'Netrepreneur' survey notes cooling towards IPO market.

The first-ever survey of "netrepreneurs" as entrepreneurs of the Internet are increasingly being called - reveals that half (49 percent) of the privately held net firms surveyed say they have no plans to go public in the future.

So says Ernst & Young LLP's first-of-its kind "Netrepreneur Survey" of 150 Net company founders. The survey examines how on-line entrepreneurs differ from their traditional counterparts, an aspect that is often overlooked.

Different Imperative Driving Net Start-Ups

Other findings from the Ernst & Young survey, some of which appear to challenge commonly held perceptions about netrepreneurs, include:

* Despite the well-publicized lack of profits at some high-profile Internet companies, the majority (69 percent) of on-line businesses surveyed are, in fact, profitable.

* Surprisingly, survey respondents stressed "independence on the job" (85 percent) and "a fun-filled workplace" (81 percent) over "stock options/profit sharing" (51 percent) as preferred ways to meet what they identify as a critical challenge for Internet start-ups: attracting and retaining talent.

* Netrepreneurs appear to be an unusually ambitious bunch, with survey respondents anticipating that they plan to start five online businesses, on average, in their lifetimes.

* The appeal of being an entrepreneur appears to be siphoning off a significant number of people who would otherwise have gone into corporate life, resulting in a critical challenge in Corporate America for the new millennium.

Surprisingly Profitable

Sixty-nine percent of the netrepreneurs surveyed say their companies are profitable. This is especially true of companies with 11 or more employees.

The number of netrepreneurs in New York City's Silicon Alley, as well as elsewhere in the Northeast, who report being profitable - 72 percent - is the highest, with the South and Midwest not far behind at 71 and 70 percent, respectively. Half of those surveyed from Silicon Valley and elsewhere in the West also report being profitable.

Two out of five - or 41 percent - of the unprofitable netrepreneurs surveyed believe they will turn profitable within the next two years, with another 11 percent anticipating profitability in three to five years.

Perhaps as a result of this surprising trend in profitability, almost half- 49 percent - of the privately held respondents say they do not plan to go public in the future. About 30 percent plan to go the IPO route, with another 15 percent undecided.

Broken out by region, Midwestern and Western netrepreneurs may be the most resistant to going public, with 70 and 50 percent respectively saying that they have no such plans. Southern netrepreneurs seem to be the most "IPO happy," with well more than half - 58 percent - saying "yes" or "maybe" to the idea of going public.

Corporate America's Challenge

Perhaps the most intriguing part of the Ernst & Young survey is the glimpse it provides into the self-image of netrepreneurs. A clear majority - 67 percent - see themselves as pioneers, drawn to netrepreneurialism because " it represents a new frontier". And 59 percent see it as "an appealing alternative to the traditional corporate ladder." Indeed, more than a quarter 27 percent - say that they would have gone into corporate life had the Internet not existed.

"Clearly, netrepreneurs are attracted by the unique challenges of the Internet," said Ernst & Young national director of Entrepreneurial Services Gregory K. Ericksen, "which raises interesting questions about the impact of netrepreneurialism on Corporate America's ability to attract and retain some of the country's best business minds. As many large corporations attempt to transform themselves into nimble on-line entities, they need to take a look at their entire corporate culture to identify what they need to do to attract new young talent."

It isn't just Corporate America that's being affected, however. Entrepreneurialism is apparently depleting the ranks of the country's traditional entrepreneurs, with 13 percent saying that they would have been brick-and-mortar entrepreneurs had it not been for the Internet. Thirty-five percent of respondents said they did not know what they would be doing without the Internet.

Regardless of where they might otherwise have gone, netrepreneurs appear to be an unusually ambitious bunch, with respondents anticipating that they plan to start five Internet businesses, on average, in their lifetimes.

More Than Just On-line Entrepreneurs

Netrepreneurs, moreover, see themselves as more than just entrepreneurs who happen to be on the Internet. The Ernst & Young survey results suggest that netrepreneurs have a different mind-set altogether. For example, seven out of 10 netrepreneurs believe that they need to be more resourceful, creative and innovative than their traditional entrepreneur counterparts.

An almost equal number say they have to be more responsive to market/consumers' needs, and perhaps not surprisingly, 81 percent cite their biggest challenge as the rapidly evolving nature of the Internet.

On this last point, survey respondent Dane H. Madsen, managing director of Business Development and a founding shareholder at Globalgate eCommerce, Inc. (and a cofounder of YellowPages.com, Inc.), sums it up best, "The most critical element that the Internet has changed is time. Business has long thought in terms of market cycles and earning cycles. Now we think in terms of technology cycles and Internet speed."

Business As Usual On The Internet - For Now

Surprisingly, given the fact that consumer ad spending for on-line services is exceeded $1 billion in 1999 (The New York Times, Nov. 2, 1999), 45 percent of the netrepreneurs surveyed describe their client base as "business only," and 43 percent as both "business and consumer," compared to 11 percent who said "consumer only."

Though the "business only" market segment is expected to grow at a crisp 11 percent over the next two years, the Ernst & Young survey suggests that the growth of "consumer only" during that period will be much more dramatic: a whopping 36 percent. The big loser, according to the survey, will be the hybrid category of "business and consumer," which is expected to decline by a staggering 77 percent over the next two years.

Age of Entrepreneurialism

"When we surveyed thought leaders last year, we concluded that entrepreneurialism would dominate the next century," said Ericksen. "With our new survey, it appears that a new breed of entrepreneurs - netrepreneurs - may redefine what the term entrepreneurialism will come to mean in the new century."

Ernst & Young's Netrepreneur Survey was based on 150 telephone interviews of a national sample of Internet company founders conducted by the New Jersey-based independent market research firm Leflein Associates, Inc. A Dun & Bradstreet-compiled sample was used which covered four Internet Standard Industrial Classification (SIC) codes: on-line service providers, Internet connectivity services, Internet host services, and proprietary on-line service networks.