Departing CEOs Put Their Spin on Theglobe.com
Theglobe.com, a Web site built on the concept of an Internet “community” with online chat, games and personal home pages, burst into prominence Nov. 13, 1998. That day its stock scored the then-biggest opening-day gain in market history--a jaw-dropping 606%.
Todd Krizelman and Stephan Paternot, college roommates at Cornell University when they founded Theglobe.com in 1995, immediately became Gen-X moguls for the Internet economy.
But after a few months of unbridled optimism from Wall Street and plaudits in the press, investors began to sour after the company’s rapid losses, and skeptics doubted whether Theglobe.com’s young co-CEOs could lead the company to profitability. Its share price began a steep decline--from $39.47 (adjusted for a share split) last April to $7.78, up 3 cents, on Friday in Nasdaq trading.
In its most recent quarterly report on Jan. 27, Theglobe.com reported rapid growth in its user base and revenue of $6.4 million--a 129% rise over the quarter a year earlier. But losses mounted even faster, to $11.1 million. The company depends primarily on advertising revenue, though it has recently branched into e-commerce. It is doing so, in part, by creating specialized clubs on thousands of topics that offer opportunities for niche sales and marketing.
Theglobe.com also announced that Krizelman, 26, and Paternot, 25, would step down as co-CEOs by midyear and hire a new top manager. The two will remain with the company as directors and strategists. They also promoted Dean Daniels, a former CBS executive who has been with Theglobe.com since September 1998, to president and chief operating officer.
Despite the company’s poor results, it still has cash reserves of some $55 million, enough to last more than a year, according to Daniels.
Krizelman and Paternot sat down with The Times for a discussion about their roller-coaster experience in the new economy.
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Question: Other community sites were purchased by large Web portals, reaping huge windfalls for their shareholders. Given that Theglobe.com’s share price has nose-dived, have you considered seeking a buyer?
Krizelman: If we ever found the right partner, that’s something we’d be very open to. At the same time, you don’t go about building your business to sell it. We made a decision early on that instead of sitting on the sidelines and waiting to be bought, we’d build a very strong management team. We continue to build products that will allow us to go far into the future. . . . We continue to march toward that point of profitability--the end of 2001.
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Q: How much longer can your losses rise faster than revenue before your strategy must change?
Paternot: The [size of the most recent quarterly] losses were due to launching two new products, and we specifically set our marketing budget to be very aggressive in our growth there. Going forward, the marketing [costs] can . . . decrease over time, specifically as we tie into our new distribution strategy that allows us to acquire huge new audiences at very little cost.
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Q: What have you learned after seeing Theglobe.com stock set an opening-day record, only to plummet to today’s level?
Paternot: The only real up and down has been with the stock price. Not so with the business, [which has] only gone up [in terms of revenue and audience growth]. What Todd and I have looked to do is to keep building the business. That’s the one variable we can control. . . .
I wish our stock had never had a 606% one-day gain. What it means is that suddenly everybody has a new expectation. And if your stock ever comes down to its original valuation, people blame you. . . .
Between November 1998 to [now], the only thing that’s happened is our management team’s been built, business has been built, audience is up. Does anyone really notice that? No. It’s more, from 606%--down.
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Q: Young founders of many of the most successful Internet companies realized quite early that they needed top managers with hard-core business skills and experience. Did you hang on too long as co-CEOs?
Krizelman: The answer is no. To push back a little bit of what you were saying, very early on we realized [the need to] bring on great talent around us. . . . This latest announcement [promoting Daniels and announcing the CEO search] is the latest step in that.
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Q: What’s your reaction to the widespread perception that it was a huge error for you two to stay on so long as co-CEOs?
Krizelman: Not enough people look at the fundamentals. . . . The company’s ranking from Media-Metrix went from [the 90th most visited site] to 34 this year. Revenues are very up, we have products that grow very quickly. . . . One of the things we spend a lot of time now doing, when we talk to press, [is say] ‘Let’s talk about business fundamentals and not stock prices.’ ”
Paternot: We’ve never felt like we were in over our heads . . . [and] we did bring in a great management team.
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Q: Have you sold your stake in Theglobe.com, or are your own fortunes still tied directly to the company’s success?
Paternot: Our entire net worths are tied to Theglobe. Entirely. . . . Our entire motivation is to build up Theglobe. Hopefully the stock price will follow. One philosophy we’ve had is that if you build your business, the stock will follow it.
[Note: But according to documents filed by Theglobe.com with the Securities and Exchange Commission, Krizelman sold about $2.4 million worth of company stock and Paternot sold shares worth some $1.6 million last May. Company Chairman Michael Egan sold about $50.5 million worth of stock.]
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Q: Any advice for young entrepreneurs who find themselves going from college student to CEO overnight?
Krizelman: Surround yourselves with smart people. Don’t get caught up in your own ego.
Paternot: Don’t go do this for the money. Go do this if you absolutely believe in something that you want to build and that you love. . . . Regardless of where the stock price has been, regardless of positive or negative press. . . . We want to build this phenomenal community model that we think is going to explode in the future.
