[Senate Hearing 106-707]
[From the U.S. Government Publishing Office]
S. Hrg. 106-707
B2B: AN EMERGING E-FRONTIER
FOR SMALL BUSINESS
=======================================================================
FORUM
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MAY 18, 2000
Printed for the Committee on Small Business
______
U.S. GOVERNMENT PRINTING OFFICE
66-231 cc WASHINGTON : 2000
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON SMALL BUSINESS
ONE HUNDRED SIXTH CONGRESS
----------
CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah TOM HARKIN, Iowa
OLYMPIA J. SNOWE, Maine JOSEPH I. LIEBERMAN, Connecticut
MICHAEL ENZI, Wyoming PAUL D. WELLSTONE, Minnesota
PETER G. FITZGERALD, Illinois MAX CLELAND, Georgia
MIKE CRAPO, Idaho MARY LANDRIEU, Louisiana
GEORGE V. VOINOVICH, Ohio JOHN EDWARDS, North Carolina
SPENCER ABRAHAM, Michigan
Emilia DiSanto, Staff Director
Paul Cooksey, Chief Counsel
Patricia R. Forbes, Democratic Staff Director and Chief Counsel
C O N T E N T S
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Opening Statements
Page
Bond, The Honorable Christopher S., Chairman, Committee on Small
Business, and a United States Senator from Missouri............ 1
Burns, The Honorable Conrad, a United States Senator from Montana 27
Committee Staff
Freedman, Marc, Regulatory Counsel, Majority Staff............... *
Conlon, Paul, Research Analyst, Majority Staff................... *
Dozier, Damon, Legislative Assistant, Minority Staff............. *
Panelist Testimony
Villars, Richard, Vice President, Internet and e-Commerce,
International Data Corporation (IDC), Framingham, Massachusetts 2
Kim, Angie, President and Chief Customer Officer,
EqualFooting.com, Sterling, Virginia........................... 14
Krishnan, Krish R., President and Chief Executive Officer,
NetCompliance, Inc., Seattle, Washington....................... 29
Alphabetical Listing of Senators and Panelists and Appendix
Material Submitted
Bond, The Honorable Christopher S.
Opening statement............................................ 1
Burns, The Honorable Conrad
Opening statement............................................ 27
Kerry, The Honorable John F.
Prepared statement........................................... 76
Kim, Angie
Testimony.................................................... 14
Prepared statement........................................... 18
Krishnan, Krish R.
Testimony.................................................... 29
Prepared statement and attachments........................... 33
Villars, Richard
Testimony.................................................... 2
Prepared statement........................................... 6
Participants
Alford, Harry C., President and Chief Executive Officer, National
Black Chamber of Commerce, Washington, D.C..................... *
Bahret, Mary Ellen, Manager, Legislative Affairs (Senate),
National Federation of Independent Business, Washington, D.C... *
Bradley-Cain, Ruby, President, RBC International Inc., Bethesda,
Maryland, on behalf of the National Association of Women
Business Owners, Washington, D.C............................... *
Chubb, Michael, Director of Marketing--North America, SGS Canada
Inc., Mississauga, Ontario, Canada............................. *
D'Onofrio, David, Director of Government and Public Affairs,
National Small Business United, Washington, D.C................ *
Farrell, Thomas J., Business Development Manager, BizLand.com,
Pittsburgh, Pennsylvania....................................... *
Gaibler, Floyd D., Vice President, Governmental Affairs,
Agricultural Retainers Association, Washington, D.C............ *
Hatcher, Jennifer, Director, Government Relations, Food Marketing
Institute, Washington, D.C..................................... *
Jacques, Veronica A., Manager, Government Relations, Direct
Selling Association, Washington, D.C........................... *
Koncurat, Mark, President, Host Designs, Bel Air, Maryland....... *
Lane, Rick, Director, eCommerce & Internet Technology, U.S.
Chamber of Commerce, Washington, D.C........................... *
Little, Jeanne, Director of Government Relations, Society of
American Florists, Alexandria, Virginia........................ *
MacDicken, Rebecca, Director of Government Affairs, Tire
Association of North America, Reston, Virginia................. *
Morrison, James, Senior Policy Advisor, National Association for
the Self-Employed, Washington, D.C............................. *
O'Connor, James, Deputy Associate Administrator, One Stop Capital
Shop Program, Small Business Administration, Washington, D.C... *
Peyton, David, Director of Technology Policy, National
Association of Manufacturers, Washington, D.C.................. *
Rivera, Maritza, Vice President for Government Relations, U.S.
Hispanic Chamber of Commerce, Washington, D.C.................. *
Whysong, Dan, Market Analyst, Center for Global Competitiveness,
St. Francis College, Loretto, Pennsylvania, on behalf of the
Association of Small Business Development Centers, Arlington,
Virginia....................................................... *
Wren, Tom, Assistant Director of Special Programs, Pennsylvania
SBDC, The Wharton School, University of Pennsylvania SBDC,
Philadelphia, Pennsylvania, on behalf of the Association of
Small Business Development Centers, Arlington, Virginia........ *
Comment for the Record
Gaibler, Floyd D., Vice President, Governmental Affairs,
Agricultural Retailers Association, Washington, D.C., statement
and attachments................................................ 79
*Comments (if any) at various points between pages 29-72.
B2B: AN EMERGING E-FRONTIER
FOR SMALL BUSINESS
----------
THURSDAY, MAY 18, 2000
U.S. Senate,
Committee on Small Business,
Washington, D.C.
The Committee met, pursuant to notice, at 9:34 a.m., in
room SR-428A, Russell Senate Office Building, the Honorable
Christopher S. Bond (Chairman of the Committee) presiding.
Present: Senators Bond and Burns.
OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND,
CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED
STATES SENATOR FROM OF MISSOURI
Chairman Bond. Good morning and welcome to another of the
Small Business Committee's forums. Today we have a very
exciting, interesting, and timely subject. We have three great
lead off witnesses that I think will be of interest to all of
you. We are going to be exploring the exploding growth of
Internet-based business-to-business commerce, or B2B commerce.
We were thinking about calling this, ``B2B or Not B2B,''
but my staffers who create those corny jokes are not up to top
speed. So we thought the more important questions for today
are: How can small businesses take advantage of this trend?
What obstacles do small businesses face in trying to take
advantage of it? Is this trend a benefit or a problem for small
business? These were captured better in the title of, ``An
Emerging E-Frontier for Small Business.'' It lacks some of the
sex appeal but probably more accurate.
The Committee's goal in holding this forum is to help the
small business community and us better understand the
opportunities that are becoming available through the use of
the Internet and the computer revolution in general. Although
many in the high-tech industries are very familiar with the
possibilities, many small businesses still lag behind and are
unaware of how their businesses could benefit.
In addition, larger businesses also have the luxury of
hiring consultants to help them figure out what to do and how
to do it. With small business, becoming familiar with this new
technology often has to compete with all the other demands of
running a business and this can sometimes be put too far on the
back burner to allow them to take full advantage of e-commerce
opportunity.
The impact of the Internet on business can be extremely
varied. In many cases, the difference may be just a question of
thinking outside the box and using a little imagination, such
as developing a web site to support other advertising. In other
cases, the difference can mean a significant restructuring of
the way small businesses do business, such as using the
Internet to satisfy the supply needs of business as with B2B
commerce.
In the end, the goal is the same as it has always been: to
do things better, faster, and less expensively. Competition
demands constant innovation and adjustment, and the Internet
represents the latest toolbox available to small businesses to
help with this process.
With us today are three very distinguished speakers who
will help us understand the dimensions of this new trend. After
their presentations we will have an open discussion with all
other invited participants as well as Members of the Committee
and staff. We hope this will be a free-flowing conversation,
and I hope that you have lots of questions and there is a lot
of discussion. I ask that in order to be recognized you take
the card in front of you and stand it up on end like that so we
will know who is waiting to be recognized. And if you would
keep your comments short it will allow more people to get into
the discussion.
The record for the forum will remain open for 2 weeks,
until June 1, for any additional comments you might want to
submit. We also invite comments from those who are watching
through the Internet or on television and ask that they let us
know. We have information on how to contact the Committee
through our web site, through fax machine, and even old-
fashioned letters. We still do take letters as well.
Senator Kerry had to be on the floor to introduce the
chaplain for today's session, and the way things are going we
need all the blessings we can get. So I expect my colleague and
Ranking Member, Senator Kerry, to be here before long. Also I
believe Senator Burns is going to be joining us because he is a
great champion of e-commerce and is very, very interested in
all of this.
So enough of the chatter, let us begin with the discussions
today from the panelists. Let me introduce first Rick Villars,
vice president for Internet and e-commerce, International Data
Corporation in Framingham, Massachusetts. His team forecasts
worldwide Internet adoption, e-business spending patterns, and
the opportunity for e-marketplaces. They also analyze the
evolution of e-commerce with a focus on business-to-business
developments and identifying emerging trends and market
dynamics that are shaping the demand for Internet and e-
commerce products and services.
Mr. Villars.
STATEMENT OF RICHARD VILLARS, VICE PRESIDENT, INTERNET & e-
COMMERCE STRATEGIES, INTERNATIONAL DATA CORPORATION (IDC),
FRAMINGHAM, MASSACHUSETTS
Mr. Villars. Thank you, Senator Bond. Let me start by
thanking you, Senator, as well as the other Senators on the
Committee and the staff for having me here today to discuss
what is in many cases a critical but often overlooked issue
with regards to the Internet and e-commerce; namely, the role
of small businesses in making all this happen.
When IDC was founded 36 years ago we were dedicated to the
task of analyzing how computers and networks would change the
lives of individuals and the practices of businesses around the
world. Over the last decade, certainly the most important force
changing the dynamics for businesses and individuals has been
the Internet. We dedicated ourselves during this period to
really understanding how companies, and how individuals are
using this technology.
We draw on research from fellow analysts in about 38
countries around the world specifically to develop what we call
the Internet commerce market model. This model is how we track
use of the Internet by businesses--large and small--Government
agencies, and individual users.
In the year 2000, approximately $210 billion worth of goods
and services were purchased by all businesses around the world.
If you compare that to 1995 when there was none, we see a
dramatic increase. But when we extend our forecast out to the
year 2004 we find that total purchasing by businesses will be
around $2.2 trillion. So we are seeing a tenfold increase in
the use of the Internet to conduct business in the next 5
years.
As you look at that $2.2 trillion, you quickly realize that
this is not something that is just for the Fortune 500. The
Internet is not just a tool for large businesses to go out and
buy and sell goods online. To make this kind of change in the
overall business dynamic you have to include what we often call
the forgotten five million; all the small businesses out there
trying to do their job, sell to their customers locally and
around the globe.
I went and spoke to several of our analysts, including the
vice president in charge of our small business research at IDC,
Ray Boggs. We looked at the Internet commerce market model to
see how much business was actually taking place online through
small businesses. We can report that from the standpoint of
being a buyer, small businesses are absolutely carrying their
weight on the Internet. In the year 2000, small businesses
around the globe will purchase about 30 percent of all the
goods that are being purchased online. So they are absolutely
playing a role as buyers, going online and purchasing goods.
But when we look at small businesses as sellers, and
ultimately the reason you are in business is to sell
something--we find the issues and the responses more troubling.
Today, small businesses are not able to compete and participate
as sellers on the Internet in any meaningful way.
When we go back and we look at that $210 billion, 50
percent of that is driven by large companies who set up e-
commerce sites and then go out and tell their customers to buy
online. For example, a law firm in Oregon may go and buy
computers from Dell, or a manufacturing company in North
Carolina, may go and purchase plastic from GE Plastics,' web
site. Finally you might see a small greeting card store in my
hometown of Wilmington, Ohio go and buy cards from American
Greetings online.
Another major force driving e-commerce is that these same
large businesses are setting up procurement systems so that
their purchasing managers can go out and buy products. In the
case of Ford, managers can go out and buy windshields and brake
parts and shorten their supply chain and improve the ordering
of goods in their manufacturing processes. Combine these
procurement systems and suppliers e-commerce systems and you
find that about 90 percent of all e-commerce is flowing through
those two paths.
If you look at both, you will find that there is very
little room for small businesses. They cannot participate in
actively getting all the advantages of e-commerce either as
large volume buyers or sellers.
What we think is absolutely critical and is going to change
this in the next 4 years is the emergence of what we call e-
marketplaces. They go under a lot of names. You hear them
called exchanges, auction sites, marketplaces, e-markets. The
whole point of these sites is that a third party sets up a
system where large numbers of buyers and suppliers come
together in a common community. They can exchange information,
collaborate on new business activities, and ultimately,
purchase goods, either through a catalogue, an auction system
or some kind of exchange mechanism.
We believe that this model is the most effective for small
businesses to participate as sellers on the Internet and in e-
commerce. It will be an important path for small business to
take to actually benefit from the world of e-commerce.
I'll conclude my remarks with four questions that we think
will be critical to really defining whether or not small
businesses can find a place at the e-commerce table. The first
issue has to do with, access to these services. Our research
shows that in the United States about 60 percent of small
businesses--and we would define these as companies with under
100 employees--have access to the Internet.
That actually sounds like a very large number compared to
even large businesses. But when you look at how they are
actually connected you find that only about 11 percent are
connected via some kind of high-speed permanent connection. The
rest are dialing up through modems. While dialing up to the
Internet is a great way to buy products and surf the net, you
cannot effectively be a seller on the Internet unless you are
always connected to the Internet, so people can come to you to
buy products.
So the issue of providing better access, more cost-
effective access, and integration of this access with the back
office accounting, and ordering systems, that small businesses
already have in place is a major challenge that e-marketplaces
and companies who are in the small business community are going
to have to deal with.
Another major issue going forward has to do with how you
run your business once you move to the Internet. The challenge
here is how do you deal with credit and with potential
financing issues that come along. When I am a small business
selling to local people, I am comfortable, I know who they are,
I can extend them credit, I can issue a PO and they can pay me
back in 30 days.
Once I come online, now I am dealing with companies around
the country or potentially around the globe and there is a
greater risk associated with providing them services. I need
more automated mechanisms to help finance that system, so that
I can extend credit automatically, and I need to have a bank or
some other financial institution backing me up.
So we see the need for more integration of the financing
mechanisms that are supporting small business today in these e-
marketplaces.
The third major challenge is, if you look at e-marketplaces
you find that one of their most important characteristics is
that they now are collecting all of the information about the
sales and the transactions. Not just the successful sales, but
also the unsuccessful sales where somebody goes out and shops
for a good and then decides to purchase it from someone else.
All of this information is very valuable, but obviously we
are now starting to deal with issues around privacy, around the
sharing of corporate information. This will be one of the most
critical issues because many e-marketplaces see the analysis of
this information as a revenue source. They can go out and
actively sell that information to both buyers and suppliers so
that they can be more competitive. But where do you draw the
line in terms of sharing an individual company's information?
The final major issue that we see relative to e-
marketplaces has to do with the issue of women- and minority-
owned businesses. In this space, today e-marketplaces do not
really acknowledge the existence of this community in any
meaningful way. They can participate but they are not being
designated specifically as a medium or small business.
As we know, many large companies and large Government
institutions have programs in place to purchase goods from that
community. Today, an e-marketplace cannot accommodate that type
of service, cannot help bring that portion of their purchasing
activity into the world of e-commerce.
The marketplaces themselves are not going to be able to
cost effectively go out and verify who is a minority-owned
business, who is a woman-owned business, and basically then
provide that information to the buyer. Technically, it is very
easy; administratively, a significant cost burden. Until we see
a mechanism that makes it easier for e-market places to provide
this function, many large companies are not going to be able to
purchase from small businesses in any meaningful fashion.
With that I conclude my remarks and thank the Committee
once again.
[The prepared statement of Mr. Villars follows:]
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Chairman Bond. Thank you very much, Mr. Villars. You really
set me up. I was trying to figure out how to put in a plug for
the conference we are having in Kansas City on June 4 and 5,
co-sponsored by Senator Kerry and four of my other colleagues,
Senator Snowe, Senator Feinstein, Senator Landrieu, and Senator
Hutchison. We are going to be looking at precisely those kinds
of questions and want to enlist our panelists and others
today--there is information again on our web site for those of
you who might be interested in it. Kansas City is beautiful in
June. The best barbecue in the world. But anyhow, the
information I think will be very useful and it should be a very
exciting and worthwhile event.
Now back to this very important hearing. Next we will hear
from Angie Kim, the president and chief customer officer of
EqualFooting.com from Sterling, Virginia. That is a web site
that specializes in helping small businesses meet their
industrial supplies and equipment needs. Ms. Kim is directly
responsible for developing and managing all customer
touchpoints for EqualFooting.com such as marketing, public
relations, customer service, and budgets. She is the voice of
the customer in all business decisions.
Her previous experience includes a lengthy list of very
distinguished academic and professional activities culminating
in being a member of the Global Leadership Group at McKinsey &
Company and launching an online business-to-business program
that targets small business. Ms. Kim, welcome.
STATEMENT OF ANGIE KIM, PRESIDENT AND CHIEF CUSTOMER OFFICER,
EQUALFOOTING.COM, STERLING, VIRGINIA
Ms. Kim. Thank you so much, Mr. Chairman, and other Members
of the Committee. First of all, please allow me to thank you
for the opportunity to testify before you today. It is truly an
honor for me to be here testifying before you, talking to you
about the issue that has really intrigued me throughout all of
my life, both personal and professional. That is, the emerging
frontier of business-to-business e-commerce for small
businesses.
My name is Angie Kim. I am co-founder, president and chief
customer officer of EqualFooting.com. EqualFooting is a
Virginia-based B2B e-marketplace for small businesses, and we
are simply dedicated to leveling the playing field for small
businesses in the areas of purchasing, financing, and shipping
as well as selling.
EqualFooting.com, I started this company less than a year
ago, last summer, in my basement in Fairfax County with two of
my partners, Aaron Martin and Jim Fox. It was just three of us
at that time working out of my basement, and now less than a
year from that date of starting this business we are a company
of over 150 full-time employees. We do nothing but think about
the problems that small business owners face in all areas of
their business operations, and we think about how a marketplace
can actually help to solve some of those problems.
What I would like to do today is share with you a little
bit about my background and why I came to really focus on and
be interested in this problem of small business e-commerce and
the oppor- tunities therein. I also want to share with you what
exactly EqualFooting.com is doing in the areas of purchasing,
shipping, and financing, and hope that we can serve as a case
study of how e-commerce can truly benefit all small business
owners.
Many people ask me how I came to care about small
businesses. My own business background began at a very, very
young age, at the age of 13 when I actually immigrated here
from South Korea with my parents. We came to Baltimore, and as
is probably the typical immigrant story, we actually started
with a small business. We set up a grocery store.
Being an only child, and as a child having picked up
English a bit quicker than my parents, I became very involved
in the day-to-day operations of starting and growing this
business which was, as I said, first a grocery store. It
developed into yet another grocery store, then a mini-mart, and
some commercial real estate, and finally into now what is a
successful group of small businesses that I helped my parents
with.
During this time I truly became appreciative of the
disadvantages that small businesses face in all of the areas of
their operations. So for example, in the area of purchasing,
unlike the large companies that have dedicated staff and
purchasing departments that go out, try to find the best deals,
use the large volumes that the large corporations actually
purchase to get volume discounts, and actually have the time
and resources to figure out what supplier carries the best
prices and terms for particular products, small business
owners, as you all can appreciate, simply do not have the time,
the resources, or the clout to go out to the marketplace and
really try to find the best prices and terms.
As a result, some of the statistics that we looked at and
some of the anecdotes that we have gathered from small business
owners actually tell us that small business owners end up
paying, particularly in the areas of industrial supplies which
is something that EqualFooting focuses on, about 10 to 30
percent more than their large corporate counterparts in the
area of purchasing.
Financing is another great example. Actually having done
many, many applications, application after application, all of
which required the same amount of information and all of which
require about 2 to 3 hours to actually fill out by hand, going
to bank after bank, sitting down with all of the different
people who are responsible for the decisions on loans, I can
truly appreciate that it takes a lot of time to get loans as a
small business, and to be able to finance, start, and grow your
business. This goes on and on.
Now, after I went to school and moved away from Baltimore,
one of the things that I found myself doing in the last couple
of years is being a management consultant to large companies,
to Fortune 100 companies. It was my job there to help large
companies figure out their e-commerce solutions. I was involved
in both B2C and B2B e-commerce.
What I realized there and what struck me there is that this
digital divide that we talk about in the socioeconomic sense
truly exists in the corporate world as well. Particularly,
about a year ago when not that many people were thinking about
small business
e-commerce, what struck me is that there really exists a
corporate digital divide between the small businesses on the
one hand that were not getting, and still probably are not
getting, as much attention from the e-commerce companies that
are setting up these marketplaces that provide efficiency in
markets and purchasing and selling. The digital divide
obviously is between those small businesses and the large
companies that are getting a lot of attention in the B2B space.
We made it our mission, my partners and I, to say we are
going to form our company, EqualFooting.com, to help put small
businesses on equal footing with large companies and make it
our sole dedication to overcome and to bridge this corporate
digital divide that exists. So let me go into a little bit of
exactly how we do that.
First let me start with purchasing. In the area of
purchasing, I brought with me this big, thick catalogue. This
is one of many, many big, thick catalogues that go into
purchasing, if you are a small business today, purchasing
industrial supplies. By industrial supplies I mean the $75
billion market out there that consists of things like
fasteners, things like hand tools, generators, safety supplies
and equipment. Things that businesses use to maintain and
operate and repair their machinery and keep their business
going forward.
These types of catalogues are illustrative of what small
business owners have to go through. They typically have to leaf
about 10 of these in order to find exactly the item that they
are looking for. And in order to do any sort of meaningful
comparison of prices or terms they have to spend a lot of time
on the phone calling suppliers and asking, ``Do you have this
item in stock? If so, how much is it? Can you mail it to me
today? Can I come pick it up today?'' Whatever the case may be,
whatever they are interested in.
So what we have done is set up this marketplace, and I
think you can see a very simple illustration there with the
selling, the supplier on the one side and buyer on the other
side, and EqualFooting being the marketplace that brings these
two forces together. What we have done is we have actually gone
to all of these different suppliers and taken all of the data
that exists here and put it into an electronic format into one
integrated, virtual catalogue, if you will, that exists on
EqualFooting with negotiated favorable pricing for small
businesses.
What this allows is, for example, I will use AA batteries,
something we can probably all relate to. If you come to
EqualFooting and type in ``AA batteries'' then all of a
sudden--we have on the next slide an example of how you can
actually see immediately a list with some pictures of all the
AA batteries that we have. Some of these items are exactly the
same. They are Energizer AA batteries. No doubt about it,
exactly the same item.
But because we carry them from lots of different suppliers
and this is, in essence, the same as going through lots of
these different catalogues, you can see right there that the
prices range from something like 32 cents for one of these
batteries to over 80 cents per battery, even for exactly the
same brand. That just shows you what kind of price disparities
exist and how a system like this can really help small business
owners who do not have the time to make a lot of calls to find
out this comparison price list, with our web site they can
actually do that very quickly.
Let me also say something about the selling side of this.
As a seller as well, you can participate in e-commerce by
participating in these marketplaces as well as setting up your
own shop. So as a small seller you can actually come to
EqualFooting and you can actually list your prices. In fact the
lowest price on there is from a very small company called
Batteries, Inc. that does nothing but sell batteries, which is
probably why they have the best prices on AA batteries and the
best delivery mechanism for that.
So I hope that e-marketplaces like EqualFooting will
certainly help all small businesses both on the buy side and on
the sell side find each other in efficient ways, and basically
make each other's businesses work.
Thanks.
[The prepared statement of Ms. Kim follows:]
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Chairman Bond. Thank you very much, Ms. Kim. It is really
exciting to know what you are doing and I will remember that
when I am looking for AA batteries. That is something I can
understand. I am technologically challenged, but even I
understand AA batteries.
Now for one of our technological experts I now turn for
comments and the introduction to my good friend, a fellow
Missourian and the Senator from Montana, the chairman of the
Communications Subcommittee of the Committee on Commerce,
Science, and Transportation, Senator Conrad Burns. I will ask
Senator Burns to moderate as long as he can and then we are
going to ask Marc Freedman from my staff and Damon Dozier from
Senator Kerry's staff to serve as moderators.
But I will return after a few meetings and a few of the
other things that I have to do today. But now it is a
pleasure--with fear and trepidation I turn it over to Senator
Burns.
[Laughter.]
Chairman Bond. Strap on your seatbelts, we are----
Senator Burns. The only reason I came is, I just wanted to
counter the good Senator from Missouri's statement on how nice
Kansas City is in June.
Chairman Bond. Actually there are 2 weeks in June when
Montana is nice, or is it a week in June and a week in
September?
Senator Burns. If summer comes on Sunday, we go fishing.
[Laughter.]
OPENING STATEMENT OF THE HONORABLE CONRAD BURNS, A UNITED
STATES SENATOR FROM MONTANA
Senator Burns. Thank you, Senator Bond, and thank you for
these--this is the second of this series that I have been on a
forum discussion as far as e-commerce is concerned. We have
seen this industry grow since the first day I walked into the
Senate back in 1989.
I want to just make a couple of comments as I have a bill
on the Floor that I am managing. I am setting a new record for
military construction. Usually we pass military construction
appropriations in about 1\1/2\ hour. Now we have been on it for
4 days, for some strange reason that I will not iterate here.
I was interested in both the comments of Mr. Villars and
Ms. Kim with regard to the Internet and the challenges that we
see. We have seen a virtual explosion in communications--the
digital divide, Ms. Kim, is not only corporate. We talk about
the digital divide between small and large communities, the
trunks, and finally the fiber and the amount of broadband and
high-speed services that are available in not-so-densely
populated areas of our country.
The only reason I became interested in this situation is
being from Montana, we had to find a way to build an
infrastructure in which we could compete on a national and
international basis. We can do that with a modem.
But also we have a digital divide between our ears. In this
Congress we do not have a lot of folks that are actual members
that are even computer literate. I do not go anywhere without a
computer. I was very fortunate because I have a couple of very
bright kids and, of course, they taught me how to use my
computer. I used to think if you hit the wrong key, the darned
thing would blow up. That is not the case. I found out a
computer is more like a mule, you cannot make it do what it
does not want to do.
But I want to bring up some challenges that we have before
we can really see the Internet really hit its full potential as
a marketing and as a purchasing tool. Right now, we have in
conference the e-signature bill. Mr. Villars, you touched on
that issue, privacy. We have privacy now and we have our bill
ready to go we think, but we still have some challenges ahead
in how people look at the privacy area.
Also in safety and security. Whenever we start talking
about financial, and we are doing business that deals with some
very sensitive information, questions arise. Do I have the
encryption? Is my conduit or my message encrypted to a way
where when I receive a message from you it is as I have written
it? Has it not been read by anybody else, nor altered by
anybody else? Then when you respond to me I can have the same
assurance.
What I am saying here is safety, security, and privacy are
still areas of great challenge and until we have full
confidence that these areas have been properly dealt with, we
will continue to see a reluctance from quite a few people to
use this tool.
You are right, Mr. Villars, I am an old peddler. I am an
auctioneer. I have been a salesman all my life. I dearly love
it. I have people come into my office and apply for a job and
they say, we just do not want to sell. And I say, if you do not
want to sell, you are not going to work here because you are
not selling yourself very good either.
We are all salesmen in this great country where our economy
and our actual economic freedoms are based on the knowledge
that nothing happens until a sale is made. That is wonderful.
The United States is the only country in the world where that
really applies. Of course, economic security and political
security all go hand in hand.
But there is a relationship with the customer. You and I,
have been doing business a long time. I am always reminded of a
story of a good friend of mine that lived in Little Rock,
Arkansas. This man had a very bad speech impediment. He
stuttered terribly, but he was still one of the top salesmen
for the 3M Company. He would try to sell me stuff and he would
say, ``Conrad, you do what you do best and that is buy. And I
do what I do best and that is sell.''
Now in the area of women- and minority-owned businesses, of
which this Small Business Committee is very aware, we have
played a part in the development to make sure that we had equal
footing for everyone. The Internet tells us that these days are
over and if you had the product and the imagination it would
not make any difference whether those differences go away. We
do not know that yet. But until then, until we find that out,
we are very, very aware and very sensitive to minority- and
women-owned businesses. So there are still a lot of challenges.
We want to welcome NetCompliance, John Dominic from
Bozeman, Montana. I have known John ever since the Dead Sea was
just sick.
[Laughter.]
Mr. Dominic. And that is because we were trying to get a
couple of boats from Methusaleh and his dad.
Senator Burns. That is exactly right. What we have seen
through this whole evolution--and it has been marvelous as far
as I am concerned--is that if we do not tax and if we let it
run free, imagination, entrepreneurialship, and the American
imagination becomes the most wonderful, powerful machine in
America. We have seen that happen right before our own eyes.
That is the reason we lead the rest of the world. We are very
competitive at home, which makes us very competitive in the
international market. I believe that with all my soul. I really
do. We have seen just marvelous advances being made.
Now I am going to turn it over to this man right here,
Marc, because I have to go to manage a bill on the Floor. We
have to talk about Kosovo, but I would rather talk about
America and American entrepreneurialship. But just remember,
the digital divide is between our ears, and it is right here.
This is not the center of the universe. I mean, America is
doing wonderful without us. Just get out of the way, turn it
loose, and it will happen.
We want to welcome all of you here today. I will be
listening to what all of you have to say. Good to see you,
Floyd. Everything is all right in St. Louis, I assume.
Mr. Gaibler. No. They are all moving to Washington, D.C.
Senator Burns. That is just terrible. There are several
friends around the table that we have a relationship with, so I
thank you all for coming.
Mr. Krishnan, I guess I am cutting right into your time and
I am sorry about that. John, good to see you. I will go and
manage my bill, if I can. It is all yours.
Mr. Freedman. Thank you, Senator Burns. I would just like
to introduce Krish Krishnan, our last speaker. He is the
president and CEO of NetCompliance, Inc., a Seattle,
Washington-based Internet information commerce company.
NetCompliance allows businesses to be in compliance with the
myriad State, and Federal regulations via the Internet. Its e-
comply technology helps companies keep track of regulatory
details and provides web-based training by employee, location,
and hazardous condition.
Mr. Krishnan's experiences in environmental, regulatory
compliance, and information technology are well suited to
NetCompliance's mission. Mr. Krishnan, nice to have you today.
Please proceed.
STATEMENT OF KRISH R. KRISHNAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NETCOMPLIANCE, INC., SEATTLE, WASHINGTON
Mr. Krishnan. Thank you. Mr. Chairman, Senator Burns, and
Members of the Committee, I first wanted to thank you all for
inviting me here to testify before the Small Business
Committee. It is indeed a great honor. I am, again, Krish R.
Krishnan, president and CEO of NetCompliance, Inc., a Seattle,
Washington-based Internet information commerce company. We have
other offices in the State of Washington, in Vancouver,
Washington, Kennewick, Washington, and satellite offices in
Houston, Texas, in Washington, D.C., and a couple of offices in
Canada, and a presence on the Indian subcontinent as well.
Using the Internet, NetCompliance's e-comply technology
provides the platform for businesses, both large and small, to
be in compliance with a variety of State and Federal and local
regulations and standards. Later on in the presentation I will
talk about how we use the web in an innovative manner to
deliver appropriate knowledge and information to small
businesses, large businesses, in a manner which is clearly
faster, cheaper, and better.
Mr. Chairman, the Internet now has a profound impact on all
our lives. Today new companies and technologies have emerged
helping to create e-marketplaces, business-to-business
functions of various types which indeed, in comparison to the
old economy companies, are faster, cheaper and better. We
believe in particular at NetCompliance that businesses both
large and small are seeking to use the Internet to manage other
complex needs of the business, and in effect trying to extend
the e-frontier to functions such as compliance management.
This business potential is huge as business to business
electronic commerce is clearly spreading rapidly from larger
businesses to small businesses today. With all this explosion
in the Internet-related growth areas I think one area where new
technology is desperately needed is in the area of compliance.
Compliance with Federal regulations, compliance with State
regulations, local regulations, and standards.
I must just point out here that the impact of regulatory
compliance on businesses, particularly small businesses is
staggering. The annual cost to American businesses for
complying with a variety of regulations has been estimated by
Hambrecht & Quist in 1999 to be an astounding $45 billion, and
319 million manhours. In particular, just for EPA-mandated
business alone, businesses spend a total of 116 million
manhours. As another example, the General Accounting Office
estimated that the business burden for complying with lead and
asbestos regulation alone is $1 billion.
We were talking about the industry survey conducted by
Deloitte and Touche where they surveyed Fortune 500 CEOs. I am
sure, had Deloitte and Touche approached small businesses,
compliance management as an issue would have ranked as high if
not a higher priority among small businesses.
I think the future of Federal and State regulatory activity
promises to present more challenges to businesses. We would
like to submit for the record here, and I hold in my hand--I
probably need both my hands for this--the Unified Agenda of
Federal Regulatory and Deregulatory Actions. A copy of this was
published in April of this year. This calendar, which is
published twice yearly, describes 4,441 rules that the
Government is right now considering. Incidentally, this is a
biannual report for 6 months.
I find in particular very sobering the fact that the agenda
on what this is about starts at page 22,483 and ends over 1,600
pages later. I think if this document is going to be an
indicator of future regulatory challenges, I think definitely
there is a crying need for bringing some efficiencies to the
table to address such issues, and NetCompliance's primary
mission is to try to utilize the Internet to address such
efficiencies.
We certainly believe that this all-important area can be
addressed, and small businesses can address it better, cheaper,
and faster by appropriately using the efficiencies of the
Internet as a delivery platform. Indeed, we consider ourselves,
NetCompliance, to be an information commerce company. We
believe giving customized, relevant, topical, and timely
information across the Internet is in many ways as relevant, if
not a more relevant use, of the Internet where we can send this
knowledge and information via the wires.
To be sure, the regulatory impact differs for various types
of business. Fortune 1,000 businesses certainly are cognizant
of this problem. They happen to have large in-house staffs.
They end up having the budget to go out and hire consultants
and attorneys to help meet such needs. For smaller businesses
however, it is more of a desperate need where clearly small
businesses either do not have the information access to realize
what regulatory burdens they are facing, or quite clearly
cannot afford to pay for high-priced consultants and attorneys.
I think the Internet right now offers us unique
opportunities to comply with regulations in a different way and
at NetCompliance, I am proud to say, we have created an
innovative method to deliver education, training, compliance,
and information to American businesses. Simply put,
NetCompliance through our e-comply engine offers companies the
ability to meet the regulations using this integrated
information commerce suite.
Let me move on and actually give you an example, a tangible
example of how we use the Internet to help solve problems for
small businesses in particular. In our main web site you will
have noticed there are a lot of different compliance sites we
have. I would like to take some time and talk about one
particular example, GasStationCompliance.com. I would like to
submit for the record here the Seattle Times business story of
Thursday, April 6, 2000 entitled, ``It's Still Red Tape, But It
Comes By PC.''
The story highlights Frank Rosendale, an owner of gasoline
stations in suburban Seattle. Frank is a client of the
GasStationCompliance.com which helps convenience store and gas
station owners with EPA and OSHA compliance. This is a very
important area of compliance, particularly among small
businesses.
There are a lot of gas stations, in fact there are over
180,000 gas stations in the United States alone and many of
them, in fact the overwhelming majority of them, tend to be
small businesses. They have to comply with costly health and
safety rules and offer their workers training and education,
not just to do with hazardous materials and EPA and OSHA rules,
but also in the areas such as not to sell tobacco or alcohol to
minors.
The Seattle Times reported, that every month
GasStationCompliance.com sorts through newly-passed
regulations, new rules on how to store toxic cleansers, for
example, and sends the ones that apply to Rosendale's gas
stations to his online account. The regulations are also stored
on his online account so should an agency ever inspect his
workplace Rosendale has all the necessary paperwork filed
online.
Before it was a monster to get responses, Rosendale said.
It took him forever to do all the stuff. Instead of scheduling
offsite training sessions that cost about $100 an employee his
workers can do it on the gas station's PC using the
NetCompliance site. The total bill, $39 a month.
Small businesses through some of our other sites such as
MSDSCompliance.com have the ability to find and organize
material safety data sheets, or MSDS's, from among the over 16
million that are required by State and Federal laws. Our
proprietary system allows clients to search their data bases,
create and build a customized file folder of only those MSDS's
of interest to a particular client.
The pages are in text format which makes for quick
retrieval and there is no need to download any special programs
or conversion devices. And the folder resides on our main
server, NetCompliance's main server, which means literally this
can be accessed from anywhere, anyplace.
Mr. Chairman, the power of the Internet is bringing small
businesses the opportunities to reduce costs and remain
competitive in the global marketplace. Certainly we feel
another area where it is very relevant is in the training area.
Our TrainingCompliance.com site has about 100 online training
courses which help train business owners without them needing
consultants or offsite training sessions.
Mr. Chairman, to make B2B commerce an emerging e-frontier
for small businesses, NetCompliance believes that Congress must
give businesses the option of complying with the regulatory
requirements via the Internet. Legislation which would allow
the option of switching from filing paper copies to using the
web to file virtual compliance solutions would be extremely
helpful to small businesses seeking a better, cheaper, and
faster compliance method. Small businesses in America need
every benefit of the doubt from the regulators if they are to
compete fairly in the global economy alongside businesses from
foreign countries which do not impose the same regulatory
burdens like we do.
In closing, Mr. Chairman, let me point out to the Committee
that an anniversary recently passed with little notice. The
Occupational Safety and Health Administration opened their
doors 29 years ago on April 28. When these operations began
little did regulators envision that in the new economy
companies would want to comply with the Federal laws via the
Internet.
Mr. Chairman, Members of the Committee, NetCompliance is
poised to contribute to this regulatory compliance revolution.
And on a personal note I would like to thank Senator Burns from
Montana for inviting us to be part of the advisory committee of
the Congressional Internet Caucus. We certainly look forward to
working with the advisory committee and with this Committee to
help promote the Internet's use in this all important area.
That concludes my remarks. Thank you.
[The prepared statement of Mr. Krishnan follows:]
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Mr. Freedman. Thanks so much, Mr. Krishnan. We appreciate
you being here. On a personal note, I spend a lot of time
dealing with regulations, and particularly with OSHA, so I have
firsthand knowledge of what you are wrestling with and what
your clients are wrestling with, so I can appreciate the value
of your service.
The next part of the program is going to be our open
discussion with the other participants here. Before we do that
I would like to have everybody introduce themselves, since
there are a lot of people who do not know each other yet. I
think for convenience purposes we will just start at that end
of the table with Mr. Alford. If you would just tell us who you
are and who you are with that would be very helpful.
Mr. Alford. I am Harry C. Alford. I am president and CEO of
the National Black Chamber of Commerce based here in
Washington, D.C.
Mr. Koncurat. I am Mark Koncurat. I am president of Host
Designs, a web hosting and web design company.
Mr. Lane. I am Rick Lane. I am with the U.S. Chamber of
Commerce. I am the director of e-commerce and Internet
technology.
Ms. MacDicken. Becky MacDicken with the Tire Association of
North America.
Mr. Morrison. James Morrison with the National Association
for the Self-Employed.
Mr. O'Connor. Good morning, I am Jim O'Connor. I am with
the U.S. Small Business Administration.
Mr. Peyton. David Peyton, technology issues manager with
the National Association of Manufacturers.
Ms. Rivera. Maritza Rivera. I am vice president for
Government relations over at the U.S. Hispanic Chamber of
Commerce.
Mr. Whysong. Dan Whysong, market analyst, St. Francis
College SBDC.
Mr. Wren. Tom Wren, The Wharton School of the University of
Pennsylvania Small Business Development Center.
Mr. Conlon. Paul Conlon, Senate Committee on Small
Business.
Mr. Freedman. I am Marc Freedman. I am also with the staff
of the Committee.
Mr. Dozier. Damon Dozier, Senate Committee on Small
Business, minority staff.
Ms. Bahret. Mary Ellen Bahret with the National Federation
of Independent Business.
Ms. Bradley-Cain. Ruby Bradley-Cain, president and CEO of
RBC International. I am here on behalf of the National
Association of Women Business Owners, NAWBO.
Mr. D'Onofrio. David D'Onofrio, National Small Business
United.
Mr. Farrell. Tom Farrell, senior business development
relations manager for BizLand.com.
Mr. Gaibler. My name is Floyd Gaibler. I am vice president,
governmental affairs for the Agricultural Retailers Association
based here in Washington.
Ms. Hatcher. Jennifer Hatcher, and I am with the Food
Marketing Institute, a trade association representing the
supermarket industry here in Washington.
Ms. Jacques. I am Veronica Jacques with the Direct Selling
Association.
Mr. Chubb. Michael Chubb with SGS On Site on behalf of the
Forum for Trust in Online Trade, director of marketing North
America for SGS.
Mr. Freedman. Michael, let me just ask you to indicate
where you are from because I think you represent a really
interesting angle to this question.
Mr. Chubb. I am actually a Canadian but I represent an
entity that is Swiss based with operations in 140 countries
including right here in the good, old USA.
Mr. Freedman. So right here we have a demonstration of the
internationality of the Internet which is something that I
think is really going to become a major factor of this whole
discussion as this industry takes off.
Thank you very much. We are happy to have all of you here
and I think that we are going to have a very interesting
discussion.
We have some questions worked out to get us going, so with
your permission I will just start off. The format basically
consists of posing questions to the speakers, but if you would
like to respond, please put your name tent on end so we can see
you, and then we will be happy to call on you.
Just to start off, Mr. Villars, a couple of things emerged
out of your statement. One of the things that I was struck by
is that you talk about an explosion of companies offering these
services for small businesses in terms of purchasing options
and exchanges and other formats like that. Is there any
experience with things like exclusivity contracts out there?
And if so, what does that do for small businesses who might get
locked into one type of exchange that may not last long? Or is
there a way small businesses can screen which exchanges they
get involved with and know what their chances are?
Mr. Villars. The question of exclusivity is a challenge in
a lot of ways. In fact exclusivity or resistance to exclusivity
is one of the things that has driven e-marketplaces to begin
with. One of the examples that is brought up a lot is the
automotive exchange which was announced a few months ago. In
reality, each of those large automotive manufacturers had
developed their own e-procurement systems and were quickly
moving to get their suppliers online, or trying to anyway.
A lot of the suppliers, the large and the small basically
resisted that and said, we are not going to spend our time
linking to 100 different systems, or in their case 4, but
ultimately 100 different systems. We need to have a more open
mechanism to bring us in.
For small businesses, they obviously have less ability to
say, ``No'' sometimes when a large customer asks. On the other
hand, no small business is likely to be around very long if
they are solely dependent on one or two companies. So it is
absolutely critical from their standpoint to look for a more
open model.
From what we have seen to date, e-marketplaces are judged
to a great extent on just how open they are. We believe that
the more independent they are perceived, the more effective
they will be in the long term. We do believe that there will
emerge an evolving link between these procurement systems and
marketplaces, and that even someone who is building a large
procurement system is going to want to have the ability to go
out into an open market for selective products and goods as
well as for other parts, or controlling their supply chain.
What is going to be challenging for the small businesses is
even with marketplaces, and I think the example by
EqualFooting's Angie Kim was perfect, batteries are something
that are needed in many different industries. It is not a
vertically specific activity. A small business really doesn't
want to be on one marketplace; they want to be on all
marketplaces. We have seen the rise now of hosting companies,
of software products that are going to make it more possible
for small businesses to be linked to multiple marketplaces
simultaneously.
So we do see the ability to prevent excessive exclusivity
in these deals. We would definitely say that just from an
overall organizational standpoint, the more exclusivity, the
less efficiency you will find.
Mr. Freedman. Good. I am sorry, I did not see in what order
you all put your tents up. We will go to Mr. Alford and then
Mr. Farrell.
Mr. Alford. I concur with Mr. Villars. Exclusivity just
does not have a role in the Internet marketplace, especially
since many of these exchanges have their own specialties or
their own niches; two specialties right there that are very
important. Some of these exchanges will approach our members
and say, ``We want exclusivity; we are going to pigeonhole
you.'' And I think the fact that many of these exchanges, I
know one big one started 2 years ago at a value of $320 a
share, yesterday was at $46. Another exchange was valued in
March at $152, today is at $24. Many of these exchanges are
going to fall out. When the shake-out occurs and as they fall
out, if you are linked with some of these companies, these
exchanges, you are going to be dead, out of business for a few
months until you recoup and recover.
Mr. Freedman. Thank you. One quick note, whoever is
speaking should make a point of grabbing a microphone because
this is being recorded and we will need that for those
purposes.
Mr. Farrell.
Mr. Farrell. Addressing Mr. Villars. I also chair a large
small business association in Pittsburgh, SMC Business Council,
and your comment was that smaller businesses can get into
selling their products via the auction sites. What we are
finding is when some of our smaller manufacturers who have been
selling, buyers from bigger companies are saying, ``Listen, my
job now, even though we have been purchasing from you for 10
years, is to get the best price possible. We are going to an
auction site. We want you to register and be part of that
site.''
To participate in that we are finding that our
manufacturers are lowering their margins so much that if they
do take the job they might be starting at 21 percent, they
might take the job at 5 percent, then if there is a technical
glitch or they have to send salespeople or staff out to the job
site, they cannot afford to do it. They are running at a loss.
What we are experiencing is, people are not jumping in to
selling their product via auction sites because it is coming
back to haunt them. They just cannot compete aggressively, you
know, their margins, just take into consideration their
overhead. I was wondering what your research shows or how you
feel about that, because it is really scaring a lot of our
smaller businesses away from competing in that marketplace.
Mr. Villars. We struggle with this as we have looked at it.
The theory behind the marketplaces, or in general behind the
B2B commerce is, the idea is it is supposed to create a more
perfect market. Better information, the ability to go out and
find the optimal price. We have found that for large
businesses--and this will be an ongoing challenge--that they do
tend to have this mind-set that this is purely about reducing
my cost and basically pushing the cost back in the supply chain
to ultimately smaller businesses.
What we have found is--at some level there is not going to
be an easy answer. In reality, a lot of small businesses are
going to have to deal with this world where geographic
distribution and information are not going to protect them as
much in some of the bidding.
On the other hand, we do think the marketplaces can
compensate for that by bringing you not just to the large
businesses but to other small businesses, and that you can have
some ability now to go out and more actively participate in
situations where you can do joint bidding, or in a situation
where you can take advantage of variations in the market. If
there is a shortfall and someone has a rush need to do things,
if you can target and build yourself so that you can be the
best responder for that; you can affect margins.
It is not a perfect world in that sense. Small businesses,
like large, are going to face pressures from this change. We
just want to make sure that they get the benefits as well as
learning the negative implications for the auction sites.
Mr. Freedman. That is a very interesting question. When we
were setting up this forum we were thinking: we want to get
into the problems that will face small businesses by doing
this. Not everything is going to be all rosy. So we want to
highlight that and look at those closely.
Michael Chubb, you are next and then Damon Dozier is going
to present a question after that.
Mr. Chubb. Thank you. I just wanted to address the issue of
exclusivity. Let us remember that we are not just playing with
American players here. We have suppliers of goods, whether it
is from Missouri or from Mexico or from the backside of China,
that will be providing goods.
The question of leveling the playing field, the question of
exclusivity, either to a net marketplace or to a procurement
hub, is one which I think the advice is correct. Your advice is
correct, sir. No exclusivity. And that goes if you are either a
supplier of goods or a supplier of services, as SGS On Site is.
This base has very little opportunity for these cozy little
relationships, so little transparency is there. That is part of
making greater efficiencies. But something that SGS is doing is
developing a set of ratings whereby each participant in a
potential transaction can be rated, whether they are Bob and
Fred in their backyard in Missouri making the best product
possible, or a very large entity somewhere else in the world.
This will allow you to understand the value and capability of
somebody in Missouri to go through with the selling of a good
through a dot com, whether it is a procurement hub or whether
it is a marketplace.
So we are working with marketplaces and procurement hubs to
help level this playing field. If you want to show yourself to
be the best, you can do that. We can help you identify yourself
as being different from the others. But let us recall that it
is not just Americans that are playing this game. We have got
people all over the world that are asking, ``Please rate us,''
whether it is in southern India or southern Indiana. You have
challenges here.
Mr. Freedman. Thank you.
Mr. Dozier. We have two individuals here who have
established strong presence on the Internet. I was interested,
Marc stole my thunder a little bit, how does one actually get
involved? How do you get started? Is there any sort of tutoring
that you all went through? We know that the Small Business
Administration has a lot of programs. And in reading your
testimony, Ms. Kim, I found out that you were actually working
with the Service Corps of Retired Executives, a group that we
are very fond of here.
How difficult was it actually to set up shop? And what sort
of barriers were set up out there that you can let everyone
know here, so that they do not sort of fall into those traps
again?
Ms. Kim. I will get started on that. One of the big things
that we did when we got started was we had the advantage of
having gone through training, if you will, by virtue of having
been management consultants at McKinsey. We had helped our
large companies, the large clients, go through the challenges
of setting up the dot com versions of themselves and so had
gotten the training by actually having gone through with
clients hand-in-hand, the challenges of building an e-commerce
business.
So we went through some of those advantages ourselves, but
we certainly recognize that not all small businesses, certainly
ones that are starting up, are going to have those advantages.
I would like to address a couple of issues, No. 1,
training. One of the things that EqualFooting is doing with the
SBA actually is we are setting up online classrooms and also,
with SCORE, we are setting up paper pamphlet versions of those
online classrooms that help to train small businesses on how
they can actually use the powers of the Internet to finance
their businesses, get it started, grow their business, as well
as how they can purchase, how they can sell, all of these types
of things.
We are launching those, I think, in the next month or so.
We are very excited certainly about working with such great
organizations--that obviously care about small businesses--to
help provide some of that training. I think that if you go to
certainly the SBA site or SCORE or anything like that, and
certainly the associations that are represented here today, I
think everybody has those types of resources, and we should all
work together to make sure that we make more of those resources
available to small businesses.
On the funding side, as a dot com we did not go through the
traditional bank debt route. We went through venture capital
sources. I have actually been talking a lot recently with many
different people about the opportunities in venture capital for
small businesses who maybe are not the MBAs from Harvard and
come from consulting backgrounds and things like that--
especially women, especially in B2B, and especially minorities
as well. We have been talking, a group of venture capitalists
and some entrepreneurs, we have been talking about how do we
make sure that minority and traditionally small business types
of entrepreneurs can get to this equity venture capital
funding. I think this is going to be one of the big issues that
drive how small businesses can competitively compete,
effectively compete in this new economy.
How do they actually get to not only the bank loans, which
certainly EqualFooting is working to try to make more
efficient, but also, how do you get to the venture capital
sources that are going to provide you with the millions of
dollars that you need to build a brand rather than just doing
little sales here and there on the Internet. So I think that is
another big issue that we should probably continue to discuss.
Mr. Krishnan. I guess in my case the motivation was
slightly different, I should say. When I first started my
professional career in this country, I started working for a
consulting organization and I was surprised--actually the right
word is shocked--to find the way the consulting profession
works, particularly in the area of regulatory compliance.
I found that they tend to be pretty motivated by their
billing systems, which are obviously time and materials based.
Not great incentives there for trying to get a job fast.
Suddenly, I found that they are masters, shall we say, of the
fine art of cut and paste. That bothered me.
All along, maybe partly because I was a little bit naive, I
just came from a good technology school, I felt there was an
obvious fit for applying technology judiciously to handle some
of these routine repetitive needs that regulatory compliance is
all about, and about information management.
So in our case, what we ended up doing is we ended up,
rather than sitting back in our ivory tower of technology and
assuming that one-size-fits-all, technology can address all
these problems, we started working with, for example, Mr.
Rosendale in Seattle. We took simple small vertical sectors and
tried to put together all of their compliance needs and tried
to address it by a simple solution which is Internet-based. So
we really got started in simple verticals, addressing small
business needs, and then moving on to larger businesses.
I guess as far as the lessons that can be learned from what
we are bringing to the table, I suddenly think that it is
possible to take on the system and the establishment. I
discovered that, particularly in the Washington, D.C. area,
rather appropriately called Beltway bandits associated with a
certain profession. But suddenly, in spite of the might and the
strength of certain established traditions, the beauty and the
opportunity of the Internet allows us to think in new
paradigms. Basically, I would encourage any small business
looking to get in the frontier that we can certainly change the
world and the Internet is indeed a great equalizer to do so.
Mr. Freedman. I think with the Internet, we will now see
the breakdown of that Beltway geographic distinction and we
will have more opportunity for bandits all over the country.
I saw Mr. O'Connor's name tent up and then Mr. Koncurat.
Mr. O'Connor. Thank you. I just want to say that at the
SBA, we look at the Internet as the most powerful change agent
that is affecting all of us right now. We look at knowledge as
the most important asset that small businesses are going to
compete with in the new millennium.
Having said that, one of the things that we are trying to
do is to develop more online courses that can help small
businesses that are available anytime and anywhere.
I want to also mention that we are very pleased that
EqualFooting is a co-sponsor of a course that the SBA will have
online within 30 days. That course is specifically about e-
commerce or how to do business online, called Online
Purchasing, I believe.
We are dealing with a number of co-sponsors now to help us
develop course materials that will help small business in the
new marketplace. We think that this is extremely important
because the Government really does not have the knowledge to
develop some of the content that businesses need in today's
fast moving environment.
We are looking at working with a number of private
companies. We are working with Cisco Systems. We are working
with IBM. We are working with Apple and a number of other large
entities that are helping us develop courses that will help
small businesses. We think that this will be beneficial and
would like to do more of that.
But I would also like, today, to hear more from other folks
about what the SBA could do in today's environment to better
serve small business clients today? That is something that is
very important to us.
Mr. Koncurat. I am happy to hear what the SBA is doing. My
company, Host Designs, meets with several small businesses that
want to get out and get their web presence started. A lot of
them do not have the technical skill or the knowledge to
actually get out there and get the job done. They may have the
financing. They may have all of those things taken care of.
They get to the stage of, ``OK, now how do I get my business on
the web?'' And then the bigger picture of, ``Now how are people
going to know that I actually exist?'' And, ``Where am I going
to get the marketing revenue to actually spend those dollars
and get people to know about me?''
A lot of challenges that we find from small businesses that
come to us are based on that, and especially based on not being
able to actually have things done in-house. A small business
cannot afford to manage their own web server, manage their own
equipment. A lot of times they outsource that. There are
several competing hosting companies that I deal with that make
that challenging for a small business owner to say, ``This is
exactly what I need to get started.''
So I think more information needs to be presented to small
business owners of how they can actually startup their
business. That is something that we try to do to help small
businesses get out onto the web and be able to start their
business.
Mr. Freedman. Good.
Mr. Villars. Just one quick comment I think that can be
looked at, in some ways, is small businesses helping small
businesses. One group that we think will be critical here are
the accounting and existing support businesses that provide a
lot of the underlying financial services and accounting to
existing small businesses. They are in a position, in many
cases, of recommending the software, building the
infrastructure, or actively being involved in the
infrastructure. That really is the part that needs to be tied
to these marketplaces to participate in e-commerce.
I think an active effort to educate them so that they can
be more effective change agents to their customers would be an
important strategy to really make this move a little faster.
Mr. Farrell. At BizLand.com we have over 500,000 small
businesses on our site, we are signing up 2,500 small
businesses a day. We offer everything that a small business
needs to get their business up and running on the Internet,
free hosting, free web site, free e-mail, free storefronts.
Everything that a small business needs to get started on the
Internet, that is exactly what we do at BizLand.com, offer all
those services to the starting entrepreneur to work his way
onto the Internet and do his business over the Internet.
Mr. Freedman. So basically the short answer to how does a
small business get involved in the Internet is to come to you?
Mr. Farrell. Yes.
Mr. Wren. My question, Mr. Krishnan, I could not agree more
with you when you were talking about compliance management and
some of the issues that you face. And I can sympathize with
some of the problems that go along with that.
At the SBDCs, specifically in Pennsylvania, we have been
working with compliance assistance and compliance management.
Right now we have been working with the silkscreen industry,
the dry cleaner industry, very small businesses where we are
talking usually less than five employees. Some of the issues
that arise with them, are similar to the gas stations with the
underground storage tanks issues, that were major problems.
I guess a combination of questions for you, Mr. Krishnan
and also for Mr. Villars. A lot of the small businesses that we
are dealing with, because of their size, one or two employees,
less than five employees, when it came time to get out to them
they already had so many issues, as you had shown, that they
had to comply with--only to throw on the environmental impact
issues of, for example, the dry cleaner emissions evaporations.
They really are struggling with time and you have got the
issue of do I take the time out of my day to start worrying
about getting on the Internet as a survival method? Or do I
spend the 12 to 14 hours a day worrying about all these other
issues? And oh, by the way, I have got a business to run.
What is your advice? What is your recommendation? Or what
have you done to get with the small gas station owners, dry
cleaners, silkscreen printers, to figure out an effective,
efficient method of juggling 32 hats at one time?
Mr. Krishnan. That is a very important question, you are
right. Whether it is a laundromat dealing with the recently
publicized issues of perchloroethylene emissions. Or whether
there is a gas station dealing with leaking underground storage
tanks.
I think there is a lot of periodic media scrutiny and
regulatory scrutiny which comes and goes in waves for various
small business owners. I guess with us fundamentally, our
premise is that yes, there can be a lot of information offered
across the Internet, but certainly the Internet as an
information dissemination vehicle has changed and transitioned
from being a neat information tool to too much information.
So really the key is, whether it is a gas station owner or
whether it is a laundromat, we have to make sure the regulatory
guidance we provide them has three fundamental characteristics.
No. 1, it is timely. And does it match the latest changes in
the Federal Register? Or in the case of the Commonwealth of
Pennsylvania, the Pennsylvania Department of Environmental
Protection.
No. 2, are the regulatory issues and the solution we
provide customized for this particular segment? The same
regulatory text can be interpreted 18 different ways. That is
why consultants are extremely happy with new regulations.
No. 3, it has to be localized. In the case of a laundromat
in Harrisburg, Pennsylvania, we have to worry about potentially
the city of Harrisburg code, the PA DEP code, and then the
Federal code. What we essentially try to do is again use our
screening technology, in this case called the e-comply
technology, which is based on a lot of expertise in the patent
recognition and the AI, artificial intelligence, area to
essentially screen and customize the specific needs of a
particular client who comes onsite and provides that
information to them.
I think fundamentally, in terms of such small businesses,
one to five employees, the good news is certainly they are also
getting onto the Internet. And in terms of their ability to pay
and be involved in such regulatory solutions, I think the key
is for agencies such as some of the Governmental agencies, for
groups like the SBA, for potentially the Pennsylvania Chamber
of Commerce, other institutions like that, to encourage them to
come on board and potentially offer this information for free
for them.
We certainly are interested in working with such groups to
get the small businesses more used to using this new ``gizmo''
as a very comfortable channel for solving their regulatory
burdens.
Mr. Freedman. Thank you, Mr. Krishnan.
Mr. Dozier. I have a question. I want to concentrate a
little bit more on how your businesses on the Internet have
continued to stay viable. We know that a lot of them end up
failing for one reason or another. Mr. Alford was talking about
that.
In particular, how much of your business depends on
traditional marketing, traditional advertising? I hear a lot of
frustrations, people calling our office saying well, I set up a
web site and now people are just supposed to find it. They
register with various search engines and what have you.
I liken it to a Chinese proverb, if you have a web site and
no one sees it, does it really exist?
[Laughter.]
Mr. Freedman. Is that Chinese?
Mr. Dozier. No, that is actually Damon.
So I am interested in how much activity your businesses
have in the traditional ways of marketing and advertising?
Mr. Freedman. Actually, if I could just jump in on that, I
have also been wondering what you all see in terms of the
relationship between a company going to the Internet approach
and also maintaining its brick-and-mortar approach. I do not
believe that the Internet is ever going to replace the brick-
and-mortar approach, but I am curious what you see as the
interplay and how someone should balance those two approaches?
Mr. Krishnan. Let me go ahead. First, in our case, the
value proposition we bring to the table, to the clients, which
are fundamentally the reasons, whether it is a small business
or a larger business they come to us, is very simple. We say
anything a consultant can do for you, we can do it faster, we
can do it better, we can do it for a dime on the dollar. So it
is not that difficult for us, with that kind of strong value
proposition, to go in and get clients to try our service out.
Here really the challenge is yes, we are an interim
business. But fundamentally, our sales and marketing program
has to be based on a relationship building process. All said
and done, for plant managers in a large paper and pulp mill
down to a laundromat owner, the Internet is still a new tool.
It is still more of a toy, more for e-mail, more for chat
rooms. It is not necessarily something they would look to for
taking care of a serious aspect of business such as regulatory
compliance.
So what we tend to do is hold their hands, show them that
this is a simple point and click. You can look at the
regulatory needs. You can do multimedia training, streaming
across. Here comes the video that says, ``Joe, put out the
cigar before you fill gas or else.''
It is very simple the way our message is put across. And
fundamentally to us, that is part of the relationship building
process.
In terms of our relationship with brick-and-mortar
companies, certainly what we are about is we work with brick-
and-mortar companies and basically show them how to eliminate
one of the middlemen and the whole process of disseminating
information, namely the consulting profession.
Ms. Kim. From EqualFooting.com's perspective, one of the
big things that we first did when we started our business was
obviously sign up partnerships with our brick-and-mortar
suppliers, both large companies as well as small suppliers that
are more regional or niche, like the Batteries, Inc. one that
you saw in the example.
When we actually got the site up and we had this data base,
I think we opened with a quarter of a million sku's of items.
Mr. Freedman. I am sorry, sku's?
Ms. Kim. S-k-u, of items, of product.
Mr. Freedman. That is the digital label of an item?
Ms. Kim. Exactly.
So what we did when our web site was actually up was we
certainly did not say, ``OK, now that we have built it we
expect people to come.'' We had to do a lot of things actively.
And we did some traditional and we did some new things. I will
go into a little bit of each.
The traditional things, things like direct marketing.
Things like telesales. Things like actually doing a little bit
of advertising, not anything like Super Bowl ads or anything
like that, but going after the trade journals that really
matter to our small businesses, especially our small businesses
in construction and manufacturing, which is our core focus.
We certainly started doing those and we have seen a lot of
good things come our way, as far as people registering to
become members of EqualFooting. In fact, within the first 30
days of our actually starting that type of marketing effort
more than 10,000 small business members joined us, which was a
great thing for us.
But one of the big things that we realized very quickly,
and I think we have probably known this all along, is that as a
new dot com, and I think all small businesses who are moving to
the Internet will have this challenge, and there are a lot of
companies out there, you have to do things that are
distinctive.
You also have to make the small businesses, that might hear
about you through direct mail methods or whatever, trust that
you are not just another dot com that is going to go out of
business tomorrow. Why would they give you credit card
information over the Internet, or even through the phone, if
they think that you might just go out of business?
So one of the things that we have been doing is working
with very reliable brick-and-mortar companies that have very
strong brands in small business services. Companies like
American Express. Companies like ADP, BancOne and First USA.
These types of companies that have been known to small
businesses and already have half a million to a million small
business customers each, to actually do co-promotions with each
other.
We actively promote their products and services to our
customer base and vice versa. To have somebody like American
Express be telling our story and our value proposition to our
small business customers has been a tremendous, tremendous
brand building and credibility building exercise for us.
We are also working with associations like the ones that I
mentioned before to build a brand, and also with other
associations and small business advocacy groups like NFIB to
actually reach their membership base. One of the big things
that we have been trying to do is really buildup credibility
among this group of corporations and organizations that really
care about small businesses, and convince them ``Hey, we are in
it for the long run and we are going to be here to do nothing
but think about and serve the interests of our constituents.''
Mr. Freedman. Great. I have Mr. Villars and Mr. Lane and
then Mr. Farrell and Mr. Chubb.
Mr. Villars. We are in the position of probably--and I
actually have been actively involved in the e-commerce base
directly managing the group for only 5 months, and I can
already State that I have met maybe 200 startup companies
focusing on B2B. So we have some visions here, and we have
developed a little bit of a checklist of how we tend to judge
these and what their issues are.
The No. 1 priority in how we judge these companies and
their long-term success is: Are they good at community
building? This is a rule of the Internet in general when you
look at dot coms, regardless of whether it is consumer or
business, are they building a community of people who want to
live in their space? Who when they go into work today, this is
where they go and they do things there? Whether it is to buy
things or to collect information or do other activities.
So you do not have to be Yahoo on day one, but you have to
be aggressive in the development of your product, in terms of
how you communicate yourself on the Internet and in the direct
marketing things. Are you successfully building a community
where people want to actively participate in that community?
So that is how we tend to judge what is going on. We will
look at sites, and I think both of the other panelists have
spoken actively about how they do that. But that is the No. 1
rule for looking at long-term success, are companies--do they
offer the services of a community? And then do they start
adding additional services to that?
So you start with commerce. You add financing. You add more
information on training. You add other things that are of
interest to that community. And I think one thing you will find
is the marketplaces will emerge as each other's best friends. A
marketplace that focuses on providing education services will
link with a marketplace focusing on equipment, linking to a
marketplace that is focusing on supporting gas station owners
as their particular vertical.
You begin to offer a single, bundled service of functions
for that community. That will really determine who is going to
be successful in this space.
Mr. Lane. The Chamber comes at this problem from a unique
position. No. 1, 80 percent or 90 percent of our members are
small businesses. And No. 2, we are a minority owner of an
entity called ChamberBiz, which is a small business portal that
has over 200 of its local and State chambers that are members
of it, where we work with their members to get them online and
doing some of the things that you guys are doing, but also
providing some information on legislation and other things.
One of the issues that you were talking about was
advertising and marketing on the Internet and how do you get
that message out? One of our big concerns, and it was brought
up by Senator Burns, is the issue of privacy and some of the
legislation that is moving that could possibly hinder the
ability of small businesses to target their audience because of
limitations placed on how information can be used.
So we are working diligently on a self-regulatory method
and through the Online Privacy Alliance and other business
associations, the Direct Marketing Association and other
advertisers, to ensure that privacy is protected but not, at
the same time, hindering the ability of small businesses to get
their message out to a very targeted audience in this very,
very competitive world.
But on the flip side of that, those people who are nervous
about privacy, the market again is working where there are over
700 products that have been introduced in the past 2 years to
protect an individual's privacy. There are also business models
out there that protect individual's privacy such as Incognito.
It is an online advertising firm. So there are a variety of
things going on right now in that area.
The other thing that is very critically important to B2B is
obviously the e-sign bill that was brought up by Senator Burns
in his leadership role on a lot of these issues. We are
confident that this legislation will again open the market to
new dynamics for contracts to be done online, for records to be
done online, in a way that results in even more efficiencies
for this economy and continues to grow.
Also a critical issue for small businesses is the issue of
trade and is the reason we are working on PNTR (Permanent
Normal Trade Relations with China), to open these markets to
small businesses. It is worldwide and small businesses can
access that market in a way again that is open and free.
So all the issues are related in terms of trying to find a
common ground for small businesses to enter in this new dynamic
marketplace, and at the same time building that consumer trust
so we do get more customers involved in this new economy.
Mr. Freedman. Thank you. I have got Mr. Farrell and then
Mr. Chubb.
Mr. Farrell. What we found at BizLand, as we were trying to
move the brick-and-mortar small businesses and entrepreneurs
into this space, is they have a certain fear of having their
competition one click away from them. To get them over that
hurdle, to get them into the Internet space, is really a very
big challenge.
A gentleman that has a flower shop on the corner, who has
no competition within 4 or 5 miles, all of a sudden someone
does a search and he comes up, but there are 100 competitors
there. We found that is really keeping small businesses from
jumping into this space at a much quicker rate.
Mr. Freedman. How do you counter that? I guess one thought
would be your competitor is there and if you are not there you
will not get anything out of it. But on the other hand, I can
appreciate the fear.
Mr. Farrell. Tell that to the person who has had the floral
shop for 30 years on the corner of First and Main, that they
need to be in that space. It is a very hard sell for them to
make that jump.
Mr. Freedman. A psychological type of area.
Mr. Chubb. I just wanted to address the issue of trust. Ms.
Kim, you brought up the concept of trust and you brought up the
concept of security. Yes, there are issues in relation to
digital security, encryption, e-sign, and so forth. Senator
Burns is pushing hard and we appreciate his efforts because
that is going to lead to efficiencies.
One of my other hats that I am wearing, that you do not see
on this copious hairless skull, is the Forum for Trust in
Online Trade. It is an organization that exists to address its
title, trust in online trade, in all its myriad of issues,
whether it is security or identity or how do you, as Mr.
Villars pointed out, pay for actual goods between businesses?
We are not talking a CD for $20. We are talking $50,000 to
$100,000 to $2 million. There are large quantities. There are
large issues there.
I think Ms. Kim also brought up a valid point, that you
can, as a small business, assess a dot com by the nature of its
partnerships that it has present on its site. We have one of
the Forum founders members in the audience here today, Rebound.
They are a dot com that is international, and has domestic
activity as well.
If you go to their site, you will note that they have
partnerships with SGS, but also with a major freight forwarding
entity. They are discussing major relationships with the
largest insurance company in America, I think, as well as other
key service providers. So the issue for the people here
representing associations, when you talk to your small to
medium enterprises, and they are being approached, part of
their due diligence is to assess their checklist of suppliers,
in terms of other key service providers.
If it is blank, worry. If they have got major alliances
with major names and you can search them, then you are starting
to lead the way toward a more trusted environment.
Mr. Freedman. Thank you. Before we go to Mr. Peyton, Paul
Conlon has a history with some of these issues.
Mr. Conlon. We did a forum, which many of you guys were at,
a couple of months ago on computer security. Since that time,
we have had a number of meetings with some folks over at the
FBI. They have put together a new center called the Internet
Fraud Center, which they just launched I think in early May. I
would encourage everyone to pay attention to the efforts that
the Bureau is doing in that. I think it is a worthwhile effort.
Mr. Peyton. Thank you. We have been aware for a long time
of the challenges faced by smaller- and medium-sized
manufacturers in applying any kind of technology. We have done
a series of three studies over the last decade called
``Technology and the Factory Floor,'' which showed repeatedly
that smaller plants trail larger plants in applications in any
of 15 different categories, mostly related but not entirely
related to information technology.
We also did a survey in the past year with the McGladrin
auditing and consulting firm because we were seeing numbers
regarding how many businesses are putting up web sites, which
is encouraging. But what we found was that when you look hard,
there are somewhere between 100 and 200 really good web sites
put out by small- and medium-sized businesses. We singled out
Smucker's Jams and Jellies, Samuel Adams Beer, and
interestingly Rayovac Batteries. They compare their own with
all the other manufacturers and they have the best comparison
chart for all the models and numbers that I have ever seen, at
their own site.
With all these thoughts in mind, we put up our own e-
business portal this year, ManufacturingCentral.com. I have not
been to BizLand but it looks like we have some overlap of
functions with what you offer there at BizLand.
We agree with what Mr. Villars has been saying, that it is
really not just a vertical chain that would be most useful to
smaller businesses, but a much fuller suite of capabilities. So
we offer everything from web site hosting to bid offering. We
feel that there have to be many more horizontal offerings to be
truly useful to small businesses to get up and going. So we
certainly agree with that perspective.
On the policy agenda, we have been working with the Chamber
on the e-signature bill. That is probably the single most
useful thing Congress could do quickly, is to get that to the
President so that businesses can do deals, which are above a
credit card level, entirely without paper.
Mr. Freedman. Thank you. Mr. Alford.
Mr. Alford. In regards to the florist, it is the same
concept as the Yellow Pages. I think if you are in business,
you better be able to compete. In business, Darwin does apply.
In regards to the security issue, fear of using your credit
card on the Internet, I think with practice we will overcome
that issue. We all go to a restaurant and will give our credit
card to an 18-year-old waiter from who knows what background,
who will go into the back room with it for 10 minutes. We have
comfort with that.
Finally, in case it does not come up again, in the private
sector, we really are wondering if it is right to label a
business a minority business, a woman business in the private
sector. There is not a Fortune 500 company that does more than
2 percent with African-American businesses. Not one.
I have faxed too many CEOs about a buyer out in Kokomo,
Indiana, who prefers to spend $40,000 more of his company's
money because he likes the guy who is selling him some goods
versus one of our members. So I think perhaps we may level the
field a little if the person does not know the ethnicity or the
gender of the business owner but focuses on quality and price.
If we are to be competitive, I believe we will increase the
amount of business we do in the private sector.
Mr. Freedman. Thank you.
Ms. Hatcher. Jennifer Hatcher with the Food Marketing
Institute.
I think we have really hit on some of the most important
topics, in terms of getting folks motivated to get online, and
in talking about the value proposition and community, certainly
our small business members see purchasing as a big issue. They
definitely see compliance as a big issue.
The other issue that we are really facing right now is
labor in our industry. We have just launched an Internet
venture, in terms of SuperJobMarket.com linking employees and
employers and really giving small businesses the opportunity to
go after those critical employees in the industry. I think, in
terms of talking about community and the value proposition, to
get folks motivated to get online, they are going to stay
online once they realize the power of a PC. In a lot of
instances, a small business is in better shape than a large
business who has got an older computer system, where a small
business can take one PC.
We have a single store operator in the New York City area
who sells specifically Latin products and has found that he can
now go across the country to sell to a lot of communities that
do not have products designated for Latino families, just with
the power of his single personal computer.
Mr. Freedman. That is very encouraging. I was interested in
some of the comments from some of the industry-specific groups
about what their members may be doing in this area. We have
been hearing a lot about people who are involved in the
Internet specifically, but I am also interested in the tire
group and how your members are getting into the Internet.
Ms. Kim. A quick note on the issue of security. Certainly,
I think digital security is very important. I think we, as well
as other marketplaces, are complying with all of the
regulations that we need and getting all of the certifications.
But I think one thing that has been really important when
we have talked to our small business customers, we actually
have an advisory board of about 80 small business owners that
we sort of run everything by. This was something that we
started last summer.
One of the big things that they told us about security is
it is less the online security that they care about and more
the fact that they might be able to pick up the phone, if they
do have a problem, and be able to reach a live person. A lot of
net market makers and exchanges have not provided that kind of
basic customer service function.
One of the big things that we push to do is somewhat become
a brick-and-mortar company ourselves by building out our own
call center that serves 24-7 with a toll-free number. Even
people who do not have PCs can actually call, not only with
customer service questions but also actually access all of the
same functions that online customers can.
I think this has actually provided our customers with a lot
of confidence that hey, this is not just a phantom web site
that nobody looks at or anything like that. I think this is
something that we entrepreneurs and all net market makers
should really strive to provide, is that kind of real phone,
live service.
Mr. Freedman. In the end, you just want to hear a voice.
Ms. Kim. Exactly. For some reason, they do not mind
actually giving out their credit card number, as long as it is
to a person. I am not sure why, but they do not.
Mr. Freedman. Mr. Lane and then Mr. O'Connor, Mr. Gaibler
and Mr. Wren.
Mr. Lane. I think one of the ways to get more small
businesses online are these types of events. I want to commend
Senator Bond, Senator Kerry and Senator Burns for putting on
this forum, because it allows for education. I am sure this is
going to be on the web and businesses can access that.
One of the things that we are trying to do at the U.S.
Chamber, and what we have initiated, is a massive educational
process on the issue of network security, on the issue of how
to get online. We are partnering with State and local chambers
to put on events in those areas. We have one coming up in the
State of Oklahoma. We are going into Missouri and a few other
states, trying to get into markets.
We are not going into Silicon Valley and telling John
Chambers how to do e-commerce. But we are going to the places
that have not been effected that much by the e-commerce bug.
That is probably a bad term to use.
Education is key. I think the more you buildup that comfort
level--just as we talk about customer trust, I think we also
have to get business trust up there.
So I just wanted to commend you and your bosses for putting
this forum on, because it is critical to get this type of
information out.
Mr. Freedman. Thank you. We should all recognize that this
is being broadcast live over the Internet right now through the
Small Business Committee web site, and it will be archived on
the web site. So if you all want to go back and see how the
forum looked, you can click on it and bring it up on your
RealPlayer software and take a look at it. The archives are
maintained for one year.
The Internet moves fast, but it is not too late to get into
it. That is a great message.
Mr. O'Connor. I think everybody in this room agrees that
small businesses need to understand and engage in e-commerce
right now. But it is still about the customer. No matter how
high tech a company gets today, basic business tenets still
apply.
We are getting a lot of requests now from small businesses,
and one of the things that we are looking at is, even though
everybody wants a web site, there is more to it. The basic
business tenets still need to be understood by the small
business community, and we are still trying to help them in
that area.
Mr. Freedman. Thank you. Mr. Gaibler.
Mr. Gaibler. Thank you very much. Our members are primarily
retail farm suppliers and the products that they handle are
primarily agricultural chemicals and fertilizers. So not only
do we have to comply with the regulations of running a
business, we have to comply with the EPA, the DOT, the material
safety data sheets, all of those requirements. It has been a
real struggle for us to try and get our hands around all of
that aspect.
What we see happening, at least in terms of agribusiness,
is we see a lot of business-to-consumer web sites popping up
where there are more auction sites or brokering of these
products. We have been concerned about the stewardship of that.
Once those products are purchased and change hands, are they
actually being legally able to use where they have been bought?
And are those products still in their same containers, do they
meet EPA requirements, et cetera?
One of the ways that we are trying to deal with this as an
industry is a group of manufacturers, distributors, and our
retailer members, trying to put--an organization has been put
together where we are trying to build data bases, we are trying
to get to the point where we can bar code these products, where
we can have electronic data interchange, electronic funds
transfer, those sorts of things.
Just an example: The agricultural chemicals that exist in
excess inventory is over $1 billion every year. So you can see
that the savings and the product efficiency that we could get
out of that is tremendous. So we are struggling with that as
both a threat because some of our members see this brokering
going on as a threat and as an opportunity. I think the
entrepreneurial part of it is saying, we will take advantage of
that and get on that brokering exchange and buy and sell
chemicals and other products as well. But this is a big
challenge for agribusiness.
Mr. Freedman. I am not surprised.
Mr. Wren. I wanted to go back to Mr. Lane's comment about
how to get more small businesses involved with the use of the
Internet. That posed quite a challenge for us at the SBDCs,
Small Business Development Centers, dealing with a lot of very
small businesses with under 10 employees. Being from Missouri,
one of the philosophies I have always had is ``show me.''
So with that in mind, since in Pennsylvania, I will use the
example that where we are located there are 16 colleges and
universities throughout the State. We decided that one of the
best ways to do this is instead of having them come to us or
start talking about it, let us take this on a road show. So by
doing a series of seminars--and actually beyond the seminar
stage, taking laptops, going into a business where we are
sitting down talking to them about it. I ask, ``Do you have an
open phone line?'' Let us plug it in. Here, play with this
thing. As Senator Burns said, the only way you are really going
to mess a computer up is if you enter a soda through the
keyboard. It is not going to hurt you. So let them play with
it.
My colleague Dan Whysong from St. Francis College was
meeting with a very interesting company last night. It is a
very small business. The owners are in their seventies. They
have an agricultural type business. They were of the mind-set,
this thing is too scary for me. I think Dan did a very good job
last night. He has made progress. They said, ``OK, we can get
you to post a web site, but we do not want e-mail.'' So we have
got them to the point they have bought the automobile. Now we
have just got to convince them to put an engine in it.
I think you have to actually get down to the grass roots of
small businesses. One of the major outreach efforts that can be
used for that is colleges and universities with all of the
resources and assets that they have to give back to the
communities, in partnering with organizations like that it will
help to expand those small businesses, such as the one with the
70-year-old business owner.
We tend to have a gap that we look at--I come home from
work in the evening and my 17-year-old daughter will show me
another new thing she learned how to use on the computer, which
is probably 10 steps above where I am. And if you go to the 14-
year-olds, they are showing the 18-year-olds how to do things.
Then we have got this group of middle-sized businesses--
small- and medium-sized businesses that are good at using the
Internet but there is that gap from about age 20 to 25, 30-
years-old who are business owners that have so many other
issues and they really did not get the training, whether it be
in a formal setting such as a college or a university, or went
out and struck out on their own. They are trying to start their
businesses, and I think that is a lot of the target market
where we need to grow this technology; growing those businesses
has got to be a focus.
I think through using organizations that are represented at
this table, the Small Business Development Centers, the
colleges and universities, can be a great resource for that. I
think this is pretty common what a lot of us are seeing with
small businesses.
Mr. Freedman. Can I just interrupt you? We are running out
of time and we have got one question that we need to present to
the group that we really want to hear a response on. I am going
to direct it to Becky MacDicken and David D'Onofrio right now
since their name tents are up, and I think it applies to them
very closely.
In terms of what the Small Business Committee can do for
this issue, what kind of legislation do you think we might be
able to generate? We have heard about the e-sign bill already,
but we want to talk about incentives in terms of what do you
think would help small businesses? What would pull them in?
What kinds of things can Congress do to pull them into this
market? Is there some question of tax relief or something? I am
just throwing that out because I know that it is always one of
the top subjects that people go after.
David, do you want to start and then Becky?
Mr. D'Onofrio. I think the first thing you guys can do is
do no harm. We try tax incentives, we try tax credits, we do
all of these things and they are nice----
Mr. Freedman. Is there a bill that says, do no harm?
Mr. D'Onofrio. I think your boss should introduce one. Tax
credits are good. They help in a lot of different areas. I am
not sure this is necessarily one of them that will help.
The quick point that I was going to make is at these
forums, these kinds of opportunities to educate people that is
really what we need. We do a survey every year with Arthur
Andersen's enterprise group. The results are going to be
released at the end of June. It is shocking to see how many
folks do not think they need to get into e-commerce. How many
people who just, it is not for their business. You see the
challenges that are out there and we ask them, what are they?
And it is all spread out pretty equally. It is the time. It is
the cost. It is the fear. It is the technology moving faster
than they can keep up with.
I am not sure that is something that necessarily Congress
can do too much about. I think it is what the folks on the
panel and the folks around this table who really have to do the
most to help small businesses.
Ms. MacDicken. I would agree obviously with what David just
said. Just to give you a quick anecdote as to what our
membership's mentality is: We got a call last week from a
member who went online and was searching around for a small
tire dealer or for tire dealerships in his area of New Jersey
and found one of his main competitors was online. He was livid
when he found out he did not have to pay taxes nor were there
sales taxes on any sales that that gentleman made.
He said, that is not fair to me. Anybody I deal with in my
shop has to pay sales taxes. So he said, we want to make sure
you press legislation advocating taxes. We said, no, no, no, we
cannot do that, obviously. But we also pointed out to him that
the shipping and handling costs alone would probably more than
make up for those taxes.
We would say at this point we approve of the moratorium
that has been passed keeping Internet sales taxes status quo.
But as far as other incentives, I do not know. They are scared
and they are not sure what to do, and they do not trust people,
and I do not know how you are going to get over trusting--I
mean, the Government coming in and saying, we are here to help,
will not help. So I am not quite sure what else to say other
than e-signatures and what we have heard this morning.
Mr. Freedman. I want to give our panelists probably, I
guess it is going to come down to our last word here on this.
So we will start with Mr. Krishnan and then move across.
Mr. Krishnan. Thanks. I think a very obvious area where we
see that Congress can help in passing legislation is to mandate
that small business owners, as well as larger businesses, can
comply and take care of their paperwork filing online. To me,
this is such a no-brainer. It is a win-win situation.
By doing so, because all of us are familiar with the
Paperwork Reduction Act, we see the small print at the end of
every form, but the people we have talked to on the
governmental side, the State governmental side we are in dialog
with a couple of State governments they just, based on their
analysis, were astounded to find that by doing so their costs
of disseminating information about new changes, about the
outreaches, instead of just relying on traditional toll-free
hotlines, and seminars and so on and so forth alone, and their
cost of processing the paperwork is reduced dramatically.
So not only do small businesses save a lot of money with
electronic filing, but, the Government on the side of
processing the form and the data and related enforcement
actually end up spending a lot of time and a lot of money that
could be reduced with electronic filing. So hope again this
logic and common sense--acknowledging the Internet's existence
and its viability for being the delivery platform will help the
Congress take that step.
Mr. Freedman. Do you see the forms being changed to be
filed online or is it the same form which happens to be online?
Mr. Krishnan. Right now fundamentally you have a couple of
Federal agencies, in particular the IRS and SEC, which have
taken some steps in that regard. If you take EPA, OSHA, if you
take a variety of State governments you find they are still--
have not really begun to think about it.
Mr. Freedman. It is the same form it just may be available
online.
Mr. Krishnan. And particularly I think for a small business
owner, or for a larger business owner, every day is like an IRS
April 15 deadline. To be able to deal with all of those
seamlessly, efficiently using technology is going to be a great
boon.
Mr. Freedman. Sure. Thank you.
Ms. Kim. I think I would wholeheartedly agree with the
recommendation of do no harm. One of the big things that I
think where Members of Congress can really help with respect to
small business awareness is rather than legislation, going back
home to the small business constituents and having forums like
this that are educational, with people like us who care about
small business e-commerce issues, and inviting their small
business constituents. I think that is going to be one of the
most effective ways of actually affecting change in this area.
I know I have participated in such forums held by a Member
of Congress before. One particular one was in Michigan with
something like 600 to 700 small manufacturers who were there.
It was a fabulous dialog that we had with all of the different
people, and it was a great way to actually change behavior
because the Congressman was there and talked about all of the
different opportunities.
I am definitely looking forward to the Kansas City event,
and I think opportunities like that where Members of Congress
actually show that they want to communicate directly to their
small business constituents and invite people like us who are
actually doing some of that, I think that would be a great way
and the right step.
Mr. Villars. I would close with one point. IDC is not
typically in the business of suggesting legislation, but I
think as we look at the future of these marketplaces and if
they do reach their potential in terms of the number of users
and the activities going on there, there are going to arise
issues very similar to what the securities and commodities
businesses face. Where there is going to have to be a certain
amount of trust or a guarantee of trust in the system so that
the participants all feel that this is an open market and that
there are no potential shenanigans going on, as you would say,
which always are a risk.
So we do think that that is the thing to be aware of as
this goes forward, because while business is very good overall,
you always are going to have the risk of somebody trying to
take advantage of the system. That is going to cause--if that
becomes public and very visible, you are going to lose a lot of
trust from the people who actually are getting the most benefit
from that.
So we would say that a vigilance and watching to see when
you reach a certain scope that you begin to think about those
issues will be something that Congress should keep its eye on.
Chairman Bond. Thank you very much. Our special thanks to
the panelists and to the participants around the table. I was
watching the forums on the Internet as I was meeting with
groups in Missouri. It is interesting that you should mention
that question of trust because among the groups I met with were
realtors from Missouri and they were concerned about
maintaining the security of the information that they receive
there, and I suggested that this was an important role for
technology to develop because we much prefer to solve these
problems by technology rather than legislation. But as you
indicated, there may well be some technology needs that are
not--some technology gaps that must be filled with legislation.
So we ask that all of you continue to advise us and work
with us, and as we see how this develops we will be listening
for the voices of small business, and those of you who serve
small business, to see if there are needs that we must address
by legislation. As you indicated, our preference is to do it
with technology, but if we find that that is not adequate then
certainly we would be in a position to consider the
legislation.
I am convinced that in the next few years the Internet-
based B2B transactions will be commonplace, and a major
component in the small business community's ability and
approach to doing business. Obviously we have identified some
tremendous--I would prefer to refer to them as opportunities
rather than challenges, but I think you have laid out for us
what those ``opportunities'' are.
As always in our forums, the record will remain open until
June 1 for additional comments or statements from anyone who
wishes to submit further ideas or expound upon discussions that
have already occurred today. We will be publishing a transcript
of this forum for future use, and I would reiterate what I
believe Marc Freedman has already told you, that in keeping
with the high-tech nature of this subject, the Internet
streaming of the forum is archived on the Small Business
Committee's web site at http://www.sbc.senate.gov. You click on
the hearings icon and you can hear all of this again.
Also we ask that you continue to share with us through the
Internet or any other more mundane means of communication you
wish to use on your ideas in this exciting and very important
area. Thanks to all of you for attending and for participating.
It has been a very fruitful discussion and we are delighted to
have so many people who have participated here with us in this
room and also via the Internet.
Thank you very much for your time.
[Whereupon, at 11:35 a.m., the Committee was adjourned.]
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