It was fall 1996 and "the Internet was in its infancy," says Hudnut. The two men borrowed $500,000 from family and friends and set off to educate the world via the Web. Their plan was to serve undergraduate business schools, graduate business schools, business-to-consumer training companies and corporations.
But the boom in Internet funding was followed by the bust, and a little more than a year ago, what had once been a flow of venture capital started to dry up. Hudnut's business, called Quisic, was faced with a dilemma.
"Do you take more funding from people who ask you to change or narrow your business?" he asked those attending his presentation at a recent Wharton e-Commerce Speakers Series. "Or do you hold onto everything, hoping it will work out?"
Hudnut, the CEO of Los Angeles-based Quisic, opted for the funding. The company reluctantly laid off half of its work force--225 of 450 employees--and decided to focus on the most lucrative part of its business, corporate training. Hudnut said it was the proper move, perhaps the only viable move, and a lesson for those starting a business in the high-tech or any other world.
"You have to keep getting funded or you die," he said. "You can do one kind of business plan or another kind. Your stock valuation can go up or down. But it's essential that you move forward. And when you are a young company, that means getting funding."
Hudnut said that Quisic is now only a year or so from being a profitable company, one that will no longer need venture funding. In the meantime, he added, over the last several years he has seen enough business cycles to last a lifetime.
Four phases of funding
During his talk, he played a game with audience members. He had them offer a dollar of their own money for a fictional company and then he flipped a coin to see how well they would be financed in each of three phases. The first time, heads would double their money and tails would quadruple it. The second time, heads would double it again, but tails would raise it by a factor of 10. The final time, heads would drop their take by 90 percent, while tails would only cut it in half.
"Phase one was the early stages of Internet business funding," he said, with significant amounts of money and some good ideas that were funded well. Then came phase two, the real Internet boom, when "you didn't even need a resume," Hudnut said. "Money came from everywhere--lots and lots of money." But then came phase three, the death of the Internet. No one was investing much money anywhere. Quisic did raise some funds, but had to cut back on its ideas.
And now the company is around for phase four.
"If you didn't play in the funding game, you died, like the Net," Hudnut said. "It's phase four. E-training is in a rapid consolidation phase and we are the players looking for mergers and acquisitions. We're alive because we followed the nature of the funding."
He said that understanding funding is essential, and it shifts over time. "Your business strategy cannot be dreamed up in isolation. You have to know three things at all times: What is the market for your product? What are your competitors doing? And, most importantly, what is the funding situation like right now?
"Absolutely, you want to grow a company that adds value all the time, both in the product's quality and its bottom line," he said. "But you have to be conscious of how you will raise the money to get to that goal. And if venture capitalists are funding a little and you have to move a (certain) way for the time being, make sure you are ready to do that."
Getting into Pac-Man mode
He compared the business climate for young companies today to the computer game Pac-Man. "There are the big public companies coming down the lane aiming for you," he said. "Then there are the companies like ours, deciding not to be eaten up and looking to survive. We're now looking to eat up those smaller companies with quality products and little debt but not enough funding to survive on their own."
Quisic, which has done Internet corporate training for 250,000 employees over the last year, has clients like United Airlines, Toyota's Lexus division and McKinsey & Co. Hudnut said that while he thinks Quisic will eventually get back into doing academic training, corporate training sessions are now a lot more lucrative.
The corporate side pays $100 an hour, he said. "On the academic side, maybe it's $5 an hour per student, so you need the volume. Three to five years down the road, we may go back to that, but right now we are where we want to be."
He predicts that online education at some point will come to top business schools. "It will depend on how people want to use it," he said. "Imagine you could get all your fact-building online and then come to class and do all the simulations, games and cooperative team exercises that you can't do as easily on the computer. That might mean a one-year MBA program for some people, or an extremely enhanced two-year program."
But that is in the future. For now, Hudnut is confident that even in an economic downturn, online corporate training programs will thrive. "There is conventional wisdom that says these types of downturns can be either bad or good for training. The bad is that in slow times, training is the first thing to be cut in corporations. But the good can be really good for us. Online training is inexpensive; it doesn't call for travel and it can be done on lunch hour so that people don't lose time from work. Companies have to be forward-looking now, just like us; that means they have to look for ways to train their employees. We obviously believe online training is the way they will go."
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