Goldstein: I guess I would describe myself as someone who's a builder of companies. I have been really turned on by information technology since high school. My head's been in the game and very involved from the very early days of online services. Instorecard is my sixth startup. In the mid-80s I started a company called Reality, which we sold to Reuters, which was an online financial service. Many people think of it as e-trade before the internet. We also built the first-generation online games for Prodigy. I was very involved in the early days of online services. Before we sold Reality to Reuters, we were going to be AOL's first acquisition, but we turned AOL down because my board didn't want to take AOL stock. So we took Reuters' cash instead. That lasted until about '92. After that I worked at Reuters for a year, and in '95 started Net Angels which was an internet profiling company. It had a short life because we quickly merged it with a company called Firefly, which Microsoft bought. Then I started Impulse Buy. As you know, that became Inktomi. I stayed at Inktomi for 30 days and then left and water skied and played. I became an EIR at Softbank and we started up Blue Light in October of '99.

OV: Was Blue Light your most recent company prior to Instorecard?

Goldstein: Yeah, there were others. After Bluelight, I became an EIR at NEA. At NEA I was acting CEO of about three to four different companies, but I don't really count those. Right around that time I wrote this crazy article for Fortune magazine explaining what I was doing then. It was called ÐThe Internet or Plastics.¼

OV: Moving on to the current company, we'd like to know what prompted you to start InstoreCard.

Goldstein: I think it is pretty clear that commerce is coming back. I had just finished my Green-Up project, which was my attempt to save the world from all things bad. That was my environmental services project. Then from there, while I was working with the green and the eco community, I started getting calls from VCs and from friends saying, hey, it's okay to come back into the water. And you know, everything is great in commerce and you need to think about coming back in. What attracted me again coming back to commerce was the fact that I was really a phone call away from whoever I needed to be and whoever I needed to put together a relationship with.

OV: Right. There you are today, you must see some challenges. What do you think are your key challenges going forward over the next three years?

Goldstein: Well, the first phase of this business is to launch a 1.0 product that is suitable, that delivers on the core proposition we're promising our beta merchant customers. And when you think about it, the first year of the business is just to build a platform and the basic capabilities, so that we can compete effectively in the retail loyalty market. Because it's a mature market, it's going to take us a year to build some good software, to be competitive with a variety of folks who have been going at this for 10 years and more. You asked what the challenges are and what the goals are and right now the challenge is to make sure our platform, our 1.0, and what will be our 2.0 product in the fall, is good enough. We want to deliver incredible functionality at a fraction of the cost. And that's where we aim to be somewhat disruptive because we're basically disrupting the pricing model.

OV: You were saying that today commerce is back after three or four years. Why is it so much more evident today than it was a couple of years ago?

Goldstein: Well, the truth is commerce never went away; it became very unpopular. Why did it become unpopular? Well, it was over-invested. So because it was over-invested, it had to basically self-prove. It took two years for the over-financed bad companies to disappear. And until that fog went away, it was a bad place to play because even if you had a great idea, you had too many sort of companies out there with too much money that would cloud your ability to get it in front of the right buyer. That was problem one. Problem number two was the fact that the customers and specifically retailers out there were sick of it all. They were sick of just buying everything under the sun, three-quarters of which didn't work, so they took a hiatus and they said, Ðwe're not buying any more.¼ So, you basically had a customer strike, and you had basically just too many peddlers on the beach. Like Acapulco on a cloudy day.

OV: Okay, so you suggest there were a lot of companies out in the market confusing the space and customers were not interested. Now a number of these companies have been removed so there's room for a new player that can effectively solve the problem.

Goldstein: Yes and a third thing happened. Web services came into vogue. So the web service model worked and there is a lot of proof out there that it is working. As a result, the companies that want to take advantage of a web services model or ASP can deliver a lot of the functionality in an acceptable way to customers who historically would have had to go out and buy enterprise software and deal with all the costs associated with deploying it.

OV: Here you are, CEO again. What do you think are some of the core competencies within your company that will make Instorecard succeed? What are the critical success factors you have identified and why are you going to win?

Goldstein: We're going to win because our product allows a retailer to test and build a robust loyalty solution within 10 days. Retailers get to market, within 10 days, something that historically would have taken a minimum of six months and half a million dollars. We're really allowing our customers to test the proposition or supposition that their loyalty can work for their customers without having to sit around for a year designing something and hoping it will work based on what a salesman has sold them.

OV: Given the importance of how you price your product, how did you come up with this pricing model? Was it driven by customer feedback or is this something that you think customers will adopt?

Goldstein: Well, at K-Mart, among other things, I was in charge of the loyalty programs. So I had a chance to really dig in and understand what a retailer wants. The K-Mart experience put me on the other side of the desk. My whole career I've been a vendor. That was the first time in my career I was actually buyer. So I developed a good sense of what the marketplace wanted. At the same time, I'd been doing a lot of research and have a variety of friends in the sector. I had enough intuition to know there is demand out there for this. Secondly, I'm just a very active shopper and customer of all things. And I know that these things work.

OV: What can the audience of this newsletter take away from you regarding consumer loyalty marketing?

Goldstein: Well the first thing is that all retailers need loyalty programs. If they don't have them, they're going to need them soon because they're really the most inexpensive way to make incremental dollars. The research out there says that up to 80 percent of your sales come from 20 percent of your customers. So if you focus on that, you need to focus better on that 20 percent. You know, there were books out last year that talked about firing your worst customers, that was popular last year for people to talk about. It's true. At K-Mart, we had lots of people that were clogging up the lines and buying low margin items. At the end of the day, as a retailer, sure you want to honor all customers if that's what you're about, but you want to focus on who your most profitable customers are and what you can do to serve them. The only way to do that in today's market is through technology. I mean you can't, as a shopkeeper, know everyone's name that walks in the front door. So the systems are important, which is good, so all retailers want them. A lot of retailers have them and they simply want to improve them. There's a lot of money going into this, and so it's a today problem. You know, we're not selling something that's sort of neat technology that hopefully will find an application. This is a meat-and-potatoes business.

OV: So Mark, what are your challenges as CEO going forward? What do you lose sleep over, if you do?

Goldstein: I lose sleep over not being able to build the best team possible. I lose sleep not being able to look around a table at a team and simply say I'm working with the best people in America. So, that to me is what keeps me up at night, figuring out how I can make this team better within realistic parameters. You know, it's not like I can go out and just pay everyone what they want to get paid. I know if I surround myself with just really a super strong great team, that it'll work because this type of business is pretty flexible, you don't have to necessarily get it right the first time, you just quickly morph whatever it is you're building to exactly what your most important customers want.

OV: What are the three things you would recommend for a first time CEO to ensure the success of the company?

Goldstein: I would say understand yourself and understand what you're not. Then go out and surround yourself with people that are what you are not.

OV: How easy is it for the first time CEO to realize what they are and what they are not? Does it come through experience; is it introspection, how does one do it?

Goldstein: There's a quote that I've always used, I forget who said it, but the quote is Ðthere can be no tryouts without loss.¼ Again, in the Valley three years ago, I remember everyone was talking about failure being good. For a first time CEO there haven't necessarily been any losses, and so the chances of getting it right the first time is less. Now, there are always the Michael Dell's of the world and the Steve Jobs. There are exceptional CEOs who are just really brilliant and have a little luck, but at the same time have a lot of focus that do get it right. In a lot of those cases, they did surround themselves with great people. I mean that's the first thing that Michael Dell would say. Same thing with, you know, it's really about for the strong partners and the like. So, that's what I would say.

OV: Thank you very much for your time.

About InStorecard: Instorecard is an innovative combined hosted loyalty and CRM platform that integrates both in-store and ecommerce functionality. The company is lead by Mark H Goldstein, a 20-year industry veteran, and backed by Mobius Venture Capital, Outlook Ventures, and Canaan Partners. InStorecard is located at Pier One in San Francisco, CA. For more information, please visit InStorecard's website at http://www.instorecard.com