W = Wharton     S = Dick Sabot

W:   Would you provide a little background on the companies that you have been involved with.

S:    Prior to becoming an Internet entrepreneur I was, for quite a few years, professor of economics at Williams, and then the first company that I started with was with two of my students at Williams College. We decided to start what came to be Tripod.com.  Tripod was one of the very first dot com companies and we folded after it became a top ten site.  We had acquisition offers from Yahoo and Microsoft and Excite and we ended up selling it to Lycos at today’s stock prices for about $400 million.  More recently, just about a year ago, I was cofounder of EZiba.com.  It's a second generation e-commerce site that is the largest purveyor of high quality, handcrafted goods from around the world.   Just a few weeks ago it was announced that our latest round of capital, which is $70 million, was led by Amazon.com who will end up owning about a third of EZiba.com.com and EZiba.com will then be the latest in the partner sites of Amazon.

W:   What are some ways that leadership in e-businesses differ from leadership in traditional bricks and mortar businesses?

S:    One of the most important things that distinguishes the two has to do with the composition of the work force.  This has to be qualified just a little bit with the way things are changing in the Internet industry.  They're changing very rapidly and so a generalization that applied a few years ago may not apply with equal force today.  But I think one of the most profound differences between e-business and conventional businesses is, frankly, the role of young people.   We've always talked about the United States as a youth oriented culture. We've been as limiting as the Europeans or the Japanese in terms of making wealth and power available to the young.  We've put our young people through a rigorous education system, and then a rigorous apprentice system, and it's usually not until they're in their 40s that they actually have their hands on the lever of power.  Sadly, all too often what happens is that by that time a lot of their idealism is squeezed out of them, and perhaps even more serious is that a lot of their common sense is squeezed out of them.  In the Internet industry, for a variety of reasons, young people are getting their hands on the levers of power while often they're in their 20s or early 30s. They're still idealistic, and they still have common sense.  No one has told them that "you can't do this" so they go ahead and do things and they do them differently.  No one should be surprised.  I think one of the big things about leadership in this environment is that your leader is likely to be young but your followers are likely to be young as well.  So you need to have an openness to change, an openness to trying things differently that I think is probably unprecedented in corporate American history.

W:   What are your priorities in order of importance and why? 

S:    One clarification, by the way.  I'm founder, co-founder and Chairman of the Board of EZiba.com and we have been actively involved in searching for a CEO.  So over the last year, in the absence of a CEO, I've fulfilled many of those responsibilities.  But now that we've actually found a CEO -- he has been one of the top three people running FAO Schwartz -- I'm actually looking forward to stepping back a bit and assuming more of the Chairman's role.  There my number one concern has been with strategy rather than with day to day management.  Interestingly enough, I think strategic issues arise on a daily basis in the Internet space.  One of the things that happened in the Internet over the last eight years is that Internet time, which was fast to begin with, often referred to as dog years or 7 years to one, now with EZiba.com we're working in double dog years.  Internet time has actually accelerated.  In fact, one of our venture backers, when I said that to him said, "Well, we're fast moving to fruit fly years."

W:   Their lives last only one day, right?

S:     Generations in a year.  So strategic issues come up very often, shall we say.  When we were doing Tripod -- and this is an important distinction because one of the things about learning lessons of the Internet is that entrepreneurs and venture capitalists are like generals.  Often generals are said to always be fighting the last war.  Innovators in the Internet economy seem to be innovating on the basis of what happened in the last wave.  There have been a series of waves.  In the very early days of the Internet when we were getting Tripod off the ground, in fact, the industry itself was very immature and we were all trying to figure out what would work.  To use a sailing analogy, we were attacking here and there looking for puffs of wind, little areas of energy that would power a company.  Today the attacking is still there but the attacks are not nearly as big.  You don't wander around.  You have to be a lot more focused.  You go into a niche and you zero in on that niche and go for the gold.  That's one of the reasons that Internet time is accelerated, is because people are just that much more focused.  Now that's it.  The strategic issues are vitally important, but my experience in terms of differentiating those who've been successful on the Internet and those who have failed, there are an awful lot of companies where there's very little market risk, where there's very little technology risk, where there's very little financial risk because they've got ample financial backing.  Then you say, "Well, we know these are risky enterprises.  Why?"  Well, it's because execution risk.  Execution risk always comes down in the end to the quality of the team and how well they are incented.  So aside from strategy, I would say my number one concern is making sure the team is as strong as possible and as well incented as possible.  The incentives, of course, are partly financial, but particularly when you're working with a young team the incentives go way beyond the financial to the strength of their identification with the company and with the product that is being produced, their passion and their commitment.  If you can elicit that from a very high quality team you've dramatically cut your execution risk.

W:   Could you give a specific example of a way that you've incented the people working for you.   For example, could you describe how you've set up a particular program.

S:    Let me make a general comment and then give you some examples.  Phil Jackson, the coach of the Chicago Bulls and now of the Lakers was once asked by the owner of the Bulls, "What motivates men at the core, people at the core?"  He said,  "I'll tell you what I think it is.  I think it's fear and greed."  And Phil Jackson said, "No, I disagree.  I think it's love and pride."  I think the Bulls and the Lakers are both love and pride teams.  I think if you look at Bobby Knight or PJ Carlisimo, they're fear and greed kinds of coaches, and their teams reflect it.  I think in the Internet economy it's very difficult now a days to run a fear and greed kind of company.  It's got to be a love and pride kind of company.  At Tripod and now at EZiba.com we, on a weekly basis, are very sure to include virtually all of the staff and make sure that the communication among the staff are very clear.  We keep them up to date on strategic decisions and give them a chance to voice their views.  There is a lot of trouble taken to respond to issues that are raised by members of the staff and to make members of the staff feel that this is their company, that they are building something that they are extremely proud of..  When people come in from the outside to EZiba.com today, one of the things that they invariably say after talking to members of the staff is "It's remarkable to what extent, when talking about the strategic direction of the firm, everyone in the firm speaks with the same voice."  It's like a flock of birds, that when the leader moves the entire flock moves quickly because everybody is in sync.  Everyone feels that they have participated in a reasonable way in coming up with the strategy.  So both Tripod and EZiba.com have been love and pride places and I'm particularly proud of that accomplishment.

W:   How do you build a leadership team?

S:    One of our mantras in EZiba.com and at Tripod was "You always want to hire A people.  The next hire should be better than the last one."  You always want to hire people better than yourselves.  One of the key elements of building a great leadership team is instilling what I call ego-lessness.  Instilling the notion success is not measured on the basis of individual metrics - it's measured on the basis of how well the team as a whole does.  There's no such thing as an individual winning or losing without the team winning or losing.  So people are not looking for individual prizes, they're not afraid to take individual risk because as long as the team succeeds, as long as the company succeeds, they will succeed.  My experience is that the more ego-lessness there is, the more willing people will be to hire people who are better than themselves.  There's this old law which happens to be true, that the second rate people hire third and forth rate people out of a sense of insecurity and threat.  First-rate people hire first-rate people.  So we're always looking to hire first-rate people who are sufficiently low ego that they will be extremely team oriented and willing to hire people even stronger than themselves.

W:   When someone new comes on board, how do you integrate them?

S:    This is a good question because we're facing a major challenge here.  Next week our CEO is coming on board, so this is not just anyone.  We have a very strong leadership team and the question then is, how do we bring someone new in a leadership position without, shall we say, losing a step?  One of the things we're doing is next week, is an exercise in the firm where everyone in the firm was randomly assigned the name of someone else in the firm.  It is going to be the responsibility of the individual who picks the other person's name to call the other person forward, their background, how they came to join EZiba.com, and more importantly what it is they do in EZiba.com and how they have contributed to EZiba.com's growth.  So that will be an interesting exercise that will allow the new person to get a perspective on what everyone in the firm does.  Then what we're doing is we're going to have the CEO actually share an office initially with the CFO who's been in position -- CFO, COO -- who's been in position since the founding of the company, just to get a feeling for how things work on a daily basis.  So there will be a bit of a buddy system there.  He will be thoroughly immersed in the culture.  So it's a bit extreme, the trouble that we're taking, needless to say, with the CEO, but any new employee we do something similar.  We make sure that they understand the structure of the firm and the roles people play.  We make sure that they understand the big strategic initiatives.  We're small enough that we regularly have all hands meetings and discuss substantive issues.  Then there is a buddy system of one sort or another to make sure that any questions that the new person has are resolved.  Then we give them big responsibilities and they dive right in.  When you're a young company growing very rapidly, that's not a difficult thing to do.

W:   How do you motivate and retain talent?

S:    Let's start with the financial piece first.  I think one of the great ironies of late 20^th Century capitalism is that high tech companies have taken a page right out of Carl Marx.  If you think of a phrase associated with what he's best known, it's probably, "Let the workers own the means of production."  In fact, that's exactly what Silicon Valley companies and now East Coast companies have done with stock options.  Interestingly enough, in Europe and Japan where -- Europe in particular -- where they had, shall we say, much more antagonistic feelings towards Carl Marx, there are graver reservations about sharing ownership of companies with workers.  But here in the United States -- which is such a pragmatic place -- late stage capitalists say, "Hey, if it works, that's fine."  In fact, options do work.  They are a very powerful medium of giving workers not just a sense of, but a true ownership position in the company. When we sold Tripod to Lycos, Lycos now has about 600 employees.  About a third of them came on in the last year.  Of the 400 employees who have been with the firm for more than a year, 200 of the 400 have options that are worth in excess of a million dollars.  So this phenomenon of wealth generation that we're seeing usually focuses on the founders of the companies and the CEOs of the companies, but in fact it filters down quite a ways.  Now there are a couple of qualifications here.  One is that for young people in particular who are inexperienced, initially options don't have a lot of meaning.  Until, in a sense, they're worth something a lot of people lack the imagination to see how much they could be worth.  The other thing is -- and the current turmoil in financial markets brings it out -- it's possible that the value of those options have declined dramatically in a down market and people can find themselves under water with their options.  But those qualifications aside, it is a very powerful tool for motivating staff and for getting staff to identify with the goals of the company, for eliminating the "us/them" kind of phenomenon that you find in so many big companies.  So that's the financial piece.  But as I said before, I think the financial piece is all by way of background.  Increasingly people are now, in the high tech industry, taking the financial piece somewhat for granted.  Then a very important factor that has a profound impact on whether the team's performance is average or superb has to do with what I was talking about before, whether or not the team believes in the goals of the company,.  It’s important that those goals are clearly articulated and the team believes that they've had a hand in articulating and actually fulfilling those goals.  So when everyone believes it's their company, and not just on a financial basis but because of the way the corporate culture has been built up, there's no more powerful motivator.  The fact of the matter is that in an Internet company work life and social life blur.  Given the kinds of hours that are put in, people identify with the company.  It's not just a job, it's something way beyond a job.  Their colleagues are much more important to them.  The company assumes a very large role, not only during business hours but after hours as well.  So you have to create an environment in which people are not only productive but happy.  The more happy they are the more productive they're likely to be.

W:   What kind of culture exists at your company, how did you establish it, and why did you institute this particular kind of culture?

S:    I can answer this one very briefly because I think I've covered this in the last few questions.  I believe it's a love and pride culture.  I've mentioned several times that you want the employees to identify with the mission of the company, the larger mission, not just profitability which is terribly important, but the impact that the company will have on the lives of those that it's serving.  I've often wondered how managers in cigarette companies manage to motivate their workers.  At EZiba.com we consider ourselves to be a socially responsible company.  By that I mean that the ultimate beneficiaries of the growth of EZiba.com will be the artisans who create the beautiful objects that we sell on the site.  These artisans are people working all over the world, often these folks are in the bottom third of the distribution of income in the countries from which they come.  Everyone in the company is aware that if we succeed one of the consequences will be a shifting out of the demand curve for this type of product and an increase in the prices that are paid to these artisans for the product, which will, in terms of their lives, have a transforming effect.  It will allow them to send their children to school, to provide their families with health care and in general to have a substantial impact on the quality of their lives.  Another aspect of this is that we've done something which is fairly novel to the east coast.  I think it's somewhat more common out in Silicon Valley.  The founders of the company have pledged a proportion of founders stock to the EZiba.com foundation.  The EZiba.com Foundation has in turn pledged to make grants on the income on this endowment in the villages from which these goods are ultimately sourced.  So unlike the Ben and Jerry's Foundation which puts X number of pennies of every dollar of profit into their Foundation, here when there's a liquidity event, the foundation will be flooded with tens of millions of dollars immediately, and therefore it will become very active.  Everyone in the company is aware that this foundation has been established and identifies the success of the company with the success of the foundation, and feels rather proud of this potentially larger social impact of what the company is doing.  I think that is an important part of the corporate culture.

V:    Given the abilities you've described as being essential for leading in this environment, how or where have you yourself been able to develop and acquire them?

S:    That's an interesting question because as I said right at the very beginning, I came to business and to internet entrepreneurship after a career as a professor and a scholar, not exactly, you might think, ideal preparation.  My two colleagues when I first founded Tripod were Sophomores in college.  So we were, shall we say, uniquely unprepared.  So there were several rules that we came up with.  One of which is know what you do not know.  One of our venture capitalists who backed us said that one of the reasons that they enjoyed working with us is that we did not have cement ears.  We were truly capable of listening to people who, in any particular area, knew more than we did and were open to taking their advice.  There is at the core of Internet entrepreneurship a paradox.  On the one hand you have to be passionately committed to what it is you're doing.  Another is listen to people who know what you don't know.  A third one is to be very flexible and keep your eyes open to new ways of doing things, and to the emergence of inflection points where you may find it advantageous to change your model.  Finally, do not become too attached to your plan or your vision.  Keep your eye on the larger goal and adjust the vision accordingly.

W:   In the past leadership has been defined in the context of classic business environments.  Going forward, what criteria would you use to measure leadership success?

S:    That's simple.  A leader is successful if his company succeeds.  One of the things in the Internet is that there's been so much focus on the wealth creation and on companies that have come out of nowhere to be worth billions of dollars in virtually no time, that people have lost sight of the fact -- and I don't have a rigorous number here but I'm quite confident about this -- probably nine out of every ten Internet start ups fail.  The landscape is littered with the carcasses of dead Internet companies.  Perhaps the best predictor of who's a good leader and who's not is to look at the company that they're running and see which company has succeeded and which one has failed.  Now I qualify that because I know a number of successful Internet companies that have succeeded, in a sense despite their leadership.  They may have a multibillion-dollar valuation and yet their leadership I would consider to be sub par. 

W:   Is that luck then?

S:    I think in fact that it is an important part of good leadership,-- not letting success go to your head and recognizing how, particularly in such a dynamic environment, being in the right place at the right time is terribly important.  I've often told the young people that I work with that number one, humility is key to good leadership.  Two, when you begin to believe the hype about yourself you're in serious trouble.  And three, it's better to be lucky than smart on an awful lot of occasions.  So it's those instances where you have a weak leader and a successful company, I would say not only look for the successful companies, but look for successful companies that have been tested, that have gone through some sort of a challenge, a serious downturn in the market, a very serious competitive threat, a need to change strategic direction, options for employees that are suddenly under water, and see how well they've done in response to that challenge.  It's easy to look good as a leader when you're in the right place at the right time in a very dynamic environment.  It's a lot harder when the water suddenly turns extremely turbulent.  I would say, focus on the successful companies.  Focus on the successful companies that have been through a very rough patch and emerged stronger from those rough patches and almost invariably you'll then find strong leaders at the top.