Information Technology Leverage

Not all IT enabled services businesses get the same value from their IT investment. We look for companies that have substantial technology leverage. When we make this point in conversation with an entrepreneur, it is usually enough to say "think Craigslist not Webvan".

Webvan was a huge and expensive grocery distribution center with a website. The vast majority of their capital was invested in areas that had very little IT leverage. Even if you give them the benefit of the doubt and say that their internal IT systems were state of the art, and substantially reduced the cost picking, packing and shipping groceries, it was still an expensive and ultimately manual operation.

Craigslist is at the other extreme. They provide a classified service in 300 markets with something like 10 million unique visitors and 9 million posts each month with only 21 employees. The secret is, of course, that Craigslist coordinates the activities of its users and depends on them to post ads and monitor abuse. curates links in the same way, by coordinating the activity of their users. Social navigation and user generated content coordinated by an efficient web service are good examples of IT leverage but there are others; crawling, and collaborative filtering are two that come to mind.

So we look for substantial information technology leverage. We find it often in services that coordinate the activities of their users, but we also find it in innovative uses of information technology that have no social component.

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