Behind ‘Dot-Coms,’ a Silver Lining
The “dot-coms” are going a little gray.
In an economy chastened by spring’s Nasdaq meltdown, start-ups are filling out their organizational charts, from chief executives to accounts payable clerks, with seasoned professionals hired to implement standard business practices, land clients, deliver the goods--and lend legitimacy.
“It’s just not enough to have a great idea,” said Dee DiPietro, chief executive of Advanced-HR.com in Northern California. “To be fundable, you have to have a great idea and the ability to execute.”
Enforcing this new paradigm are venture capitalists, who, acting a bit like good bartenders carding youthful-looking patrons, are asking to see some seasoned hands along with the idea kids.
“You don’t go grab a couple of MBAs and spend all your money on marketing, billboards and Super Bowl ads,” said Jim Armstrong, managing director of Idealab Partners, a Pasadena-based venture capital firm. “You find someone who has worked in the ‘old economy.’ ”
Someone such as Peter Fuchs, a managing partner and 35-year veteran of New York-based Andersen Consulting, who, nearing the mandatory retirement age, got a call from a Santa Monica-based start-up that needed a chief executive.
“Peter had the tremendous experience in building a business. He had an outstanding reputation. He [could give] the company instant credibility,” said Randall Kaplan, who runs Jump Investors, a venture capital group backing TheBrain Technologies Corp.
Sure. But why would Fuchs, 58, leave a prestigious $6.6-billion management consulting firm for a start-up founded by a college dropout the age of his youngest child? Why would he want to run a business where four dozen employees wear T-shirts and Birkenstocks, chase Balance bars with Snapple at IKEA desks and then knock off for Foosball at 2 a.m.?
Fuchs wasn’t looking to start anything new, and the timing could not have been worse. The Nasdaq Stock Market was plunging 25% into bear territory and scores of start-ups were collapsing. More than 11,700 dot-com employees eventually lost jobs.
Yet the shakeout intensified the demand for seasoned business help and has accelerated the stage at which many start-ups are bringing in executives and experienced managers, say venture capitalists, recruiters and others involved in start-ups.
“Twenty-four, 36 months ago when this whole wave began, we saw the very green entrepreneurs with great ideas, tons of energy and vision hiring in their own image--wisdom and gray hairs be damned,” said Kevin Rosenberg, managing director and partner of BridgeGate, an Irvine-based executive search firm.
If start-ups had any business expertise, it tended to be limited to board members and advisors, which left them short of hands-on guidance, Rosenberg said. About a year ago, the pendulum began to swing toward getting business pros on staff.
“The writing was on the wall. April was just a very blunt reminder that companies can’t continue without good cash flow and earnings potential,” he said. “Despite the hours and the entrepreneurial spirit of the start-up, there’s no substitute for experience, wisdom and a few gray hairs around the temple.”
In late June, Rosenberg lured Richard Kish, chief information officer for General Motors’ eGM division, from Detroit to El Segundo to serve the same role for IBenefits.com, a corporate benefits software start-up. “He saw this as an opportunity to apply big business expertise to the fun and excitement of an Internet start-up,” Rosenberg said.
Alison Gregg made her jump to the “new economy” five months ago, joining Embion Inc. as vice president of human resources for the Irvine-based business-to-business start-up. At 50, she is 16 years older than the founders and feels, well, “old . . . in this business.”
“But,” she said, “with my 20-plus years in HR, I can handle anything. You have a wisdom that you don’t have when you are 34 years old.”
Jerry Feigen, a venture capital and new-enterprise consultant in Maryland, said the pressure to hire experienced businesspeople is also coming from investors.
“They are trying to figure out where the bottom line is coming from. That takes somebody, an operating person,” he said.
As Steve Patchel, a Watson Wyatt consultant in Santa Clara, Calif., put it: “The business plans are no longer on the back of an envelope.”
*
After 24 years in human resources and recruiting at old-economy firms, most recently accounting giant Ernst & Young, Bruce Ferguson said he joined Exult Inc., an human resources outsourcing start-up in Irvine, after it went public two months ago--but only after some serious due diligence he believes was warranted in the wake of the dot-com shakeout.
Now, as Exult’s chief people officer, Ferguson aims to hire about 350 people by the end of the year, and he expects to bring many of them from old-economy companies. But it is no longer a headlong rush to imagined dot-com riches.
“People are going through not a dissimilar process to what I went through, which is, ‘Does the business make sense? Is it just a flash in the pan, or do you think it’s going to be here five, 10 years out? Can it really work?’ ”
Those were the questions Fuchs asked himself about TheBrain Technologies, a company whose primary product was conceived by, as Kaplan of Jump Investors described him, “a 26-year-old genius.”
Intrigued, Fuchs flew out to meet with company founder Harlan Hugh and found him to be “a very engaging and very unusual guy for his age.”
*
Hugh has been a bit extraordinary since he was a child growing up in western Canada. At 6, his favorite “toy” was a clunky computer his father brought home long before Reader Rabbit and other kiddie software had hopped into PCs.
“I started programming right away,” Hugh recalled. “To me, the computer was a very exciting thing in the way you could take your ideas and create your own reality. You could take everything inside your head and turn it into something concrete.”
Hugh spent high school writing computer programs and fantasizing about launching his own company. He got his first program published during his freshman year at the University of Toronto and dropped out because he found college boring.
College could only slow down his realization of his vision to make the computer work as an extension of the mind. He wanted to develop software that would replace the desk-and-basket model of filing information with a three-dimensional network of navigational links that would sort and connect a person’s “thoughts”--everything from memos and lists to photographs and Web pages.
Within months, Hugh persuaded a couple of movie producers in Los Angeles to seed his start-up in 1995. Within five years, Hugh released his first software, doubled the size of his staff from three to six, and closed his first round of outside funding with $3 million.
That’s when he decided to hire a CEO. Hugh and a handful of investors and advisors did a little networking and were introduced to Fuchs through his son.
“We actually, frankly, didn’t expect him to be interested. It seemed almost too good to be true,” Hugh said.
But Fuchs and Hugh came to an agreement quickly, and at an age when many men in his position are contemplating retirement near a golf course, Fuchs agreed to join the new economy. He started May 1.
“This was an opportunity to take all the things I’d learned over the years,” Fuchs said, “and put them to work--perhaps one last time.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Not So Fast
Want to take the plunge into the “new economy”? Here are a few things to consider before joining a start-up:
* Beware of hype. Countless start-ups aspire to change the world, then fail to get a second round of funding.
* Look at the track record of the founders. Are they credible businesspeople with more than a great idea?
* Look at the record of investors. Have they financed successful enterprises?
* Understand how the company plans to make money, including the product or service it hopes to deliver, and know current and possible competitors.
* Figure out what stage the company is in. Is it a late-stage company with executives and funding in place? Or is it a pre-seed company with no executives and only a small amount of private funding?
* Think about what you can handle. Are you willing to work at a frenetic pace? Do you thrive on change? How will this impact your family? Can you take a financial downturn? Are you prepared to take either significant cuts in compensation or forgo traditional corporate perks in exchange for stock options?
* Talk to friends who’ve made a similar move.
* Pay attention to details, especially regarding compensation. When do options vest? Are they awarded annually? Do options vest if the company is taken over? --LISA GIRION
Sources: Kevin M. Rosenberg, managing director and partner, BridgeGate, an Irvine-based executive search firm; Dee DiPietro, chief executive, Advanced-HR.com, a Northern California-based compensation consulting firm; Mark Hodges, vice president of corporate development, and Bruce Ferguson, chief people officer, Exult Inc., an Irvine-based human resource provider
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Changing Dot-Coms
An influx of older workers may change the face of dot-com culture, to a point.
*--*
Old dot-com New dot-com Stock options Higher salaries Health club membership Health insurance Turkey jerky Bran muffins Burning Man festival Alaska cruise Foosball Golf Faded “Myst” T-shirt Pressed polos Staying up all night partying Lasting until Leno comes on 16-hour work days 16-hour work days
*--*
