Europe is learning from the US that traditional management strategies are not flexible enough for internet start-ups
In the new economy, fortune favours the nimble. But even the fastest-moving internet businesses need to be managed. Can European start-ups achieve a balance between risk-taking, innovation and down-to-earth managerial expertise?
"The biggest risk is not getting it wrong, but getting it right far too late," says Tom McEwan, an e-commerce specialist at PA Consulting Group in London. "Traditional management techniques are just not flexible or fast enough for e-environments, nor do they recognise the different sorts of people and cultures involved."
Internet leaders in the US "see more value in trying and failing, and therefore learning, than getting it 100 per cent right before implementing", says Mark Frost, the Anglo-American head of Capital Interactive, the electronic business of Capital Radio, the UK commercial radio group. European business leaders still spend too much time ensuring the strategy is correct, says Mr Frost. This may be partly due to another difference in business culture.
"In the UK and in Europe there's an intolerance of failure," says John Enser, partner specialising in e-commerce at Olswang, the European law firm. "If you've been bankrupt in the US, it shows you're willing to be entrepreneurial and take risks. Over here, if you're bankrupt, it's still seen as evidence of moral turpitude."
While speed and vision are essential in dot-coms, it is important to assemble a team with critical skills such as building a web site, developing distribution networks and plotting the financial path to an initial public offering.
There are signs that the type of manager favoured by venture capitalists and internet incubators is changing as interest spreads from consumer businesses to fast-growing electronic markets between businesses.
Bright young people with a good idea and marketing flair have made much of the running in online consumer businesses, says Vic Morris, partner at Atlas, a venture capital firm focusing on e-commerce start-ups.
But in the business-to-business world, the market is usually well defined and often dominated by a few key players. "Managers tend to be more experienced. They may be in the industry itself and have a bit more grey hair. There's less general marketing expertise needed and more one-to-one networking."
Managers with hard-nosed experience and an ability to adapt to the pace of cyberspace are regarded as gold dust. "It's quite hard for more experienced people to make the cultural shift away from a risk-averse, longer decision making cycle towards the quicker decision-making you see in these younger companies," says Mr Morris.
The cultural gap is highlighted by Viant, a US-based internet consultancy run on fluid, Silicon Valley lines with few titles, no hierarchy and an emphasis on adaptability rather than experience. Robbie Vann-Adibe, who came to the UK last year to spearhead the firm's European expansion, believes Europeans are often reluctant to share equity beyond top management and are wedded to hierarchy.
"The US has longer experience of . . . a meritocracy and (Americans) are comfortable with surrounding themselves with people who're smarter than they are, as long as it's in pursuit of making the thing run," he says.
Online businesses launched from within a bricks-and-mortar company are even more likely to be slowed down by old-style thinking, says David Pecaut, co head of e-commerce for the Boston Consulting Group, based in Toronto.
He points out that the most successful US dot-coms, such as Yahoo!, Amazon and America Online, were new start-ups, unencumbered by the legacy of existing management or IT. The lesson for Europe is that, hard as it is to cede control, existing companies must physically separate their online ventures and hire new people for them. Online workers increasingly expect to be lured with share options, but this is a recipe for tension if parent company staff lose out.
InterX, a UK computer hardware business, has decided to make the split, but in reverse. It is separating Ideal, its original distribution business, and focusing on expanding IT Network, its online product information service for businesses.
"You have to decide what your core competence is. Ours was product information," says James Wickes, chief executive. He intends the internet business to expand beyond computer hardware and offer product information to other sectors.
The split has helped break old ideas and work habits. A new chief executive is being hired for the online business, 75 per cent of the staff are outsiders and a new share option scheme will extend to all of them. "There are lots of US companies doing similar things in the space we're in," Mr Wickes says. "But the attention to detail and quality is not up to scratch and that's where Europe can win."
Successful internet companies in Europe are those that take account of culture and language, hiring local management teams and partnering different infrastructure providers in each country, according to Morgan Stanley Dean Witter's European internet report.
Spray, a Swedish-based internet portal aimed at consumers in five European countries, has adopted this approach. One recent acquisition is a French web site specialising in domestic news for French people travelling abroad. When it comes to funding, a pan-European venture must start with backers from across the continent, according to Nina Brink, chairwoman of World Online, the Netherlands-based internet access company that covers 15 countries. In a recent FT interview, she said sticking initially to Dutch shareholders had cost two years in her ambitions to expand internationally.
Another business in the pan-European vanguard is Boo.com, an online retailer of upmarket sportswear in 18 countries. The brainchild of two 29-year-old Swedes with experience of launching an online bookstore, Boo has aspects of the old and new economy in its hybrid management structure. Equity options are available to everyone, although senior staff and those who took the biggest risk by joining earliest have the largest share, says Ernst Malmsten, chief executive. Communication is encouraged by an absence of individual offices at the Carnaby Street headquarters in London.
Unlike some start-ups, however, Boo has a management hierarchy and job titles. Titles win staff more respect externally and make it easier internally to understand responsibilities and measure people's performance, he says. Attempts to get the right internal structures have not protected Boo from early difficulties. "It can slow us down," admits Mr Malmsten. "But you need some structure."
Boo's launch last year was delayed by five months owing to technical problems. Many users then found its high-bandwidth technology impossible to access. Last month the company began cutting prices and it has recently cut its workforce by about 90, to 400 staff.
Its experience illustrates the difficulty of getting everything - branding, technology and organisation - right at once, as dot-coms are under pressure to do. Mr McEwan of PA Consulting believes that "the lesson from the US is to see technology as an enabler and not as a driver of e-business solutions". The best e-businesses - he cites Yahoo!, Hotmail and Priceline.com – have been established by creative, flexible leaders who have addressed a new customer need that could be achieved by technology, rather than becoming obsessed with the technology itself.
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