Although the paths to profitability may vary, the critical lessons learned from promising Internet efforts have a common theme: CTOs -- and the professionals that carry other titles but fulfill duties associated with that role -- must give their organizations a razor-sharp competitive edge through technology and help the company cement close relationships with worthwhile customers, all while keeping a lid on unnecessary expenses.
"The companies that are left standing -- the ones that are profitable and will continue to be -- are focused on helping customers solve a problem," says Patricia Seybold, founder of Boston-based Patricia Seybold Group and author of The Customer Revolution.
In the past, many business-to-consumer companies' basic strategy was simply to draw eyeballs to their Web sites, notes Steve Baloff, general partner at Advanced Technology Ventures, a venture capital firm based in Palo Alto, Calif. The thinking was "the more traffic I will get, the more money I will get later," Baloff says. "At the end of the day, there wasn't the demand."
The Internet companies that continue to appear promising are infrastructure companies that create Internet-related technology and businesses that have created something of value to customers that is completely new, leads its markets, or caters to profitable niches, notes Dana Serman, Internet analyst at Lazard Freres & Co., in New York.
In this downturn, profits are key. "The questions people were asking [during the Internet boom] had no ties to money whatsoever. ... They were asking, 'How much traffic am I getting? What are people looking at?' " says Eric Richard, CTO and co-founder of Web analysis software maker net.Genesis based in Cambridge, Mass. "[CTOs] have gotten the business maturity and the savvy to now start asking [different] questions. ... It's now tied much more clearly to the end business goals than before."
For a look down the Internet's often-thorny profitability path, consider efforts at Bricsnet, Monster.com, Ultimus, and Charles Schwab & Co. Inc. Although the companies vary considerably by size, market, and business strategy, all have critical lessons to offer CTOs.
Bricsnet
Lesson for CTOs: Unify efforts and focus on the customer with clout. Bricsnet has a classic dot-com story to tell. It has provided technology solutions for the commercial building industry since 1986 and bet on the Internet to propel it to greater riches.
"The most important thing is focus," Van Emmerik says. "We were selling to a lot of different audiences, like architects, engineers, contractors, [and] manufacturers. It was just too complex -- too many products, too many markets."
Also, rather than bear the expense of doing a lot of up-front development, Van Emmerik's team tries to leverage custom development projects. "Customers actually pay for certain implementations and then we generalize that and put [it] into the core product," he says.
The CTO also finds that he must wear a new hat: salesman. "We are very much a technology company, but now I think we also need to become a sales company and that's also a transition," he says. Van Emmerik is more involved in sales efforts and investment pitches, helping Bricsnet promote itself by providing a high-level technology vision.
Monster.com
Lesson for CTOs: Develop a flexible approach. Monster.com has fulfilled the Web entrepreneur's fantasy: They built it, and people came. Yet there has been a hitch: The job hunters have come and come and come. The career site's great success in drawing visitors is something of a mixed blessing. To channel the flood of traffic into a profit stream, the IT leadership faces the challenge of meeting heightened demands of distinctly different customers quickly while keeping an eye on expenses.
Now traffic is balanced across datacenters in Indianapolis and Maynard, Mass., with approximately 400 servers in production. The company has never outsourced the hosting, finding it more cost-effective to own and operate its own hardware and software.
Ultimus
Lesson for CTOs: Live by your own means. Unlike many Internet startups in the dollar-driven days of the 1990s, Ultimus shunned venture capital. Rashid Khan, its CEO, likens venture capital to "artificial fertilizer" and decided to grow the company organically on its own cash flow. When the economy hit a snag last year, the workflow company wasn't one of the casualties.
Khan insists Ultimus will have staying power, in large part because it listens to its customers. "In each successive generation [of our product], we are adding features based on customer feedback. That is what allows you to build a passionate following from your customers," he says.
Charles Schwab
Lesson for CTOs: Sense and rapidly respond to customer needs. Giant online trader Charles Schwab had already delivered a tool that it thought would satisfy its active traders. The program, called Velocity, gives its signature customers faster access to data via Internet and proprietary protocols than Web-based Schwab.com was inherently capable of providing. Although Velocity has been well-received, Schwab discovered through surveys and other interactions with customers that the software still didn't provided enough features for extremely active traders.
Our goal is "to know the customer and provide value to that customer," says Vincent Philips, senior vice president of Schwab's active traders group in San Francisco. StreetSmart Pro gives the customers a "view of the market they didn't have before or were not able to have without paying for other software."
After piloting it with a select group of customers for six weeks, Schwab first rolled out StreetSmart Pro in March based on technology from a company it acquired, CyBerCorp. The version of the software slated to roll out this month enables clients to receive real-time feeds of stock market data and direct their orders to the market from their desktops. Through an integrated browser, they can jump from the trading application into the Web. When the customers need help, they can still get around-the-clock telephone support or head to branch offices to meet with investment professionals.
Schwab believes it can remain profitable by both keeping a tight rein on expenses and embracing technology innovations. Pointing to StreetSmart Pro, Philips says, "We like to think that now that we have it before anyone else, it's a competitive necessity for anyone else."
Stepping-stones to profitability
An effective CTO can help keep a company with a solid business strategy on the profitability track, says Michael Drapkin, chair of e-commerce management at Columbia University.
Drapkin acts as a "virtual CTO" for his consulting clients and has worked full-time as a CTO for a same-day courier company. Drapkin sees a number of steps CTOs can take to support the corporate push to keep Internet efforts in the black.
Consider ROI. What a CTO needs to think about is does the company really need to have it? Consider if you really need to have these systems, all this equipment, and hire all these people. The company is going to invest in you to build systems that are supposed to get a return on investment.
Think about the entire company's needs. Most CTOs are only concerned with the technology architecture as opposed to how to make the company profitable. It's sort of like someone who is brought into an operating room to work on one particular part of the body and is not concerned as to whether the body is going to live or die.
Set the business goals first. Whenever you build technology, it's always a second step. A first step is figuring out what your goals are. Don't think, "Let's just build something and see how it works." CTOs have to identify what their business goals are. You have to figure out what your deliverables are. Then you can figure out the best mousetrap to build and how to solve the problem.
Create a flexible organization. You really need flexibility if you are going to respond to the marketplace. In order to be flexible, you have to empower people. Flat organizational structures tend to be a lot more flexible. Unfortunately we still live in a time in which a lot of managers equate success by body count (the number of people reporting directly to them).
Become a good salesperson externally. Increasingly, the role of CTO is being part of the team. Go out and close the deal. If you are a technology company, you better have someone selling the technology who can make the customers comfortable with it. Technologists today have to become communicators. Nobody understands it as well as you do.
Become a good salesperson internally. CTOs have to be good salespeople to convince their own people that making the expenditure is worthwhile. CTOs need to convince their own colleagues that if they don't make that expenditure they aren't going to be able to run the company efficiently or do things the company needs to do to stay in business.
Get feedback. Put in a lot of performance measures to determine what you are doing. Look where your revenue is coming from. That's the telltale performance measure. Who's actually buying what you are selling? If they are not, why or what can we do? Or, consider what the problem is. Really be in touch with your customers.
