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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

For sale by the Superintendent of Documents, Congressional Office

U.S. Government Printing Office, Washington, DC 20402

(II)

COMMITTEE ON SMALL BUSINESS

ONE HUNDRED SIXTH CONGRESS

CHRISTOPHER S. BOND, Missouri, Chairman

CONRAD BURNS, Montana

PAUL COVERDELL, Georgia

ROBERT F. BENNETT, Utah

OLYMPIA J. SNOWE, Maine

MICHAEL ENZI, Wyoming

PETER G. FITZGERALD, Illinois

MIKE CRAPO, Idaho

GEORGE V. VOINOVICH, Ohio

SPENCER ABRAHAM, Michigan

JOHN F. KERRY, Massachusetts

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

PAUL D. WELLSTONE, Minnesota

MAX CLELAND, Georgia

MARY LANDRIEU, Louisiana

JOHN EDWARDS, North Carolina

EMILIA DISANTO, Staff Director

PAUL COOKSEY, Chief Counsel

PATRICIA R. FORBES, Democratic Staff Director and Chief Counsel

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CONTENTS

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 ............................................................................................ *

Page

IV

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 SelfEmployed, 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.

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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-tobusiness 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 hightech 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

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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.

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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

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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.

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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 Virginiabased 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 opportunities therein. I also want to share with you what exactly

15

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-today 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 attenVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00015 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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tion 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

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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 11⁄2 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

28

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.]

29

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,

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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.

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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

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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.

53

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

54

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,

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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

56

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 conVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00056 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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sulting 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.

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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 finanVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00058 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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cial 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,

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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 mainVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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taining 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.

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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.

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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 conVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00063 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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tracts 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

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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.

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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-yearold 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 AfricanAmerican businesses. Not one.

I have faxed too many CEOs about a buyer out in Kokomo, Indi- ana, 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.

67

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,

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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

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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—smalland 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 quesVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00069 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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tion 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.

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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 potenVerDate 11-MAY-2000 11:02 Oct 24, 2001 Jkt 010199 PO 00000 Frm 00071 Fmt 6601 Sfmt 6601 C:\DISC\66231 txed01 PsN: txed01
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tial 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.

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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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