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Introducing Markus Wagner - One Who Undertakes an Endeavor

bridges vol. 24, October 2009 / News from the Network: Austrian Researchers Abroad

By Markus Pichler

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Entrepreneur is the French word for "one who undertakes an endeavor." Having been coined more than a century ago (in 1852), the term entrepreneur saw a steep rise in usage in recent months, often referring to a cure for the current economic malaise. For example, in his first State of the Union speech in February 2009, US President Barack Obama referred to entrepreneurs as a major factor in pulling through this economic downturn, saying that: "The answers to our problems don't lie beyond our reach, they exist in our laboratories and our universities, in our fields and our factories, in the imaginations of our entrepreneurs ..."

But, what exactly is an entrepreneur?

According to the father of modern management, the Austrian Peter Drucker (1909-2005), entrepreneurs create something new, something different - they change or transmute values: "Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth." His fellow Austrian, economist Peter Schumpeter (1883-1950), probably the first scholar who developed entrepreneurial theories, once stated that "entrepreneurs are the ones who contribute to innovation and technological change of a nation." Later on, Schumpeter extended his theories with the hypothesis that "big companies are the ones driving innovation and economy, as they possess both resources and capital to invest in research and development."

i5logo_small.jpgMarkus Wagner, serial entrepreneur and Business Angel who founded the business incubator i5invest in 2007, is per definitionem a synthesis of both of Schumpeter's complementary theories.

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Vienna-born Markus Wagner earned his Matura degree - equivalent to the British A-Level - at the Higher Technical Education Institute in Moedling, Lower Austria.  An internship at mobile communications carrier ‘max.mobil' during the last summer before graduation strongly influenced his future path. At the end of the 1990s when the telecommunication industry was still in its infancy - an average customer was happy with a mobile phone that could make calls and perhaps send text messages - and therefore a long way from the gadgets or "mobile offices" like Apple's "iPhone" or Motorola's "DROID" that we avail ourselves of nowadays. Pushed

Markus Wagner and his vision of entrepreneurship.

by the dot-com bubble - using the Internet and computer as a tool for communication was then seen as the next big step for humankind - the first steps towards combining mobile communication and the Internet had already been taken. Fascinated by the uprising new industry and the almost infinite possibilities that accompanied it, Wagner enrolled at the University of Applied Sciences in Salzburg, the first program in Austria to offer interdisciplinary studies within the field of mobile communications and Internet. While studying, Wagner was up and coming within the new product-development division of the company ‘max.mobil', later to be acquired by T-Mobile. ‘max.mobil' offered the opportunity to combine up-to-date university knowledge with front-end practical experience in this breathtaking developing new industry.

"Working with ‘max.mobil‘ was both interesting and challenging; however I always wanted to start my own business," Wagner states. Six months after graduating from the University of Applied Sciences in Salzburg, Markus Wagner - driven by numerous ideas he has been listing in his idea book ever since - finally founded the start-up wap.at Internetservices GmbH in collaboration with a team of graduates from the same program.

The dot-com bubble

It all started in the early 1990s. A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss to build market share (or mind share). These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.
During their loss period companies relied on venture capital and, as stock prices soared, were funded by large-scale investors who anticipated further growth. In March 2000 the NASDAQ Composite index peaked at 5,048, reflecting the high point of the dot-com bubble. Then the bubble burst and stocks plunged dramatically. Many dot-coms ran out of capital and were acquired or liquidated. According to QCTimes, the bubble crash wiped out $5 trillion in market value of technology from March 2000 to October 2002. Historically, the dot-com bubble can be seen to resemble other technology-inspired booms such as railroads in the 1840s, automobiles and radio in 1920s, and transistors in the 1950s.

Starting ‘wap.at' unfortunately coincided with the burst of the dot-com bubble, so the young team had to deal with rather adverse conditions. "As there was no risk capital available at this time, we had to pay everything out of our own pockets." Nevertheless, the team managed to stay well grounded and focused on running the company with very strict cost accounting.

With the team working hard following their vision, wap.at - later renamed Xidris - was soon well positioned within the rapidly growing market for provider-independent text and picture messaging (SMS and MMS) added-value services. The Xidris team, for example, established the first interactive TV formats such as "Starmania," a TV format searching for a new talented musician, and successful text-messaging services for radio broadcasting. Products developed by Xidris are now key instruments with numerous interactive US TV Shows such as "American Idol." In 2002, Xidris received the renowned Ericsson Mobility Award for the UMTS movie adventure "The 3rd Edition," developed in cooperation with mobilkom Austria.

"It was obvious to me that we all had been young professionals without experience and that Xidris could have been growing much faster, especially on an international level. I assumed we would have known somebody willing to share his experience and expertise gained in a similar sector," Wagner states; this thought would be a stumbling stock for his actual project i5invest.

As Xidris still was a niche player, the strategic attempt was to merge with companies offering complementary products, and therefore benefit from each other's clients, management experience, and market presence. "Every country got about two to three regional players doing business in a similar sector, but none of them was an international player. So it was quite obvious that a market consolidation was about to come soon." To address this issue, Xidris together with Connovation (focusing on m-commerce and mobile ticketing) and Sysis (providing agent technology as well as intelligent games and simulations) merged to form 3United . The objective was to reach an EBIT margin of more than €10 million and to cover most of the European market. Having combined three complementary products into a growing industry that was one of the key players within the European market, it didn't take long to draw bigger US-American companies' attention to 3Unitedsolutions, which led to the hawked €55 million deal with VeriSign in 2006.

"Life did not change overnight, but of course selling my shares in Xidris or 3United respectively, changed my life - not least by being able to regard financial issues in a convenient way."

Disregarding the fruits harvested, Wagner stayed in business as he was appointed vice president for business development and product innovation with VeriSign. He therefore moved to New York to manage the integration of the product line-up of 3United and MCube - a Boston-based wireless software company also acquired by VeriSign at that time. Wagner says that he "has been fascinated by New York ever since, and the six-hour time difference between New York and Europe made it easy to remain actively in touch with Europe. Indeed it was, as I expected, a bodacious and inspiring experience to live and work in New York."

"What I like about doing business over here in the States is the attitude. Meaning that, if somebody is not interested in you or your offering, he will let you know straightaway, whereas in Austria you would still meet for coffee in order not to appear impolite. So to me it seems that the drive to be effective in doing business here in the US is rather high. I'm not sure, however, if quality is always coming along on the same level," says Wagner. All in all, American megalomania in combination with European diffidence seems to be quite a good mixture.

As Wagner has invariably been looking to come up with innovations and new ideas, he "was always sure about going back to be an entrepreneur rather than having a job as a manager or executive rushing from one steering meeting to another." When his contract with VeriSign ended in 2007, he did not head for a sabbatical right away but was driven to work on new business ideas:  He thought about how to combine both his "business angel" and start-up activities with an international approach by setting up an infrastructure for bringing start-ups to the point-of-proof more quickly and efficiently. This would later be the kind of business model we would call a "new business incubator."

Comeback of the business incubators - indeed the model has changed

After the dot-com bubble had burst, incubators - and anyone had a point on that - had to deal with the unpleasant image of "cash incinerators." However, nowadays incubators seem to be back - not just in the US but also in Europe. Within the fast-changing

Different Models of New Business Incubators

YCombinator, a mountain view-based company founded by serial entrepreneur and early-stage investor Paul Graham, funds about 40 to 60 start-ups, mostly within the software and web sector. YCombinator invests little amounts at a pre-seed/early stage. In total, 145 companies have been funded and fewer than 20 per cent (27 companies) have failed so far. The important thing is that the start-ups are not only provided with money, but also with both a methodology and a value system.

PlugandPlayTechCenter is another example of the new era business incubators. It combines the benefits of both a technology park and a new business incubator. The community now consists of around 200 technology companies. Since its inception in 2006, PlugandPlay TechnologyCenter has helped start-ups raise around $400 million in venture funding.

Hit frog, also situated in the Bay Area, runs a different model. One could call it a kind of a one-man show that funds engineers with amounts up to $50,000 to develop a new product. If the idea works, the engineers keep the bigger stake for themselves. Therefore, it is a lot cheaper to throw as many ideas as possible against the wall to see which one sticks.

context of the web2.0 and an information-based society, a new model of business incubators has evolved to address the newly emerged challenges and serve the new business models needed in this industry. The web is one of the most hit-driven industries ever seen. "Regarding Internet start-ups, nobody really can predict what the costumers are going to adopt in the future - five years ago the question: ‘Who needs Twitter ?' would have been quite valid," states Markus Wagner.

"It is not about providing facilities such as an office, a convention telephone network, and an Internet connection anymore." Nowadays, business incubators are about a worldwide business network and the management knowledge and experience to scale and leverage new ideas and start-ups, considering that there is a worldwide market to be reached. These criteria, among others of course, are all dominant concerns for whether a company in the web sector may fail or succeed. "The intention coming with i5invest is to make use of this leverage, the incentive to go international, and moreover to serve both US and European markets."

Research has shown that business incubators can be effective tools for supporting local innovation and new business creation, and can also contribute to reducing start-up failure rates substantially. So society as a whole can benefit from them. (Source tba)

"I5invest was among the first new business incubators started - coming along with initiatives like YCombinator and PlugandPlayTechCenter ."

i5invest Team, New York.

"I tried to put together a diversified team composed of former entrepreneurs and partners from the new economy and media sector, with the vision to invest in and newly create IT and mobile communications companies with a business-to-consumer approach. As I have been working with all of them in way or another, it was a great honor for me that they put their faith in me a second time."

The target market of i5invest was designed to set up companies with European, if not a worldwide, target market. Up until now, all companies have been started out of the team of i5invest affiliates.

Search engine 123people, online social travel guide tripwolf, online social yellow pages tupalo.com, dealhamster the biggest coupon web page on the German market and Xendex, one of the leading independent mobile and online games developer studio in Europe, are some of the projects funded and managed by i5invest at the time.

Most beneficial to the i5invest framework is the pool of expertise and the opportunity to share resources between the enterprises. Some people within the i5invest team have already gained a lot of experience in how to logo_tripwolf_small.jpg dealhamster_logo_small.jpg start a company and how to manage the first steps most efficiently states Stefan Kalteis, executive with dealhamster and i5invest affiliate. And for Alexander Trieb, one of the tripwolf.com executives, i5invest is a micro Silicon Valley with all its characteristics. Adding to that, the wide network provided by i5invest is quite a valuable asset when it comes to getting the best people for my company. Alexander further states, that "just recently working jointly with Salzburg Research a very successful tripwolf iphone application was developed, laying the foundation for tripwolf´s mobile strategy."

"Right now we are limited to two to three investments a year," says Markus Wagner. "As anybody can imagine, there is always a lot to do, both in strategic and operative matter, and days I am not in contact with all the companies are rare."

Markus Wagner's vision is to strengthen and sharpen the i5invest framework with every new project evolving and to encourage even more people towards entrepreneurship: "It's my goal to further motivate people for entrepreneurship, because those people are the basis for more, creating companies. Altogether, that would be a quite positive stimulus for society."

This article is based on interviews conducted by the author, Markus Pichler, with Markus Wagner, founder and CEO of i5invest, New York, Stefan Kalteis, CEO at Dealhamster and i5invest affiliate, and Alexander Trieb, executive at tripwolf.

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