Overnight our economy has taken a new direction. The very basis of creating wealth has shifted. Even those of us in traditional bricks-and-mortar businesses cannot afford to ignore the implications of the new economy. No industry will be untouched. Most bricks executives will be forced to decide how to adapt to clicks. Knowing how to mix bricks with clicks will be the trick. That’s what this conference is about: balancing and integrating the old economy with the new economy.

Let me tell you something about our keynote speaker, Dr. Richard Schroth. Rich is currently president and CEO of Executive Insights, his own firm. He’s advisor and teacher to some of the most sophisticated companies in the world. He’s senior partner and advisor to Heidrick & Struggles, the world’s largest executive recruiting firm. Also an advisory partner to Banc One Capital Corporation, and advisor to AB Volvo of North America, Pfizer Pharmaceuticals, Marriott Corporation, Royal Dutch/Shell, and GE Capital. He teaches at the AT&T Executive Education Institute, and at CMGI, Inc., which is seen as one of the smartest strategists in internet space. CMGI has made billions, and its partners are quoted and watched all over the world. Who teaches them? Rich Schroth.

Every Fortune magazine I pick up these days is about e-business and the e-economy. This is about a transition time. When I talk with CEOs and executives, I tell them that the real job they have in terms of their legacy is to establish enough consistency and the right business patterns so that they can turn their business over to the next generation, who will then take this information economy forward.

This transition between a world that’s still in physical space and the information world, which deals largely with digital space, is still very perplexing. It’s not going to flesh itself out in the next three to five years. It’s going to be probably another 20 or 30 years before some of this is understood.

Let me give you a concrete example of this. First of all, I have a definition of when we move to an information economy. Whatever your current product is, we move to an information economy when the information about that product becomes more valuable than the product itself. That’s when we’ve truly begun to discover the value of information.

When most companies get serious and look at where they put their capital, the biggest conflict arises. There’s nothing wrong with e-business where we improve our strategies, and we improve our processes and cut costs. It’s when you get into this conflict with the fact that your business has fundamentally shifted. One of the most difficult challenges for CEOs and executives is how to make that shift.

I’m going to talk about some of the issues we face as we go through these transition times.

The newspaper today said that, in this year 2000, $70 billion was available in startup capital for businesses. That’s up from $36 billion last year. Technology firms are expected to receive 95% of all venture capital distributions this year. That’s pretty amazing.

I follow SEC filings. Let me share with you some of the recent comments and quotes that are in some new filings:

“We have not been able to fund our operations from cash generated by our business and we may not be able to do so in the future.” That’s a strange way to present a business statement.

“We have not identified any possible business, and therefore cannot identify any specific business risk. You could lose your entire investment.” These are real filings, folks. This is not a joke.

“Our management team may not be able to successfully implement a business strategy because it’s only begun to work together recently. We arbitrarily established our offering prices and shares. The offering price bears absolutely no relationship whatsoever to our assets, earnings, or any other criteria of value. And we have no operating revenues or profits, and may be unable to continue as a going concern.”

Try to run your business this way. This is the world we’re in. This is a very complex issue. Wall Street has been punishing for this kind of thing. Yet we’re still investing in this. It’s getting tighter and tighter. But we’re doubling the amount of venture money that’s sitting out there.

I’m bringing a couple of companies into the public market right now. As I’m doing this, venture capitalists are much more scrutinizing and much tougher. Tougher questions. Tougher issues. It’s not two guys in a garage anymore that can walk in there and make this thing work. And yet, there’s so much money sitting there that the people going in and getting the money know that they have to put that money somewhere. They can’t just let it sit. Investors are waiting for returns. So there’s a lot of pressure out in the market.

That pressure is driving some very interesting statistics. This summer a study done by KPMG shows that 12% of the CFOs in today’s Fortune 1000 companies admitted to misrepresenting corporate financial results. Fifty-five percent of the CFOs fought off suggestions from senior company executives to misrepresent corporate financial results. This is scary.

And greed. More and more, when I go into organizations, I don’t hear conversations about shareholder value. I hear conversations about how we can make money — not for the shareholder, but for the management team, CEOs, and top management executives. When you’re getting half-billion dollar severance packages to sell a company, to leave a company, to turn that company over, you can’t possibly have the best interest of that company nor of that workforce foremost in mind.

Over the next several years, I think we’re going to see our business leaders held much more accountable. I think that’s one of the signs Wall Street is beginning to show right now with earnings. We don’t care if you make money, and Godspeed to the dot-coms because we’re going to see a lot of growth in those companies. But you had better run them as a business, not as a project.

Most of the dot-coms I see are projects. They’re not real businesses. Someone had an idea about a project, but they wouldn’t fund the project. Instead, they thought, they could find a market for the project, so they went out and started a business around it. A lot of dot-coms never are a business. They are projects looking for a buyer.

As we see e-commerce occurring, we’re starting to run into an interesting physics problem. I believe that, for the first time, we’re seeing physics and management science start to blend together. No longer are our decisions, as smart business people, based upon what we need. They’re based upon this technology curve that’s going up so fast and so high that every eighteen months we’re moving in the top of this exponential curve, where you can fundamentally reinvent a business. However you were doing your business this month, 18 months later you should be able to run it in a fundamentally different way.

An example of this for those of you working on your websites, your interfaces to the customer, and so on: If you’re not working on voice recognition right now, you’re so far behind the curve that it’s not funny, because in the next 18 months our processors are going through a massive change. They are going to be able to use much more natural-language processing. All of a sudden every telephone starts to become an interface to the internet.

Talent is a scarce resource, and it’s going to become even scarcer. The war for talent is becoming unyielding.

Executive agents are beginning to appear not for finding you a job, but for managing your career. A lot of the goals of these executive recruiting firms is to take this group that’s somewhere in its mid-30s to mid-50s and say, has anyone ever mentored you?

How do you get on boards? How do you improve your education?

Boards are one of the most significant placement issues that executive search organizations are finding today. They’re having difficulty because not everybody is trained enough for all the boards we need for finance, technology, and all the fiduciary responsibilities that boards need to have. Instead of searching out your friends, you’re going to search out your agent.

I could paint a scenario for you that would say at some point in time you don’t actually work for the company anymore. You work for yourself. If you can stay in the company, terrific. Your agent keeps you active and out in the market, and moving into boards, onto non-profit organizations, and into global situations. If your company wants you to improve your presence in some ways, your agent can make you available.

We’re now seeing what is called the “M.B.A. draft.” The M.B.A.’s coming out are now being ranked among the top 100 M.B.A.’s in the country — individually. They’re getting agents who will represent them as they go out into the business world. This is cool. I want to go back to college for lots of reasons. In the global perspective Europeans are looking for people in the United States, and vice versa. This whole idea of seeking out talent is a very serious opportunity.

The e-side of business is also pushing on this physics to create more and more business in real time. The business transaction occurs immediately, and all the processes happen when the transaction occurs.

Now this is a very interesting situation. Cisco is very aggressive in this issue of real-time business. In fact, they have a goal for later this fall or early next spring to close their books virtually. Not daily. Instantly. This means that they can report earnings to Wall Street instantly. Not weekly; not quarterly. So there will be no surprises and no guessing.

If Wall Street responds to this positively, because it takes the volatility out of the marketplace, every publicly held company is going to have to get into e-business re-engineering very fast so that it can report earnings instantly. Do you know what that means? It means auditing instantly.

A whole bunch of significant developments arise out of this. Time becomes zero in real time. Daily closings are too slow. Reliability is a necessity, and there comes to be zero tolerance for errors. Managing the power grid is a good example of that. Auditability becomes strategic.

GE itself is looking to their auditing teams to be a very strategic part of their e-businesses. High-performance individuals come to the forefront. As for expertise — who cares anymore. They’re going to beat me to death if I stay in this job. All they’re doing is putting more and more systems on me and making me work harder. I can’t have errors. We’re creating a very interesting lifestyle for many of us. This ought to be a fascinating discussion today — especially here in Southern Maine.

Collaboration tools go out the door, because in real time there is no collaboration. Networks must operate perfectly. We’re still a little ways away from that.

A tremendous interaction is going on right now, as boards begin to question compensation, profitability, and growth. Shareholders are becoming much more dynamic in demanding results. Shareholders are finding software available to them to get into the companies to probe things. Boards are discovering e-mail to be a tool they can use. Secured servers conjure up all kinds of legal implications. This whole idea of corporate governance is rapidly evolving.

Finally, the advances we will see in technology will almost be like magic as you move up this technology curve. Just a few to illustrate.

Wireless, as far as I’m concerned, is the key to the future. There’s no question about it. It’s not just phones; it’s things. The whole idea of things that communicate are going to far surpass the ways of people communicating. Again, it brings us closer to this issue of real time. Communicating real-time data is part of this issue. It’s like on an airplane. There’s no stored data on the airplane; its all real-time data.

You’ll see some very fascinating inventions. Some work is going on in the media labs with the wireless shoe. That may seem funny for many. But next year in the NFL they are predicting that they will be monitoring the athletes running down the field and the impact that they get hit with — all kinds of performance tools coming out of the shoe.

Bluetooth is a very important tool, involving ubiquitous communications capability, much greater distance, and much greater accuracy. It’s going to fundamentally change the wireless world.

Digisense concerns those of you in the food business. It has to do with the transmission of digital smells over the internet.

For e-embroidery, go to the School of Materials Science and Engineering at the Georgia Tech website, and you’ll find that they’re making a fiber-optic shirt. It’s being done for the military right now, but in two years they expect to sell it for about $35. It is a wireless broadcasting shirt, and manufactured so that the soldiers can be located geopositionally and also have their blood pressures and other functions monitored.

And again, to see the transition of an era, Medtronic makes heart pacemakers, right? Now recall my comment about when technology outstrips the product and the information becomes more important than a heart pacemaker. The shirt starts receiving the data from the pacemaker. Medtronic is there to help interpret the health supplies that you need to take. Whether its medications or other things, their business fundamentally changes. This is a fact, and they are facing these issues inside the company.

So what does this mean to you? In the next 18 to 24 months these are the tactical things that your organization has to implement:

You’re going to be requiring new measures of performance from almost every business unit, because we’re going to have i-measures (internet measures) and different time factors. We’re still using other measures that are not internet measures.

Governance models are going to be redeveloped.

Audit becomes a very strategic part of the e-process in order to evolve into a much more real-time business.

The supply chain has to be re-invented. But be very careful here, because most of you aren’t going to be able to do this. And when you have to hire an integrator or a strategist, you’re going to find yourself in all kinds of new business models and new disruptions to the company. It’s a very dangerous step, but it has to happen.

Shared services. Research shows that those people in the law departments, finance departments, and accounting departments that are using shared services are showing a 50% reduction in staff over the next five years. The reason is that we’ve made the outside of the e-business very efficient, but we haven’t made the corporate structures efficient yet. This is a big, big issue.

Progressive human resources.

And finally someone has to understand and manage the strategic risk in the investment portfolio.

Thank you very much.

Online retailing continues to expand, nearly doubling in 1999 after growing 190% in 1998. Most recent estimates predict that more than half of American adults will be on the internet within the next three years. An astonishing audience has geared us up to exponential growth in the last two or three years. In 2000 the market is expected to increase another 85%, to about 61 billion dollars.

Competition is heating up as new players and new business models compete for market share. In 1999 only 38% of online retailers were profitable at the operating level. That’s a pretty impressive number.

So how does a company like L. L. Bean that’s been around for 87 years compete in such a market? How do we stay relevant? Building customer loyalty has become an imperative.

In 1995 we launched our first website. The site was completely overhauled and re-launched in 1999, and has become a significant and growing portion of our business. Along with our retail expansion, it represents the company’s evolution into a multi-channel approach to long-term customer relationships.

As many of you know, 18 months ago — after a number of years of relatively flat growth — L. L. Bean reorganized from the ground up, creating strategic business units with individual P&L responsibilities. This reorganization was a precursor of ongoing change within the organization.

A multi-channel vision has emerged which centers around long-term relationships with our customers. Whether it’s through the mail, our stores, over the phone, the fax, or the web, this new vision represents opportunities for servicing the customers’ outdoor needs on many levels.

We have tremendous experience wrapped up in our sales force and our product developers. So on the web we are starting to accumulate that information and provide it to customers. We’re finding more and more that the information housed within the company is becoming particularly important to them, along with the products we’re selling. This is also helping us build community and dialogue with our customers.

The internet has accelerated introduction of our brand and increased availability to new customers. Our 1999 performance figures can tell us something of this. In 1999 vs. 1998, we saw a 65% increase in the growth of traffic, 229% increase in our demand, 239% increase in our orders, and even more importantly 140% increase over the year before in our new buyers. Our website is driving a very large percent of our new buyers to the corporate customer database. Our response rate is up over 106% over the prior year.

This is always a balancing act. As we reach further and further into the web world and bring on more people, we have to balance our traffic counts with our conversion and demand. The web is obviously a 24/7/365 store much like our retail store in Freeport. But this one has no geographic borders.

Our affiliate programs have emerged as a profitable new customer acquisition model that has all but replaced traditional online advertising. We started out like most people with a lot of banner advertising, and banner ads just don’t work for us. Partnership models and e-promotions such as key-word buys, store fronts, and e-mail have been successful as has been a blend of off-line promotions, advertising, and our catalog circulation support.

We have seen a number of companies which thought they could cut back on their other media and still generate the demand from the online media. But this hasn’t proven correct. Far from the early days of online media, we no longer believe that other forms of media will fade away. Much as radio evolved to coincide with television, so the web will belong to a system of media that supports and simplifies our customers’ lives.

Traffic counts and site visits, however, are only the beginning of the equation for L. L. Bean. Profitability actually begins with customer retention and repeat purchases. On average, by increasing our retention rates just 5%, we can increase profits by 25% or more. We use site-pathing analysis, usability studies, focus groups, and surveys to help us understand how our customers want to interact with us and what they would like us to provide. In a medium where customers can’t see, touch, or try on the product, if they don’t trust the company presenting the merchandise, they’ll go elsewhere in a click. As a recent Harvard Business Review article noted, price does not rule the web as they originally thought it would. Trust actually rules the web.

Legacy processes, assets, and systems have supported our exponential growth and have provided us with a profitable source of revenue. This is typical of the multi-channel company versus the pure play. We’ve had wonderful information systems and customer assistance systems to depend on, and they’ve spring-boarded us onto this medium. However, these same systems — retrofitted, evolved, and incrementally appended — now create challenges to our growth. Integration of merchandising, marketing, and customer data is essential to truly support brand relationships with our customers.

The potential of new e-businesses is really largely dependent on how well companies can match their technologies and business models to customer adoption rates, while still taking a longer-term view of their relationships with their customers. It can’t be looked at as an ROI within a quarter or within a season any longer. Correctly selecting, capitalizing, and implementing these enterprise-wide changes really will predict the next year of top players.

Our biggest challenge now is to move this fairly conservative, solid New England company through the whirling white waters of the change that we’re seeing on the internet. But then, L. L. was a fisherman and he could always read the current. So we think that we’ll be doing OK.

People come to us so enamored by technology that they forget their business. It’s a tool. It’s a platform from which you do business. For most companies technology is not the business.

Information technology is fundamentally altering every one of the links in your transaction chain. Draw a picture out. Where does your business fit in the market, and in the supply and transaction chain?

Information technology also allows for immediate, real-time feedback. That puts tremendous pressure on people. But frankly I prefer to look at it the other way. It gives me a great opportunity and advantage over my competition. It helps to derive the customer equation if you use it correctly.

And, finally, IT is spawning the outsourced or virtual company like Sun, Cisco, and others that are just as successful. They don’t make anything, but they engineer it — somebody else makes it. That model will continue to grow and evolve.

But when you talk about strategic finance — in order to roll a dot-com out and hit on all the folks you need — you need a massive workforce. You need salespeople and the media folks. Most companies that are starting up can’t afford that, but they can outsource it.

So what do you do? What are the first steps that your company can take, or that you can take, if you have a business idea and you want to move forward?

Put together that multi-disciplinary team. And here’s why. Technology specialists are going to drive this because it’s about communication, information, and knowledge management. They’re the folks that are going to make it work in a real-time way.

Just as important, however, is how you leverage your intellectual property. Those techies want to do some wonderful things with technology — software and hardware — and in most cases they’re violating somebody’s intellectual property rights or they’re not protecting their own.

So you get the legal experts, the in-house counsel types, who look at how the business programs are being connected together. Internet service providers and the strategic alliances that are often contract relationships are assets. When you put together a business plan these days, and you go to venture capitalists with the business plan, they want to know what your ISP is and how proprietary it is. And they want to know about those alliances you have, because they know that most small to mid-sized companies are not in a position to move the ball forward. Those are considered assets.

One of the most interesting things I’ve heard about in the recent past is about companies that are now putting together formulas to value intellectual property. If you look at the book value of most of these tech companies, you try to figure out how it equates. What is the value? Where is it best applied, and how do you derive the stock price of a company if it’s going to go public?

Last but certainly not least is sales and marketing. This is far and away the most overlooked and misunderstood area in business. It is a gaping hole in 99% of the business plans that I have seen and heard about. The sales-and-marketing effort is just not there

Where do you fit in? Why are you relevant? How is your product or service relevant to anybody? I think most of the dot-coms that are failing are trying to create whole new transaction chains based upon your coming onsite and doing all these “gee whiz things” without considering how the customer lives day-to-day. Moving customer habits is like moving a battle ship. You can only do it incrementally. Once you see that, you can explore your strengths or fill gaps.

Apropos, what is your endgame? I want to do an IPO. I don’t think anybody I’ve ever talked to understands what’s involved in an IPO. If you ever talked to anybody who’s gone through that situation, they will tell you what a dramatically different world it is between a private, entrepreneurial, go-get-‘em company and a publicly traded company.

The ramp up to that IPO is a living hell. It absolutely is. The thing that you need to do first and foremost is fully and honestly assess in your own heart and mind, and those of your colleagues, what you really want to do with this thing. Do you want to sell it, or do you want to grow it? Figure that out first. You’ll be a lot happier and it will be a lot easier path to wherever you’re going.

No doubt, you will do some tacking. Any good business is going to do that. But get that endgame and then focus on it. A laser-like focus is important.

And finally, just the opposite of that. Don’t try to boil the ocean. The dot-coms who come to us and say that they’re going to do everything in the food industry, from selling napkins to restaurants, to doing recipes on line — that’s Mt. Everest.

Find a toehold, a finger hold, and start to climb, and the other things will flow in with it. If you try to boil the ocean, any investor or alliance partner is going to look at that. My God, this is three miles wide and you don’t have the people to do it and you can’t find the alliances to do it quickly enough. It’s not a good thing.

So what’s the profile of a company that’s going to succeed in this environment? They’re on the leading but not bleeding edge.

If you want to see something disrupt an organization, do an enterprise-wide system implementation without understanding what you’re getting yourself into. Have the trampoline out there because people will be jumping off your roof. Be innovative, but don’t get out there too far.

Be innovative, adaptive, and responsive. Innovativeness comes from you. You are making and driving change. Adaptiveness arises as you react to changes brought by others. Responsiveness comes back to the customer, because you are sensitive to your customer’s wants and needs.

Service and customer orientation leverages IT and telecommunications advances. Because of this multi-channel approach to business now, you need to push responsibility down and out to people. The old model doesn’t work anymore. You can’t have that one patriarch sitting at the top of the company lording over the entire kingdom. Too much is going on.

No one knows it all. Special-ization is dramatic and it will continue. That means you need good people to manage everyone of those elements. You need them to come together to do it in a strategic and integrated fashion. You can’t do it all from the top any more, because there’s too much to know.

I’m going to give a little perspective to you folks as to what happened to us when we dove into the e-world. It was really a big experiment, a huge petri dish, and you can stick your toe in it or you can dive right in.

Last fall, as we were going into our second round of funding, e-commerce was all the rage, and we believed that we were right in the hot spot. So we charged right in and dove into that petri dish. We had a lot of fun. It’s incredibly exciting, but all the excitement is also very trying.

If I look back to that moment last year, we’re a media company and we bought a travel company. It was a logical extension. RSN strives to connect people to their passions around the outdoors. So it was reasonable to go from doing weather reports and live-cams from the resorts to tie travel into the proposition.

We looked at all kinds of things, like taking on gear. Fortunately, we didn’t do that. We charged down what the market place was rewarding. They were rewarding acquisition. They were rewarding aggressive e-commerce propositions.

So we went out and built the business plan, bought a travel company, and essentially changed our model. Half of our revenue would come from television, advertising, and web advertising, and the other half would come from e-commerce. We would essentially get involved in the back end of e-commerce — the fulfillment side, and that was a very different thing for us.

We went out and we successfully raised 20 million dollars. Then about this spring, all of a sudden we were looking around the landscape and every one of our competitors, people that we had swapped war stories with, were getting hit real hard. Gear.com and PlanetOutdoors.com, for example, were starting to go downhill.

It comes back to real time. It’s crazy to have a five-year business plan these years. A two-year business plan is not a reality in my book anymore.

So we scrambled and within a month’s time period we said, “OK, what are our principles here? They begin with content and end with content.” With that, when you look at that model, now suddenly a travel company doesn’t fit — we don’t need to own a travel company. It was a great thing to connect our customers to, but maybe we’re better off focusing on what is really true to RSN’s core strengths. So connecting people to their outdoor passions became our new battle cry internally.

As a result, less than a year later we announced that we were going to sell the travel company. We had ramped up a significant number of our staff based on e-commerce, and we went through the painful process of hiring great people and having to let great people go. That was a very difficult thing.

But with internal communication and a great deal of heart and soul put into it, we gained from it all. Talk about risk management. But you have to take risks. I believe that you never create anything new without risk. And the lessons that you learn by taking risk are so much better than by reading a textbook. They live with you. They’re your battle scars.

So when I look back on this year, I ask, “what are the regrets, what are the lessons, and what are the opportunities?”

I would say, regret-wise, it’s the people, the time, and the money spent that did not directly benefit our media business. That felt frustrating and wasteful.

I count my lucky stars that we did several things right. When we were going out on the venture-capital road, we were lured by a lot of money and a lot of that money was tied to “why don’t you move your company to San Francisco, because we’ve got all these people here and wouldn’t it be nice to be real close to you guys?” Fortunately, we did not make that mistake and move the company out of Maine by the lure of more money and deep talent resources.

I also think that when we did the investment we looked at our business and we did stick to some of our principles — that we needed to invest in our infrastructure and our foundation. As a result, this year has been the most successful year in the history of RSN. Our ad sales, our web sales, our TV ratings, and our viewership on the internet are at an all-time high. So fortunately we did not lose focus on the foundation.

I also count my lucky stars that we always went along with the model that we wanted to hire great people and that we would attract people to us by our culture and what our products stood for versus the stock option. We wanted to have a progressive model for our staff and have ownership within staff, but it wasn’t the end all to be all.

There’s a very stable side to Maine businesses. You have to look at the progressive models because you have this war on talent — you have to compete out there in the marketplace. The bottom line is that you’re only as good as your people. We proved that. We went through some ups and downs, and the people were the number-one reason why this thing never lost any momentum.

I also count my lucky stars that we never sold RSN to a dot-com business for a stock swap. That was a very big relief.

The lessons, I would say, are that, when you go out there and you look at everything that’s growing and how you can connect your business to building in it, go back to the core: Will it really impact the day-to-day business and operations? Will it make it more efficient and drive profit? Look at the hard realities as to what that cost is. That was a big benefit to us.

I would say that technology in my life can really help us and do some things we’ve never done before. It can maintain us. And it can kill us. We live and die by technology, but it isn’t the business. We rely on it.

This year we looked at technologies and we thought that technology platforms would be there to reinvent a model. You can’t entirely reinvent business models with technology alone. That was a great lesson.

In terms of the opportunities, I see this going from the new economy to the new, new economy. We just came through this period in which we had the single largest investment in information technology in history — not funded by government, but funded primarily by venture capital and private equity firms, some of which made a lot of money and some of which lost a lot of money. But essentially all these technologies and all the people behind these technologies poured in tons of information and resources and energy.

I think that the new, new economy is an opportunity for a savvy company to survey the landscape and look at technologies, because they’re sitting there and some of them are idle. Look at which ones apply to your business, and quickly and aggressively grab those that have a solid foundation and incorporate them into your business model.

Likewise the people. There are a lot of people who got ramped up in the dot-coms and have lost their jobs, and they may be disenchanted with some of that marketplace. But they’re hungry. A talent pool is out there that only the best companies will attract.

These realities are going to take place, and Maine is in a great position to tap that. I personally think that remote is cool. Finland has proved that. It’s the world’s leader in wireless technology — a very small population, very dynamic, and very energized. It goes back to another principle — resource sharing and risk sharing. To the extent that companies in Maine can pull together and share risk, rather than put your toe in that petri dish, dive into it knowing that you have a life preserver of a couple of other resources with you.