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Chapter 3
Men Are Cheaper Than Guns


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Intellectual Capital And Bootstrapping


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I Want My Respect

  Every once in a while I read something that must be the silliest thing written about entrepreneurship or investment for the year. For 1999 I think I found it. A newspaper article by James J. Cramer titled "Gates' View of Net Just Sour Grapes."

  Cramer is a principal founder of thestreet.com, a newly public Internet company that focuses upon studying Wall Street and which, I imagine, tells investors how to beat the street. Never mind that investment is known to be a loser's game, where the more you try to do to beat the market actually just winds up costing you performance.

  Now, when editors (as in writers, people who look at pages and pages of copy and make decisions about which of so and so stories run) become valued in the hundreds of millions of dollars, you know something is amiss with Wall Street Internet stock valuations. As Peter Lynch says, when you think to yourself, 'How can this person be worth that much money?' they probably aren't worth that much money! Rather, the stock of their company is grossly overvalued.

  First, Cramer tells us that Bill Gates is jealous of Internet start-up companies. Apparently Gates made some remark about Internet stocks being overvalued, and he called this a "craze." Cramer didn't like that. He said Bill Gates was jealous of him. Bill Gates jealous of Cramer and thestreet.com?

  Hello? Gates's company, Microsoft, has just exceeded $500 billion dollars in valuation. Half a trillion. It is a real company with real proprietary products like Windows, Excel, Word, Access,…and many, many others. Bill Gates is the richest man in the world. And to many, Gates represents the pinnacle of entrepreneurial success.

  Gates didn't even refer to thestreet.com specifically I believe. He just said that current Internet stock prices were crazy. When new start ups like eToy.com, with only a few tens of millions in sales, are more highly-valued than established companies, like Toys R Us with hundreds of millions in profits, I think you could call that an irrational valuation. Gates just pointed out the obvious.

  Cramer "corrects" us saying we should use the term "investment cycle" for the Internet, not "craze." Now it is true the Internet is for real. It is here and it will remain. But, the Internet is not what Gates referred to as a craze. Let's not confuse the Internet itself with valuation of Internet stocks. Internet companies have never experienced a real wash-out period. A full business cycle must include such a period when companies are tested. We have not seen that, yet.

  Why would Cramer implicitly claim we have seen such a full business cycle? Let me interpret. What he is really saying is, "Please, please don't let these tremendous valuations end, until I have legally held my stock long enough to cash out. I want to turn my stock into cash. I want to really be worth that much money. I don't want to wake up and find I'm just another writer." And he fears the market will correct before he can do so.

  Cramer wants you to be the one holding his stock when it corrects its valuation. He'll be holding cash, thank you.

  I saw another article about "entrepreneurs" who bought up domain names, such as theworldsgreatestmall.com, and who try to profit by reselling these names to larger companies. Now, in one case, it was a real entrepreneur doing this. Someone who had built a real Internet service provider. Someone I respect. It was like a hobby for him. But in other cases, these people fancied themselves significant entrepreneurs who were changing the direction of Internet commerce itself. Some said they weren't doing this for the money, but for the opportunity to decide who gets the domain names-usually the highest bidder.

  Hello? Let's see, you pay Network Solutions something like $70 for a domain name and try to resell it (almost always to the highest bidder), and you are not in it for the money? You are in it for what? Come again? I just don't get it.

  Then, I watched Rocky V with Sylvester Stallone and I understood. Being rich isn't enough. These Internet entrepreneurs are like Tommy Gunn who wants his respect. Hell, he's won the championship. He's "beaten the best in the world" in his own view. But everyone boos him and calls him a paper champion. He'll never be Rocky.

  These entrepreneurs are jealous of Bill Gates, Michael Dell, Steve Jobs, and countless others who have created companies that are respected. Companies that have weathered real shakeout periods. Companies that have survived and proven themselves to be the best. Companies that have fought the real wars. Companies that will be around ten years from now.

  But, I bring hope to these Internet entrepreneurs. As Rocky says to respect-seeking Tommy Gunn, "One more round. One more round." You'll have the chance to earn your respect.