1.2 Companies on the Move:

Please email:  start-ups@netsuds.com to report (1) the formation of a new start-up, (2) momentum change at an existing start-up, (3) addition of key hires, or (4) a funding event at a start-up.  We do not accept press release changes from third parties.  We must hear directly from an executive at the company which is 'on the move'.

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	12150 Nicollett Avenue, Burnsville Approximately 37,000 sq. ft. medical manufacturing facility with 10,000 square feet of class 10,000 cleanroom Gary Lally, Hoyt Properties, 952.938.3418

4.1 NetSuds on Tour - Agiliti

NetSuds loves on-site tours!  Email me if you want to show off your company.  I can be reached at matt@netsuds.com.

4.1.1  Agiliti Tour

Agiliti CEO Tom Kieffer and I met at Agiliti to tour their facility on Energy Park Drive.  Agiliti has consolidated their data center and offices from locations in St. Paul, Plymouth and Bloomington.  Served by dual OC-12s from separate physical paths, bandwidth and reliability are hallmarks of the Agiliti data center.  The other critical physical elements; power and security, are well provisioned at Agiliti.  The building is a fenced facility with an electrical infrastructure designed in part with MAPP (Mid-continent Area Power Pool).  Access to the building is monitored both visually and by keycard.  Layers of physical security are also present inside the building via security zoning and keycards.

All employees are located in a separate section of the building in rather unique and inviting surroundings.  Large, open space is the theme which lends itself to collaboration among employees.  The data center is also zoned for managed services and co-location facilities.  The Network Operations Center is manned 24x7x365.

Stung by a Microsoft Exchange issue years ago, Agiliti has adopted the "ITIL" (IT Infrastructure Library) standard for IT Service Delivery & Support.  Leveraging it’s Tier 1 data center, Agiliti offers more than the standard managed services, hosting and co-location.  A litany of their service offerings is best left to a visit to their website - www.agiliti.com.  Agiliti is also offering consulting and system integration services along with the usual array of services one would expect.

Agiliti is a corporate ISP in one sense but with the wide service offerings, they are truly capable of completely managing the total IT infrastructure of small, medium and large enterprises.  This one-stop shopping model is the future of corporate IT outsourcing.  Agiliti is uniquely positioned in this market, and rolling out new services based on the emerging “Utility Computing” model that IBM, HP and others are promoting.   For more information, contact Tom at tom.kieffer@agiliti.com.

4.2  Email Advertising

The Business Journal reported that their daily email news reaches 5000 Twin Cities executives.  The MHTA claims a little over 2000 people on their email list.  Not bad but still a great deal less than the NetSuds and MedicalSuds email lists which reach 7200+ (yes, the lists are growing).  The NetSuds email lists are double-opt-in and concentrated on professionals in the communications, IT and Internet markets.  The MedicalSuds email lists are double-opt-in and concentrated on professionals in the medtech, biotech and life sciences markets.  So, rather than spend your advertising dollars on any other email lists in the Twin Cities, consider the NetSuds and MedicalSuds lists.  Contact matt@netsuds.com or 612.279.2154.

In recent years, organizations have gotten better at analyzing financial statements, refining manufacturing procedures, reengineering business systems and improving marketing effectiveness. CEOs have strengthened their balance sheets with better asset management, reduced their inventory and cost levels with just-in-time methodologies, and increased direct mail and advertising effectiveness through thorough testing and reporting methods. But one area where additional improvements still can be made is the sales organization.

Smart companies are scrutinizing their strategic sales management plans, taking a closer look at everything from their pipelines to their forecasts. They are also taking a closer look at lifetime values, cost of sales, market share, sales processes and salesperson effectiveness. The reason is simple: All organizations, regardless of whether their sales are shrinking or growing, are under pressure to create a sales distribution organization that generates predictable, consistent, profitable results.

Interestingly, I see many VAR organizations that are struggling. They often lack both a strategic and tactical sales plan. Before you get too deep into your 2003 strategic plan, ask yourself what kind of sales-management plan you have in place. Such a plan must include an amalgamation of the organization's goals, individual salespeople's desires and objectives, and a common set of measurement factors that ensures all parties are focused on the right activities for generating success.

So, where should you start? Focus on creating business plans for individual salespeople that define and bring together their goals with those of the corporation, and that coordinate activities with planned marketing programs (see "Planning Pointers," above).

Sales-management planning systems dramatically refocus a sales manager to future business instead of past results. While most SFA/CRM or manual sales-management systems can enhance the effectiveness of a sales organization, they generally measure past activities and current sales funnel values. While this information is a must for all sales teams, the systems fall short by providing a rear-view mirror methodology to management.

A properly designed sales-management planning system changes all of that. With a sales-planning tool, a sales manager can monitor expected performance; coach, mentor and provide a viewpoint of past performance; and measure results against the salesperson's desired objectives. In addition, such a tool helps a salesperson and sales manager, who are looking at planned activities far enough ahead, to ensure that consistent activities are in place to build pipeline values that will provide enough prospect opportunity to exceed individual quotas or personal goals.

Like any new organizational change, the rollout of such a system must be carefully planned and explained to all salespeople. Ideally, salespeople should attend a group meeting with all members of their team, along with key members of the management team, including a CFO and any vice presidents of marketing and production. Last, it's wise for each salesperson to present a business plan and account plans to his/her peer group and management team.

We recommend that these meetings be serious events that incorporate some aspect of fun. The power of these personalized plans is actually realized when the plan is measured against actual performance. This is when salespeople get it. They recognize what it takes to achieve their personal and professional goals, and they see how creating better planning impacts performance.

Forwarded by NetSudser Justin Chapweske, Onion Networks, justin@chapweske.com

To understand what's going to happen to the telephone companies this year thanks to WiFi (otherwise known as 802.11b) and Voice over IP (VoIP) you only need to know one story: ZapMail.

The story goes like this. In 1984, flush from the success of their overnight delivery business, Federal Express announced a new service called ZapMail, which guaranteed document delivery in 2 hours. They built this service not by replacing their planes with rockets, but with fax machines.

This was CEO Fred Smith's next big idea after the original delivery business. Putting a fax machine in every FedEx office would radically reconfigure the center of their network, thus slashing costs: toner would replace jet fuel, bike messenger's hourly rates would replace pilot's salaries, and so on. With a much less expensive network, FedEx could attract customers with a discount on regular delivery rates, but with the dramatically lower costs, profit margins would be huge compared to actually moving packages point to point. Lower prices, higher margins, and to top it all off, the customer would get their documents in 2 hours instead of 24. What's not to love?

Abject failure was not to love, as it turned out. Two years and hundreds of millions of dollars later, FedEx pulled the plug on ZapMail, allowing it to vanish without a trace. And the story of ZapMail's collapse holds a crucial lesson for the telephone companies today.

The Customer is the Competitor

ZapMail had three fatal weaknesses.

First of all, Federal Express didn't get that faxing was a product, not a service. FedEx understood that faxing would be cheaper than physical delivery. What they missed, however, was that their customers understood this too. The important business decision wasn't when to pay for individual faxes, as the ZapMail model assumed, but rather when to buy a fax machine. The service was enabled by the device, and the business opportunity was in selling the devices.

Second, because FedEx thought of faxing as a service, it failed to understand how the fax network would be built. FedEx was correct in assuming it would take hundreds of millions of dollars to create a useful network. (It has taken billions, in fact, over the last two decades.) However, instead of the single massive build out FedEx undertook, the network was constructed by individual customers buying one fax machine at a time. The capital expenditure was indeed huge, but it was paid for in tiny chunks, at the edges of the network.

Finally, because it misunderstood how the fax network would be built, FedEx misunderstood who its competition was. Seeing itself in the delivery business, it thought it had only UPS and DHL to worry about. What FedEx didn't see was that its customers were its competition. ZapMail offered two hour delivery for slightly reduced prices, charged each time a message was sent. A business with a fax machine, on the other hand, could send and receive an unlimited number of messages almost instantaneously and at little cost, for a one-time hardware fee of a few hundred dollars.

There was simply no competition. ZapMail looked good next to FedEx's physical delivery option, but compared to the advantages enjoyed by the owners of fax machines, it was laughable. If the phone network offered cheap service, it was better to buy a device to tap directly into that than to allow FedEx to overcharge for an interface to that network that created no additional value. The competitive force that killed ZapMail was the common sense of its putative users.

ZapPhone

The business Fred Smith imagined being in -- build a network that's cheap to run but charge customers as it if were expensive -- is the business the telephone companies are in today. They are selling us a kind of ZapPhone service, where they've digitized their entire network up to the last mile, but are still charging the high and confusing rates established when the network was analog.

The original design of the circuit-switched telephone network required the customers to lease a real circuit of copper wire for the duration of their call. Those days are long over, as copper wires have been largely replaced by fiber optic cable. Every long distance phone call and virtually every local call is now digitized for at least some part of its journey.

As FedEx was about faxes, the telephone companies are in deep denial about the change from analog to digital. A particularly clueless report written for the telephone companies offers this choice bit of advice:

Telcos gain billions in service fees from [...] services like Call Forwarding and Call Waiting [...]. Hence, capex programs that shift a telco, say, from TDM to IP, as in a softswitch approach that might have less capital intensity, must absolutely preserve the revenue stream.

You don't need to know telephone company jargon to see that this is the ZapMail strategy.

Step #1: Scrap the existing network, which relies on pricey hardware switches and voice-specific protocols like Time Division Multiplexing (TDM).

Step #2: Replace it with a network that runs on inexpensive software switches and Internet Protocol (IP). This new network will cost less to build and be much cheaper to run.

Step #3: "Preserve the revenue stream" by continuing to charge the prices from the old, expensive network.

This will not work, because the customers don't need to wait for the telephone companies to offer services based on IP. The customers already have access to an IP network -- it's called the internet. And like the fax machine, they are going to buy devices that enable the services they want on top of this network, without additional involvement by the telephone companies.

Two cheap consumer devices loom large on this front, devices that create enormous value for the owners while generating little revenue for the phone companies. The first is WiFi access points, which allow the effortless sharing of broadband connections, and the second is VoIP converters, which provide the ability to route phone calls over the internet from a regular phone.

WiFi -- Wireless local networks

In classic ZapMail fashion, the telephone companies misunderstand the WiFi business. WiFi is a product, not a service, and they assume their competition is limited to other service companies. There are now half a dozen companies selling wireless access points; at the low end, Linksys sells a hundred dollar device for the home that connects to DSL or cable modems, provides wireless access, and has a built-in ethernet hub to boot. The industry has visions of the "2nd phone line" effect coming to data networking, where multi-computer households will have multiple accounts, but if customers can share a high-speed connection among several devices with a single product, the service business will never materialize.

The wireless ISPs are likely to fare no better. Most people do their computing at home or at work, and deploying WiFi to those two areas will cost at worst a couple hundred dollars, assuming no one to split the cost with. There may be a small business in wiring "third places" -- coffee shops, hotels, and meeting rooms -- but that will be a marginal business at best. WiFi is the new fax machine, a huge value for consumers that generates little new revenue for the phone companies. And, like the fax network, the WiFi extension to the internet will cost hundreds of millions of dollars, but it will not be built by a few companies with deep pockets. It will be built by millions of individual customers, a hundred bucks at a time.

VoIP -- Phone calls at internet prices

Voice over IP is another area where a service is becoming a product. Cisco now manufactures an analog telephone adapter (ATA) with a phone jack in the front and an ethernet jack in the back. The box couldn't be simpler, and does exactly what you'd expect a box with a phone jack in the front and an ethernet jack in the back to do. The big advantage is that unlike the earlier generation of VoIP products - "Now you can use your computer as a phone!" -- the ATA lets you use your phone as a phone, allowing new competitors to offer voice service over any high-speed internet connection.

Vonage.com, for example, is giving away ATAs and offering phone service for $40 a month. Unlike the complex billing structures of the existing telephone companies, Vonage prices the phone like an ISP subscription. A Vonage customer can make an unlimited number of unlimited-length domestic long distance calls for their forty bucks, with call waiting, call forwarding, call transfer, web-accessible voicemail and caller ID thrown in free. Vonage can do this because, like the telephone companies, they are offering voice as an application on a digital network, but unlike the phone companies, they are not committed to charging the old prices by pretending that they are running an analog network.

Voice quality is just one feature among many

True to form, the telephone companies also misunderstand the threat from VoIP (though here it is in part because people have been predicting VoIPs rise since 1996.) The core of the misunderstanding is the MP3 mistake: believing that users care about audio quality above all else. Audiophiles confidently predicted that MP3s would be no big deal, because the sound quality was less than perfect. Listeners, however, turned out to be interested in a mix of things, including accessibility, convenience, and price. The average music lover was willing, even eager, to give up driving to the mall to buy high quality but expensive CDs, once Napster made it possible to download lower quality but free music.

Phone calls are like that. Voice over IP doesn't sound as good as a regular phone call, and everyone knows it. But like music, people don't want the best voice quality they can get no matter what the cost, they want a minimum threshold of quality, after which they will choose phone service based on an overall mix of features. And now that VoIP has reached that minimum quality, VoIP offers one feature the phone companies can't touch: price.

The service fees charged by the average telephone company (call waiting, caller ID, dial-tone and number portability fees, etc) add enough to the cost of a phone that a two-line household that moved only its second line to VoIP could save $40 a month _before making their first actual phone call_. By simply paying for the related services, a VoIP customer can get all their domestic phone calls thrown in as a freebie.

As with ZapMail, the principal threat to the telephone companies' ability to shrink costs but not revenues is their customers' common sense. Given the choice, an increasing number of customers will simply bypass the phone company and buy the hardware necessary to acquire the service on their own.

And hardware symbiosis will further magnify the threat of WiFi and VoIP. The hardest part of setting up VoIP is simply getting a network hub in place. Once a hub is installed, adding an analog telephone adapter is literally a three-plug set-up: power, network, phone. Meanwhile, one of the side-effects of installing WiFi is getting a hub with open ethernet ports. The synergy is obvious: Installing WiFi? You've done most of the work towards adding VoIP. Want VoIP? Since you need to add a hub, why not get a WiFi-enabled hub? (There are obvious opportunities here for bundling, and later for integration -- a single box with WiFi, Ethernet ports, and phone jacks for VoIP.)

The economic logic of customer owned networks

According to Metcalfe's Law, the value of an internet connection rises with the number of users on the network. However, the phone companies do not get to raise their prices in return for that increase in value. This is a matter of considerable frustration to them.

The economic logic of the market suggests that capital should be invested by whoever captures the value of the investment. The telephone companies are using that argument to suggest that they should either be given monopoly pricing power over the last mile, or that they should be allowed to vertically integrate content with conduit. Either strategy would allow them to raise prices by locking out the competition, thus restoring their coercive power over the customer and helping them extract new revenues from their internet subscribers.

However, a second possibility has appeared. If the economics of internet connectivity lets the user rather than the network operator capture the residual value of the network, the economics likewise suggest that the user should be the builder and owner of the network infrastructure.

The creation of the fax network was the first time this happened, but it won't be the last. WiFi hubs and VoIP adapters allow the users to build out the edges of the network without needing to ask the phone companies for either help or permission. Thanks to the move from analog to digital networks, the telephone companies' most significant competition is now their customers, because if the customer can buy a simple device that makes wireless connectivity or IP phone calls possible, then anything the phone companies offer by way of competition is nothing more than the latest version of ZapMail.