Some EarthLink Employees Opt to Start-Up All Over

Now that EarthLink Network of Pasadena has completed its $4-billion merger with MindSpring Enterprises, some veterans of the company are longing for the start-up atmosphere of EarthLink’s early days--and they’re jumping to other companies to get it.

In six years, EarthLink has grown from a 10-modem operation to a 5,800-employee industry leader, one of the top three Internet service providers in the country after combining with Atlanta-based MindSpring.

With nearly 3.5 million customers, EarthLink lags far behind America Online Inc. with its 22 million members, but it is neck and neck with NetZero, its Westlake Village rival that doesn’t charge for Internet access.

EarthLink, which charges subscribers $19.95 a month, lost $173.7 million last year on sales of $670.5 million. It doesn’t expect to be profitable until 2002, but it has a market capitalization of $1.9 billion.

EarthLink’s employees are proud of the progress the company has made. But some of them have decided it is time to move on.

“Before, it was a loose environment, but now it’s a corporate culture,” said Sean Kanamori, who worked his way up from customer service representative to customer service trainer in 1 1/2 years with the company. “You could slowly see it start to get a little more corporate, more administrative, more political. I’m sure it’s not as bad as IBM or anything like that; it’s just going in that direction.”

So after the merger was completed, Kanamori, 25, decided to follow a former EarthLink colleague to Launch Media and became manager of customer support. Santa Monica-based Launch runs a 2 1/2-year-old music Web site with about 265 employees.

At EarthLink, Kanamori said, “I had moved up very quickly--every few months it was a new position with new responsibilities. But I felt like I was reaching a ceiling with the merger and reorganization going on. I saw the opportunity slipping.”

As the employee ranks swelled from 100 at the end of 1995 to more than 2,600 at the end of last year, EarthLink instituted more formal structures and processes that ate away at its freewheeling atmosphere. That is a part of the natural evolution of a company going from start-up to grown-up, but it often sends ambitious employees heading for the door.

Microsoft Corp., Netscape Inc., Walt Disney Co. and others have lost key employees who decided they would rather take higher-level jobs in smaller companies--and potential big cash rewards.

“Once a company moves from an entrepreneurial environment and gets more professionalized, managing the business becomes very, very different,” said Alfred Osborne, director of the Price Center for Entrepreneurial Studies at UCLA’s Anderson School of Management. “Some people can grow with those challenges, and others can’t.

EarthLink says it doesn’t know exactly how many Pasadena-based employees have left since the merger, but staffers say that at least several dozen co-workers have departed. They include an executive vice president, a vice president and five directors, positions that are one level below vice president.

Overall, the turnover has been “very, very nominal” and hasn’t affected the company’s ability to run the firm or recruit new employees, EarthLink spokesman Arley Baker said.

Some employees whose jobs were transferred to Atlanta left EarthLink because they didn’t like the new jobs they were offered in Pasadena. And for some, the desire to return to a company in a start-up phase was also an important factor, EarthLink Chief Executive Garry Betty said.

Many who left “dream of being the next ‘dot-com’ multimillionaire, and you’re not going to do that in a more established company,” Betty said. “We have very competitive compensation packages and options that can be worth a couple of million bucks, but if you want to be the big hitter, you have to get in early [with a company] to get the big slug of options.”

EarthLink offers stock options to its employees, but most are worthless now that the company’s stock has slid 64% since early December. EarthLink shares hit a 52-week low of $11.31 this month and closed Thursday at $14.06.

Last week, EarthLink reported that it lost $50.9 million in its fiscal first quarter, before merger costs and one-time expenses, contrasted with a profit of $3.2 million in the year-earlier period. Both revenue and expenses--especially for sales and marketing--grew during the quarter.

Departing employees said the now-worthless stock options were not a big factor in deciding to leave. In some cases, the new corporate culture was the biggest drawback.

EarthLink “was very fun when we were a small company,” said a longtime employee in her mid-30s, who asked not to be named. “It was very friendly. Everyone was working together and there was a real sense of camaraderie.”

But the bigger the company got, she said, the more impersonal it became. “It was becoming a very political environment. People didn’t know each other. It just wasn’t fun anymore.”

When her department was moved to Atlanta, she decided not to seek another job in Pasadena. Instead, she is eyeing a Los Angeles area e-commerce start-up that is raising money from investors.

To be sure, many people prefer the stability of a bigger, more established company. Certainly Wall Street prefers EarthLink that way.

“It looks better post-merger than pre-merger,” said David Levy, senior research analyst for Chase H&Q; in San Francisco. “These businesses are about scale, and the merger gave them much more significant scale to help them brand themselves more effectively, market to customers more effectively and appeal to advertisers much more effectively.”

In that context, Levy said, the employee exodus is not a cause for concern.

“The most important thing for investors to look at are the fundamentals: subscriber growth, revenue and progress toward profitability,” he said. “Unless [the departures] affect those things, [investors] shouldn’t be concerned.”

But for an employee seeking a challenge, a start-up is hard to beat.

“You’re solving a lot of problems. You’re out in the field. You’re building something,” said Arman Afsar, EarthLink’s former director of network operations who in February joined Broadband Digital Group, an 8-month-old Newport Beach company that is offering high-speed Internet access under the FreeDSL name.

Now Afsar, 42, is working about 95 hours a week instead of 50, and his staff has shrunk from 1,300 people to 30. But at Broadband Digital, Afsar’s new position as vice president of client services is “several levels” higher than where he was at EarthLink, with more responsibility and more potential financial upside from stock options.

“EarthLink is a great company and they’re up to a lot of good stuff,” said Afsar, who spent four years there. “It was a hard decision to make, to stay with the good stuff or get into a new business model and take a risk and make this small company work. I chose the second option. The energy is very exciting. The longer hours are definitely there, but it’s a sense of accomplishment.”

He’s not alone. After he left for Broadband Digital, three of his EarthLink colleagues called to say they, too, missed the small-company environment.

All three ended up joining the Newport Beach company as well.

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Times staff writer Karen Kaplan can be reached at karen.kaplan@latimes.com.