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Bringing a Stealth Web-Design Firm Out of the Shadows

 an Interview with J. Eric Barnes, President and Chief Operating Officer of KORE, a Tier 1 Provider of Internet Business Solutions

 by Don Hamilton (wiz@wwwiz.com )

 Web-design houses have only existed the last six years because before that there was no Web to design on. At first Web designers were programmers and multimedia firms. As the tools became easier, design shops seemed to sprout up in every other garage. People always ask which site design firm they should hire.

The answer always comes in the form of a question. What do you want it to do?

A site can be everything from a simple brochure to Amazon.com or MP3.com with huge bandwidth and a very complicated back end that updates inventory, orders products, changes the company journal and issues payroll. More sophistication is required today to start a successful Web business and a lot more is required to change a large brick-and-mortar firm into a click-and-mortar operation.

Who is building these large Web sites? Where are these design businesses located and how do you find them? Many of the firms are so busy they don't even advertise because they wouldn't know what to do with the extra business. These companies are busy converting the economy to the new networked version.

Companies are rushing to remake themselves to prevent being eliminated. That's no overstatement; you only have to look at Britannica and the encyclopedia business to see how fast it can happen.

          KORE, a Newport Beach, Calif., company, is one of the firms building back ends, remaking companies from the bottom up and helping start-ups jump into real competition. They build sites costing $1 million and up.

          We talked to J. Eric Barnes, KORE's president and chief operating officer, to learn more about one of these companies. KORE in March threw a $150,000 party, a coming out of sorts, for friends, employees and business associates to celebrate what it is doing. KORE lives under most people's radar but are known to their customers as a ``gets s--t done" company. When you walk into the KORE offices, you find rows of computers and people working like mad in a scattered room that obviously has grown from a small operation. The office is near the beach and holds stacks of surfboards of all sizes and a pool table. I understand the surfboards are used most days.

Barnes has twelve years of consulting, entertainment and general management experience. Before joining KORE, he worked with EMI Music Distribution also at Home Box Office, where he managed HBO's interests in Comedy Central, E! Entertainment, and Time Warner's full service network broadband trials. Eric graduated magna cum laude from Princeton University with a degree in economics and holds an MBA from the Stern School of Business at New York University. It's a set of credentials likely to help bring venture capital to a company. 

WWWiz: Who are you guys?  

Eric: We are a new breed of consultants, a bunch of 20- or 30-year-old guys who have been doing nothing but Internet for our entire professional careers. Adam Miller and David Nance, who helped found Microsoft Consulting, started KORE with Alan Eiler in 1996. They were traditional consultants, programmers and developers who worked on big IT projects.  Alan was a nuts-and-bolts guy. His expertise was in networks and security infrastructure­–the boxes and firewalls so they really complement each other. David was a database expert. He had experience with big Oracle and Sequel projects.

The company was started to provide the highest quality technical development geared toward the Internet. Between ' 96 and '97 they sort of stumbled down the path of doing stuff for the record companies. They built an intranet for Capital records, which is regarded todayas the best record label intranet. From that they did a number of things for Capital Records within the EMI family. They did e-commerce Web sites for Blue Note Records and Mosaic Records. Most of their work during this time came from Redmond (Microsoft headquarters). If someone at Microsoft wanted work done down here, KORE was on the short list of companies that were recommended. We were under the radar; no marketing, no advertising, not even the yellow pages.  

WWWiz: How did you become involved? 

Eric: I was at EMI music at the time and Capital was one of our divisions. I was in charge of implementing an extranet for the record company. I was interviewing traditional vendors like USWeb/CKS, Ernst & Young and the KORE guys came strongly recommended by Capital. It wasn't until I did my due diligence that I came to understand why they were so strongly recommended. I worked with them for about a year. You have to remember this is one of the best extranets in the music industry. It's a password-protected, business-to-business site where trade partners like Tower Records or Virgin Records can go for trade capital such as audio assets or search the catalog for publicity bio photos. It was obvious to me they were one of the top technical shops in the country. I came aboard last May.  

WWWiz: What do you bring to the company? 

Eric: We were a top technical Internet consulting firm but we were missing business consulting–MBAs that could come in on the front end of a project and address strategy. We were also missing a creative team. Those are recognized as the three disciplines in our segment of Internet consulting that are critical on any big project. From May last year we went from 11 people to 70 now. We opened a Denver office about a month ago and our Santa Monica office will open in July. We will probably open our New York office in the third quarter, maybe October.

We decided this office would get to about 100 people before we started to expand. To back up a little, companies that do what we do are USWeb, Rare Medium, iXL, Viant and these are public companies that already have billion-dollar market caps. There are two different models in this group: one is the grow big real fast and the other is organic growth. Which is to say grow a little slower but keep the quality of service paramount. That's what someone like Viant has done. They want to keep 100 or so people in each office. Each new office is grown by putting someone from your current office into your new office.  

WWWiz: Why do you have an office in Denver? Is it because you have to be closer to your customers? 

Eric: Denver was unique because we had a team of developers who were looking to start their own consulting firm. We convinced them that instead they should open our Denver office. We have so much work here that we have them augmenting our efforts here as they come online before they start to grow the business out there. Of the 70 people in this office, more than half are involved in technology–engineers, networks, security, developers … and the other half are business consulting guys and creative guys for about equal shares. In Denver we have people who focus on technology as well but a different kind of technology, more application development. It is less Web and more software applications. Denver does a lot of our new technology stuff and each office we add will have a different core competency.  

WWWiz: How are you finding the people you need to fulfill all these functions?  

Eric: Hiring people is our No. 1 challenge. To go from 10 people to 70, you risk dilution of your culture. If we were the Navy Seals at 10 people, we could have very easily become sort of the National Guard. I don't mean offense to the National Guard. We have guys in their 40s and 50s and then we have some who are just old enough to work. We use recruiters and word of mouth is big. Our people are probably responsible for 50% of our hires. I have plucked one or two people out of EMI, one of whom I had to get the approval of the EMI president because we are still in a business relationship with them. The thing about this industry is once you have a company with a lot of momentum, people start showing up at your door.

Take our party as an example; I had no less than 10 people approach me who were wondering if they were happy doing what they are doing and thinking this looks like a great boat to get on. We have so much fun and we have great projects. It's less about ``I just want to make a lot of money." It's more about self-actualizing.  I have worked a lot of places like investment banking, Smith Barney, HBO, EMI and I went to business school but I have never found something like this where every day you are able to just self-actualize. Everyone here has fun and there is no ceiling. That's not a great thing for people who just want to go home at 5 and have a little more security. There is plenty of stress here but it is fun stress. I think more and more people working around the Internet are beginning to say, ``You know what? You only live once, so I want to really push my limits." We will be 170 to 200 people by the end of the year, so it is a challenge to keep our culture and grow rapidly.

Another thing that we know is that what we have done today to get here is not going to work tomorrow. We are now looking at our operation team and thinking about how we go to the next level. When you are working in the business, it is hard to work on the business, which makes it very hard to grow. 

WWWiz: What will a Santa Monica office do for you?  

Eric: It will really expand our presence here in what is becoming known as the Digital Coast. There is so much work here and we want to be near our clients. It gives us an address in that neighborhood and it is going to be a big facility. We're going to have more of an emphasis on business consulting there with a creative team. We want to be known as having the best creative team and that will probably be driven out of there. 

WWWiz: You call yourself an incubator with the sports3.com site. What does that mean to you? 

Eric: Incubator is a loose word and we are very careful not to segue into something we are not. Our core is a service company and it is key to our success to maintain that. Sports3.com was a subject matter that we were very comfortable with; extreme sports. It's funny half of the pros in these sports are right here in Newport Beach. It is also a streaming media site, which is something else that we are very well versed in. There were a lot of win-wins in it for us. It was a perfect opportunity to be an incubator. We are always consultants and it was a chance to put on the entrepreneur hat. We put a combination of money and support together in order to partner with them. On this subject we knew what we were doing and we knew we could do it better than anybody.  

WWWiz: Are the Sports3 people independent from you or do you control their destiny? 

Eric: They are independent now and they soon will be separate physically. Right now we are raising our Series A funding and sports3 will get their own office within a few months. Currently there is a skeleton staff of about three people driving the company and they are independent and they report to a board that is made up of founders of KORE. This is just the first of several start-ups that we may get involved with. This is a lot different than say Sky Dayton and eCompanies who creates a shell that is sort of like a venture fund, and then you have your landlords that decide to call themselves an incubator and raise money and just let people come and play and that's their value add.

So we have to define what is an incubator? What are the most critical things that a dot-com company needs? Some would say it is HR, PR, strategy or management. What we think most of the incubators are missing is what we have at KORE. They don't have an ability to build enterprise level dot-coms. It is also a nice vantage point to be from because it is also the toughest thing. The other skill sets are easier to get and so what we have becomes a differentiator. What we see a lot of is VCs that are investing in dot-coms or businesses that are trying to make an investment decision based on the management team or based on reading a lot of business plans. What they are unable to do is to kick the tires from a technical point of view.

Can this really work? Can you reach two million simultaneous users on this platform within three months? They don't know and when they fund them then they have to turn to a company like us to build it. By the time they get through our process, they end up with their business plan 50% reinvented. We say, ``You can't do that; you're smoking crack. It's never been done before." One of the things we have gotten good at is beating up entrepreneurs when they come in here. They pay us to do it. When they finish the process, they know what they can do. Then we agree on what they are building and that's somewhat different than what they had when they walked in here. 

WWWiz: Where is the future of KORE? Are you going to be incubating, consulting or engineering? 

Eric: I think it may be all of the above. We are a service company, a full Internet solution company. We can take an entrepreneur or traditional company and bring them strategy and business consulting on how to use the Internet to meet an objective. A lot of companies are frustrated because they have done these things and have not realized the ROI on them. A lot of these efforts are throwaways because they have yet to have the Internet impregnate the whole company. It requires a strategy-led idea of the Internet. The next generation of the Internet development is sort of a top-down strategy.  

WWWiz: What do you do for the entrepreneur when they come in here and how do you charge them? 

Eric: Our mantra is well-funded start-up and entertainment companies. We evaluate five to 10 business plans per week. An A+ management team with a B+ idea is better than a B+ management team with an A+ idea. Are they funded or will they get funded?

          Because they have milestones, we have had to learn to work with them. If we are architecting a site that is going to cost $3 million to deploy with $2 million in service costs and a million in hardware and they are just at their angel round, we have to work hard to figure out how we get them going. We put together a business and technical requirement document that is about an inch thick. It is a thorough assessment of what it is we are building. It is a rigorous due diligence. Often our customer is not the entrepreneur but the venture capitalist. If you're going to give someone $2 million, you are going to want to know where and how they are spending it.         

WWWiz: How much money are you making?         

Eric: We expect our gross sales to be over $20 million this year and we are doing over $3 million a quarter now. 

 

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