Economic history repeats itself, too

I post this again, 7 years later, because as we face pessimistic outlook, it's obvious history repeats itself.....Opportunities are abundant now - in 2008 - for both entrepreneurs and investors. Don't let the negative news media get to you. --- Bill

Investor caution stifling emerging firms at roots
Originially published in the Boulder County Business Report April 20, 2001
Authored by Bill Douglas

In light of the well-touted stock market tumble and the plethora of negative comments flooding the press lately concerning technology and the Internet, I submit my views on the "trickle-down" effect of such market changes while accentuating the positive opportunities for the future.
The stock market has nothing to do with our company’s core business, yet it directly impacts our future because it affects our funding. The Nasdaq drop, however, has expanded our business by forcing customers and potential competitors to focus on their core offerings and utilize our company as a revenue-generating, complementary solution. EssentiaLink helps businesses optimize their supply and demand chains to reduce costs and maximize profits. We’ve never been a dot-com, but because we’ve embraced technology to enhance traditional business processes, we are often categorized as one.

Fourth-quarter venture capital investing was down 40 percent from its peak earlier in 2000. But venture capital investments are still 98 percent higher than they were one year ago, according to PricewaterhouseCoopers. The problem: Professional investors are investing more money in later-stage companies, overlooking younger companies and leaving a large gap that may have long-standing repercussions to our economy as a whole.

Venture capitalists remain closely engaged with our company, but they have raised the bar with relation to milestones they must see before investing. Why? Investments made in Internet companies have affected fund returns, the initial public offering market is soft right now, and performance pressure from investors has created difficulties in raising new venture funds.

Individual or angel investors also have become reluctant to invest in newer companies. Performance pressures have led to the stockpiling of cash by all investors, private and professional. In a nutshell, investors of all kinds are becoming so cautious that they are stifling business growth at the grassroots stage. This damping effect on the small business community as a whole could, in the long-term, significantly impact our domestic economy in ways not yet evidenced.

In spite of the changed investment market condition, our business continues to grow and attract both customers and investors because we’ve been frugal, we’ve generated revenues and we’ve always focused on solving significant problems for our customers. Our growth is controlled at a reduced rate because of capital constraints. Available capital affects the number of new employees and new systems, which directly impacts sales and revenue growth.

Despite negative impacts, the stock market tumble was necessary to reduce the fluff around the "new economy" premise so widely marketed to the public. The reality is a business must make money to survive.

When I first engaged the venture capital community last April, I sought $2 million in funding. The response I received was unexpected. Instead of raising $2 million, I was advised to raise $10 million and spend two thirds of it on advertising to gain mind share. I wanted market share, not mind share. EssentiaLink remains focused on our target market and has created a unique selling model that drastically reduces customer acquisition costs, therefore not requiring a multimillion-dollar ad budget. That was our position all along, and now analysts and investors are beginning to agree.

The business community is slowly getting back to reality. This change will inevitably produce a positive for all businesses and consumers. When a business focuses on its customers and upon generating profits, the economy is the winner. Yes, it will be more difficult to start new businesses than during the Internet heyday, but new companies founded on solid concepts and management can grow faster than ever before, and that is a positive for long-term investors.

This is the third company I’ve been part of starting, and none of them has been easy. Entrepreneurs create value by executing a clear vision with a strong team. We know it will be difficult to create a successful company, but that is part of what attracts us to such challenges. We need the investment community to help us start and grow our companies, and we value our investors in both bull and bear markets. Our economy needs new businesses to create new jobs and generate new revenues. I encourage every qualified investor to reevaluate this market opportunity and get involved in the entrepreneurial community.

The following area some of the ways investors can engage themselves with the start-up community:
- Evaluate and invest as you see fit. Analyze with caution, not cynicism. Ask direct questions, and expect honest answers.
- If you’re a qualified investor, start or become part of an angel investor group. Denver does not have a deep, organized angel investment community, and that is one factor that separates us from other leading business cities such as San Francisco, Chicago and Boston.
- Influence your pension or portfolio funds and your personal adviser to evaluate companies of all stages.
- Offer your assistance as an adviser to young companies. A successful entrepreneur continually seeks mentors.
- Teach classes. Universities are always seeking instructors to enhance students’ education, and they welcome those willing to share their expertise and experience.

When you make smart investments of any kind in solid companies, your portfolio will benefit, our local economy will benefit, and the U.S. economy as a whole will benefit.

Bill Douglas is president and chief executive officer of EssentiaLink, a Broomfield-based developer of a strategic supply chain solution. As a serial entrepreneur with 14 years of experience in the industrial and wholesale trade markets, Douglas has continually utilized technology to improve established business processes. He has held executive and management positions with Florida Power & Light, Power Equipment Specialists, Engineer Sales Co. and Corro-Shun Specialties. He and his wife, Dena, enjoy two young sons.
Douglas can be reached at bdouglas@essentialink.com.