Quelle: Darwin
DURING THE DOTCOM revolution, a foosball table in the middleof an office spoke volumes without uttering a word. It said,We are young and hip and pierced in multiple places. Itsaid, We sleep on the floor next to our desks, and we likeit. It said, We are going to get that next round of funding,dammit.
So what the heck is a foosball table doing in the offices ofa 136-year-old, $49 billion agricultural food and tradecompany? The short answer is that it's mostly just taking upspace in a corner of Cargill's sprawling headquarters inWayzata, Minn. The longer answer is that it serves as atangible reminder that although Cargill may be an oldcompany, it's thinking about business in new ways.
The table belongs to the company's EVentures group -a2-year-old division whose mission is to search out, investin and nurture (through managerial and administrativesupport) promising Internet and technology startups. ButEVentures isn't a typical incubator. Unlike the speculativeincubators of the dotcom era -which emphasized short-termprofits and immediate IPOs- Cargill fully expects that itsinvestments won't pay off for years. Moreover, it has putdecades of industry experience -and corporate muscle- behindthe effort. This old-line company wants to build long-termviable businesses that tap into disruptive technologies. Bydoing so, Cargill hopes that EVentures will bring promisingnew ideas and technologies into the company's decidedlyold-economy businesses of agriculture, food, metals andminerals, and transportation.
THE LARGEST privately held company in the nation, Cargillseemed to be doing fine without a corporate venture group asthe millennium approached. But 1999 sales had actuallydeclined, to $45 billion from $51 billion the previousfiscal year. (This, in the middle of a booming economy.) Socompany executives started searching for ways to revitalizeCargill's bottom line, says Tom Erdmann, one of the managingdirectors for EVentures. Intrigued by the possibilities ofthe then hot Internet, which offered unprecedented access toinformation and the ability to build stronger customerrelationships, the company put together a strategic plan in1999 that aimed to grow revenues by focusing on thecustomer. Part of that plan included EVentures, whichCargill saw as a good way to learn about -and possibly profitfrom- digital technologies by using its own industryexpertise and its position as a huge corporation to makesmart investments. "We decided to pull up and devise along-term corporate strategy for e-commerce in Cargill,"says Jim Sayre, president of EVentures.
The result: Cargill's corporate leadership team approved thecreation of EVentures, a business unit with its ownfinancial goals, which now employs more than 20 people inoffices in Minneapolis, Silicon Valley, the United Kingdomand Singapore. Today, the EVentures' Portfolio has investedin seven B2B marketplaces that roughly parallel Cargill'sown lines of business, including GSX, a steel exchange, andLevelSeas, a marketplace for bulk shipping. It's alsostarted investing in technology startups such as DemandTec,which offers a price optimization service, and EPropose,which builds transactional and exchange technology.
Cargill hopes that its emphasis on long-term commitment -aswell as its canny use of industry expertise and an intricatenetwork of business relationships- will help the startupsthrive. The company has come up with the following cleverways to put its corporate weight behind the fledglingcompanies. Like any good farmer, Cargill knows that youngseedlings grow best with loving care.
Trolling Industry Waters for Investors
When EVentures executives first came up with the idea forRooster.com, an online agricultural marketplace that allowsfarmers and suppliers to buy and sell fertilizer and othersupplies and equipment, executives knew they'd have toovercome agriculture's famously slow acceptance of newtechnology, as well as competition from other agriculturalstartups. So Cargill hedged its bets by persuading industryexperts like chemical giant Dupont and Cenex Harvest States,a producer-to-consumer cooperative system, to invest inRooster.
According to Ben Arndt, Rooster's former marketing director,that roster of industry investors has given the company somevital credibility. "One of the things that made Roosterattractive to a lot of the people who came here was the factthat we had Cargill and the industry players versus aVC. It's a completely different dynamic," Arndt says. Forexample, venture capitalists often take a learn-as-you-goapproach, gathering industry understanding even as they opentheir wallets. But at Rooster, the founding companiesdispense deep industry knowledge as well as capitalfunds. Arndt also finds that his industry backers helpeliminate some of the inevitable questions from potentialcustomers about the viability of dotcom startups in thecurrent business climate. "As we try and sell our products,we get: 'Is dotcom still in?' 'Is it safe?' 'Are you goingto go out of business?" Arndt says. "We try to say, 'Pleasedon't lump us in. We are backed by the industry."
Lending a Hand at Startup Time
Borrowing from the Amish, who gather as a community to helpeach other with big tasks, Cargill and other EVenturesinvestors send employees to each startup for a 60-daybarn-raising period to help with tasks such as humanresources and accounting, while executives from the foundinginvestors scout for a high-end management team. "All of uswere trying to accelerate the development of the businessand make people available until a permanent organizationcould get created," remembers Robert Lumpkins, who as vicechairman and chief financial officer of Cargill helpedrecruit Rooster.com's management team.
According to Nicole Weber, a senior analyst at IDC'sInternet Services Research (a sister company to Darwin'spublisher) and author of a 2000 report on corporateincubators, helping with such tasks as business developmentand executive recruitment is a significant differentiatorfor incubators such as Cargill's. "It's extremely important,and independent incubators fail to do that," she says.
Erdmann, who spent nine months participating in twoEVentures startups, says Cargill employees were palpablyexcited at the prospect of helping out. "We had peopleknocking on the doors, saying, 'What can I do? Anything Ican do to help I'll do," says Erdmann. Barn raisers happilytackled tasks such as hooking up the technologyinfrastructure and setting up the offices, he says.
The eagerness is simple to explain. "Here was a chance foremployees to get an inside look at entrepreneurial, startupdotcom organizations," Erdmann explains. "It was fulfillingand educational." He adds that Cargill employees took partof the culture, excitement and buzz back to the corporateoffices when they returned. A few people even stayed withthe companies they helped build, leaving the comfort ofworking for an established company behind. "They went intothese companies with no safety net," says Erdmann. "Thiswasn't, 'If things don't work out, come on back.' It was ahigh-risk decision and also evidence of the passion andexcitement they saw."
Managing Director Deepak Malik, who helped GSX get off theground, came away impressed by the knowledge shared bycompany employees. For example, teams from Cargill came into help the new company understand market and customersegmentation, and analyze supply and demand in the steelindustry. "This is big business," says Malik. "And thesefolks understand the nuances."
Sharing Industry Experience
The advice doesn't stop after the barn raising. At many ofits startups, EVentures sets up advisory boards ordesignates a personal adviser to help the new company keepthe voice of experience alive and well. For example,Rooster.com has built what it calls a founders' operatingcommittee (FOC), made up of businesspeople who represent theinitial investors.
The FOC members function as resident experts on the needs ofthe industry. "They participate in the day-to-day businessdecisions," says Arndt. "And they can connect [the startup]quickly with the right people to collaborate on projects orobtain information."
Arndt also says the FOC's contacts are invaluable -and so isits understanding of the sometimes complex agricultureindustry. For example, FOC members from Cargill have helpedRooster executives gain access to business units that couldultimately wind up as customers, like the Animal Nutritiongroup. "The value of the FOC is the access it provides tokey decision makers within its own organizations to help usconfirm which new products and functionality to develop, andwhich ones we should enhance," says Arndt. He says that theAnimal Nutrition group's early feedback ultimately helpedRooster refine its products to fit the market more quickly.
Knowing When to Let Go
For all the help Cargill gives EVentures' companies, itdoesn't treat them as corporate properties. Instead, Cargillinsists on the independence of the new companies, similar toadult children who have moved out of the house but stillhope for sizable checks in their birthday cards from mom anddad. "Cargill and other investors bring wealth and knowledgeof the industry, and they bring liquidity," saysLumpkins. "But Rooster is an independent company, and wethink it's very important that it be independent."
This means that the companies make their own decisions onissues ranging from hiring to further fund-raising. Forexample, Lumpkins points out that LevelSeas, theLondon-based bulk shipping marketplace, has taken on morethan 20 investors since its inception, diluting the stakesof the founding companies. "If Rooster goes public -and weview it as a company that will go public someday- all theleadership stakes the founding members have will be reducedsubstantially," says Sayre. But that's OK, notes DinahAdkins, president and CEO of the National BusinessIncubation Association in Athens, Ohio, because return onequity isn't the sole motivation for corporateincubators. Companies such as Cargill hope that theire-business units will not only deliver profits but infusethe corporate parent with innovative technologies,pioneering business strategies and the in-your-face attitudeof gutsy startups.
Now that EVentures has helped develop marketplaces for manyof Cargill's major interests, the group's focus has shiftedto refining the startups' business models and productlines. "When you start venture-type companies like theseyou're never sure what the customer wants and needs," saysLumpkins. "There's no question that we have modified ourofferings as we've better understood what the customer iswilling to pay for." NovoPoint, for example, began as amostly transactional system for the exchange of food andbeverage ingredients. Now it includes supply chainvisibility, order tracking and contract management, all ofwhich work toward improving customer and suppliercollaboration.
Sayre emphasizes that like NovoPoint, most of the newcompanies began as B2B marketplaces and have since expandedbeyond the basic marketplace concept. "In the end, it is theunique services that they offer to industry participantsthat will define their growth," he explains.
As the economy continues to sour, is Cargill afraid that theEVentures group was a good idea that came at a bad time? Ifso, no one's admitting it. Despite a 25 percent drop inCargill corporate earnings from 2000 to 2001, Sayre says,the company remains committed to the incubator and iswilling to wait for EVentures' payoff. (According to IDC'sWeber, that's a luxury that comes with being a privatecompany.) And though Cargill won't disclose financialresults for its new investments, executives do offer somehopeful tidbits: GSX has traded more than 1 million metrictons of steel, for example, while Rooster.com's cropmarketing system is continuing to gain acceptance.
"The curious thing is that a lot of people go on Internettime in terms of expecting results. But building solidcompanies just can't get done on Internet time," says Sayre.
Adkins applauds that attitude. "The fact of the matter isthat growing a substantial business can't be done in a shortamount of time," she says. "We've heard a lot of hype overthe last two or three years based on a fantasy world."
And IDC's Weber thinks Cargill may just be able to cutthrough that hype. Cargill has surpassed many othercorporate incubators in its ability to integrate smart ideasinto its strategy, such as involvement in their advisoryboards and use of industry connections to help theirportfolio companies tailor their offerings, she says.
Sayre admits that EVentures is prepared for some winners andsome losers. "That's no different from any other venturefund perspective," he adds. But it is a far cry from theincubator climate of the last few years. With some time ontheir hands, the EVentures group is waiting and seeing. It'snot such a bad fate. While they're waiting, they can alwaysplay foosball.