-biz providing better opportunities for minorities. Others were more optimistic. Each identified different possible reasons for the lack of greater diversity in the industry today. Here are five perspectives on the topic from Net Noir CEO E. David Ellington, Cyveillance CEO Brandy Thomas, AboveNet Communications CEO Sherman Tuan, Exodus Communications CEO Ellen Hancock, and Proxicom CEO Raul Fernandez. E. David Ellington is CEO and founder of Net Noir, a San Francisco-based portal targeting African Americans. Net Noir got off the ground with some early funding from America Online's Greenhouse division. BW: Is greater diversity needed among e-biz managers?  Ellington: Of course. Because this is the ultimate distribution channel. You need to be able to go after all the dollars in everyone's pockets going forward. These companies are trying to reach middle-class people who can rip out a credit card. Who cares what they are? Ka-ching is all we want, to get the cash register going. You don't just target white Americans because that's a dwindling group. You go after middle-class African Americans, Latinos, Asian Americans, and women. To not have them as part of your management team, you won't have the sensitivity to tap into those groups. BW: What are the reasons for lack of diversity in e-biz? Ellington: In the beginning, the very nature of the Internet -- the medium itself and the type of person attracted to it -- was lot more accepting of diversity. They were engineers and programmers. It had to do with who's the smartest in the class. There's more meritocracy on the science and technology side. Now that the industry is maturing slightly, you have to build companies. And you need people for sales, marketing, operations, business development, and channel management. When you bring those people in, they have a different mindset. They're bringing some baggage from the old to the new economy. Some of that baggage is racism or insensitivity to diversity. BW: Is the ability to get financing one of the biggest roadblocks for minorities in e-biz? Ellington: There are incredibly huge barriers to getting venture capital. That's the drum that I bang now. It's all about private equity. That's what's going to help minorities in this country explode, independently from any government services or programs. I'm an active Democrat. But I'm trying to figure out private sector ways to create wealth for people. BW: What are some possible solutions? Ellington: Since the early '70s, there have been private-sector minority venture-capital funds encouraged by the Small Business Administration. They ask private pension funds like Calpers to take, say, 1% to 3% and put it in these venture-capital funds with a mandate to invest in minority- and women-owned businesses. I asked John Doerr [of Kleiner Perkins Caufield & Byers]: Why dont you take 1% of the funds of Kleiner and equally distribute them among four of these minority venture funds? Brandy M. Thomas is founder, chairman, and CEO of Cyveillance in Arlington, Va. With unique software developed by Brandy's brother, Cyveillance helps companies police abuses of their trademark on the Web. BW: Is e-biz management diverse? Thomas: No. For African Americans, it's worse than normal. It's pathetic. BW: Why is that? Thomas: There are lots of reasons for it. It's abysmal in Corporate America still. E-biz is a subset of Corporate America. E-biz focuses on technology, and that's not historically a place where you find a tremenendous number of minorities. As a gross generalization, this is a high-risk, high-reward business. It's very difficult for many African Americans and minorities to take a leap and not take big salaries. It's difficult if you don't have a significant other who generates a lot of income or a family with financial backing. BW: Is it hard for minorities to get venture funding? Thomas: All the funding is chasing after the same five deals. The deals that get funded tend to be from the established players. [Netscape Communications founder Marc] Andreessen can get it in a heartbeat because he's a proven commodity. Venture capitalists give money because they like the person. One of biggest reasons people invest in a company is because they believe in the founder or management team, because they've done something great in this field before. That's why you see people do one, two, or five ventures. It's easier once you have a track record with the venture capitalists. They know you have the drive and the skills. They're going to chase after you first. A known person with a mediocre deal will get funded over an unknown person with a great deal. It's easier than it was, but it's still very difficult. The thing you hear is, the Internet is different. It's color-blind. But ultimately deals are made face-to-face based on who you are, who you know, and what you bring to the table. It is no different. BW: Does diversity matter at all in e-biz? Thomas: It matters the same as it matters in any business. Diverse backgrounds, whether of ethnicity or education, give you different experiences. Especially in a field moving as fast as e-biz, it's critically important to use every advantage you have because you don't have time in this space to make a mistake. BW: Will things get better over time? Thomas: Only very slowly. It's a systemic issue. E-biz and the Internet are no different from Corporate America except that they move faster. The same things Corporate America needs to do are the same here. Minorities need more schooling. Corporations need a bigger pool of MBAs and electrical engineering grads [from which to hire]. BW: Is the future bright for minorities going into e-biz? Thomas: In the e-biz field, a major transition is happening. Right now, if you want to get in, you find an established [e-biz] company and tell them, "I'm a really fast learner," and they'll hire you. That's going to change. If you're not in it now, it will be increasingly difficult to get into it later, especially at anything but the introductory level. If Amazon is hiring a vice-president of business development now, it won't be just a smart person, but a smart person who has done it before, because they have no time to waste. So there's an urgency for minorities to get into this someway, somehow. Those who don't have the experience will find it very difficult to get onto the playing field. They have to actively get involved in networks and the community and put yourself in a position to take the risk. BW: What advice can you give to aspiring e-biz entrepreneurs? Thomas: Be proactive. These jobs are hard to get. They're not going come to you while you're sitting on your couch. And you have to make the appropriate sacrifices. You've got to take the time and energy to get involved in the network, not just wandering the floors but really getting involved in the infrastructure. Sherman Tuan is founder, chairman, and CEO of AboveNet Communications in San Jose, Calif. On Sept. 8, Tuan completed the sale of his high-capacity Internet networking company to Metromedia Fiber Network and will continue as CEO of the AboveNet Communications subsidiary of MFN. The biggest obstacle for this Taiwanese-American entrepreneur was not knowing how to approach U.S. venture capitalists. BW: What was your biggest obstacle starting AboveNet? Tuan: When I started the idea about AboveNet, the overall scope was so big that I was afraid people would think I was a lunatic. How big could the company become in 5 or 10 years? It could be like another AT&T. Because of my Asian background, you want to be humble. Second, for Chinese people, borrowing money from someone is something really shameful. If you have the ability to do a business for $10, you don't force yourself into something you can't afford. I first approached an American venture capitalist and tried to tell him I didn't need a lot of money to start my business and to prove my concept. I could use a smaller amount of money and make the business profitable. They just kicked me out of there. They didn't understand why I presented it in such a way. If you don't need a lot of money, why do you go to them? In Taiwan, venture capitalists provide seed money for you to prove your concept, step by step, until all the investors feel comfortable that this [your product] can be cookie-cutter fabricated. BW: How did you come to start AboveNet? Tuan: I got an electrical engineering bachelor's degree in Taiwan. Then I started my career with Acer. I was there eight years, and in 1985, I was transferred to the U.S. to start U.S. operations. After nine years at the company, I decided to leave. I took off six months to learn the country by driving around. Then I started my first business, in PC manufacturing, which I ran from 1986 to 1991. The business is still around and doing O.K. But in 1991, I left my own startup and looked for something else. I started a semiconductor business, which failed. Then, in 1993, I thought the Internet would be interesting. I started AboveNet in 1996. I raised $2 million purely from friends and family, and then $4 million from Taiwanese venture capitalists. After we got $6 million in funding, I hired an American president, and he helped to get an American venture capitalist to fund $4 million as the lead investor. We went public in December, 1998, at $69 million. Our secondary offering this spring raised $300 million. BW: What is the biggest obstacle that Asian immigrants face in starting e-businesses here? Tuan: The only obstacle is that Asians lack financial sense here. A lot of basic concepts are very different. Most Asians who start businesses try to mortgage their house, use their savings, or get money from friends and family instead of going out to raise money. Friends and family and small investors will scare a lot of venture capitalists away. After we went public, I got three to four calls a day [from other Chinese-American entrepreneurs] asking for help and advice. By and large, the Chinese community lacks basic knowledge about how the financial community works here. Exodus Communications CEO Ellen Hancock was the highest ranking female executive at IBM, where she spent 29 years. Before joining Exodus, she also worked at National Semiconductor and at Apple Computer. BW: How bad is the glass ceiling for women? Hancock: I'm one of the optimists on the subject. I'm seeing steady progress. There are more women on boards. There's a strong correlation between having females on the board and a company's ability to attract females and minorities. And there are more and more women getting key jobs, like Carly [Fiorina] at HP [Hewlett-Packard]. On the negative side, it's still a small number. If you can sit and name all the women CEOs, you know you're in trouble. So the U.S., while a leader, is still lacking in its ability to take advantage of its own citizens. BW: Is the venture-capital community geared toward hiring men? Hancock: There's always a concern as to whether it's more of a boy's network than an open network. But many of the VCs are more open now. The West Coast is more of a networking environment. On the East Coast, companies like IBM and AT&T are much more formal in their support of women....The West Coast is more informal, which almost makes it more difficult. You don't find that kind of process out in the West Coast. It's not deliberate. When you're growing so fast, it's hard to have those kinds of processes. But the processes are not as supportive as they might be. BW: What advice do you give women who want to get into e-biz? Hancock: Look two jobs out. BW: What was the secret of your success? Hancock: Not everyone likes this answer, but I became one of the guys. I worked very hard, and if there was going to be a poker game on Friday night, I'd play poker -- despite the fact that I play very poorly. And every once in a while, they'd actually comment on it: They'd say, "Ellen, you're one of us!" You have to realize that you can't get ahead on your own. Your boss has to think you're O.K., your peers need to think you're O.K., and the men who work for you have to want you to move ahead. BW: Are immigrants doing well in high-tech? Hancock: In general, the Valley is very supportive of people with great ideas who are willing to move forward. Women can do well, but it's a happenstance rather than by design. Immigrants are very supportive of each other in the Valley. BW: Why aren't blacks and Hispanics doing as well? Is it true that they're not doing as well? Hancock: The statistics would indicate that. We seem to have a growing gap between various groups. There's reason for concern, so there should be initiatives to support minorities. Raul Fernandez is CEO of Proxicom, a Reston (Va.) company that provides e-commerce software solutions to companies setting up shop online. BW: Will the Internet bring about greater diversity in management ranks? Fernandez: The Internet is the ultimate leveler of the playing field because it allows new companies to get access to markets with few traditional barriers. It's not the magic bullet. There's no magic bullet. The bullet is education, access to capital, smart management decisions -- and that crosses racial and gender lines. You find good and mediocre in any gender or racial pool. BW: Do minorities have advantages or disadvantages in e-biz? Fernandez: Minorities -- people who have dealt in a multicultural environment -- have an inherent advantage. The Internet breaks down time and space, so you can be doing business across the world. Having grown up in a Cuban-Amercian household and spent time in Latin America makes me a better international CEO. The life experience that minorities have because of their heritage and background can absolutely be a differentiator in success. BW: How difficult is it for minorities to get venture funding? Fernandez: Within the venture-capital community, there is a fraternity that goes back to the people they've worked with and gone to school with. If you look at the schools and ages, they tend to be middle-aged white males. That's changing as you get young, diverse veterans [of e-biz]. I'm 33. I still have a lot of runway ahead of me. BW: What advice can you give to e-biz aspirants? Fernandez: To succeed, you've got to learn the rules of the game. There's definitely a venture-capital component of the game. You've got to figure out how to crack it. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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