An auction barker’s drawl and a musty smell fill the cathedral-like main room of the Boxer Learning building on the Downtown Mall. Two years before this bright Thursday afternoon, during the dot-com’s heyday, Gen-X employees could be found in the building breaking up the workday with a game of ping-pong. But in the lean days since the bubble burst, Boxer Learning, which deals math-teaching tools over the Internet, has shed employees and traded its swanky digs for a Court Square suite.
The auction crowd works its way through the large office, snapping up file cabinets, computers, chairs, desks—even artificial fruit and a refrigerator. Though not particularly gaudy by dot-com standards, Boxer Learning’s old haunts contain massive amounts of office equipment. More than 400 lots hit the blocks by the end of the day, some of them containing multiple items.
The former bank building appeared cleaned up on the day before the auction, but evidence of a hasty exit persisted. Half-erased on an ink board was the phrase “Fix Bogus Time-Spent Values.” Various desk drawers contained such things as notepads, tea bags, pill packs, candy, body lotion, and one contained a thank-you card. One former employee came by to claim the contents of his desk. Upstairs, a window stood open in a second-floor office containing only two trashcans and a piece of paper, which sat in the middle of the floor. The page was a February printout of “help wanted” ads from the Richmond Times-Dispatch.
Though Boxer Learning and colossal Internet bomb Value America’s old spaces have a ghost-town feel, there is still life in the dot-com community. At least a dozen local Internet-based companies are still clicking along, begging the question: What separated Charlottesville’s Web survivors from its pretenders?
The Internet thrust Charlottesville into the sphere of other second-tier Web meccas, such as Austin and Urbana-Champaign, Illinois, but only briefly.
“The bubble came to Charlottesville really late, and it left really early,” says local Internet vet John Paul Ashenfelter.
Charlottesville’s run as a Web player lasted roughly from the spring of ’99 until the fall of ’01, and included some spectacular highs and lows, most notably the implosion of Value America and the roller coaster rides of Kesmai and Boxer Jam. Today, Charlottesville’s Web herd has been seriously thinned. Local insiders say companies with vacuous business plans and questionable expertise have gone the way of the Dodo bird. Among Web survivors, many have had to dramatically scale back their operations. But most local Internet companies say business is good, perhaps even better than it was during the faux bonanza of the boom.
During those heady days, Charlottesville was an ideal venue for Internet startups. The Kesmai Corporation, a computer game pioneer, had given the City a techie toehold since the mid ’80s. UVA and Darden provide a steady stream of graduates looking for work, but the City lacks major corporations or other big employers besides the University. Dot-coms gave UVA grads a means of staying in Charlottesville.
Ashenfelter came to Charlottesville in 1995. He left a post as co-director of the Teaching+Technology Initiative at Darden to give dot-coms a whirl in 1998. After a stint at one startup, he hit the job-hunting circuit the following year. He was in high demand, and got about seven job offers in the weeks between Thanksgiving and Christmas. “It was just crazy,” he says. Ashenfelter eventually interviewed with Boxer Jam, a web-gaming company that had been founded in part by Julann Griffin, the then 70-year-old ex-wife of Merv Griffin and grandmother who conceived of the television quiz show “Jeopardy.”
After the job interview, Ashenfelter was asked if he wanted to report to work the next morning. On his second day of work, he says he worked on a risky new venture.
“We spent a quarter of a million dollars on [an executive’s] hunch and my tech analysis,” he says. “Boxer Jam, they burned through an enormous amount of money.”
A few months later, more cash found him, in the form of $500,000 in venture capital. Ashenfelter says he didn’t pursue the money, and that it came through “sort of a family-friend connection.” He quickly put together a tech firm called TransitionPoint and hired a couple of employees.
The new company’s plan was to offer programming and database expertise to Internet-based companies. They secured several clients, including a few in Charlottesville, but primarily focused on two large companies. As was common during the boom, the two big fish paid Ashenfelter’s firm in part with equity. This form of payment could be shares of stock in the company, or stock options, which are the option of buying a number of shares in the dot-com at a certain time and price.
“We were really rolling the dice on those two companies,” Ashenfelter says.
The gamble didn’t pay off, and about a year later, “things were really drying up,” Ashenfelter says. He tried to help his employees find other jobs, placing one at Value America. Now solo, Ashenfelter took work elsewhere, including stints at Capital One, the credit card company, and Darden, and wrote two books. But his company weathered the storm, and Ashenfelter says “the phone still rings.”
Ashenfelter’s experience follows the hackneyed dot-com storyline: Get a cash infusion, hastily hatch a business plan, spend like crazy, rely on uncertain revenue and wait for the inevitable crash. But while most dot-commers either made a killing by selling before their company completely fizzled (as did many of Value America’s brass) or walked away with nothing, Ashenfelter is still working in the field. He says his Internet experience has been the equivalent of an extremely expensive MBA.
“The bubble taught me a lesson that it taught a lot of people,” Ashenfelter says. “You really need a good business model. We’re still around, but the original model didn’t work out that well.”
Ashenfelter also echoes a common refrain among Charlottesville’s Internet survivors when he makes the surprising claim that more money was not necessarily a good thing back in the days of irrational exuberance.
“The money let me do stuff, but it also complicated things a bit,” he says, explaining that the venture capital cash cushion “made it easier to not plan as thoroughly.”
“I would’ve had to do things very differently if I had had to bootstrap it,” Ashenfelter says.
The most widely cited story of a delusional confidence boost from big venture capital was Value America’s CEO Craig Winn’s plans to buy a lavish private jet and build a corporate campus with hiking trails, all while the company hemorrhaged money and struggled with basic customer service. Indeed, several local Internet companies now in the black say they never scored high-dollar seed money, and instead kept their eye on profits, slow growth and landing a broad range of clients.
Rick White, a CPA and partner at Hoffman, White and Company, has worked with local Internet companies since 1993. In that time, he’s seen much of what works, and what doesn’t. White agrees that simple business virtues such as flexibility played a role in Charlottesville’s dot-com success stories. However, he says many failed local ventures were poised at the edge of making their ideas workable, but didn’t get the last necessary nudge. White say local investors were particularly cautious during the boom, and waited until they saw big money being made in Northern Virginia before timidly jumping into the Internet game. Many insiders echo this sentiment, and say investment in local dot-coms often came from Richmond, Washington or elsewhere.
The former vice-president of multimedia at Value America, Rusty Speidel, is one local Web vet who is still taking a chance on high-tech ventures. Speidel recently launched a foray into wireless entertainment, and says local money is of the “dribbing and drabbing” variety. “We need one more push to get over the top,” Speidel says of his company, Labrador Communications.
White cites local dot-bomb CubeCard as an example of a profitable idea that came close to getting off the ground—to provide a prepaid Internet purchasing card. He says CubeCard “had a lot of dominoes lined up” and that “if any domino had fallen” they would’ve made a bundle. Of course, investors in Value America and other colossal dot-com failures might argue that Charlottesville’s investors were wise to be cautious. And resentment certainly persists in the Charlottesville area over the massive dot-bomb layoffs that occurred while top executives reaped big stock-sale paydays.
Despite its recruitment of many skilled workers, White says Value America “did more to hurt the technology community in Charlottesville than it did to help it.”
According to Value America alum Speidel, who also worked for Kesmai and The Museum Company’s online component, dot-coms tried to become “the biggest and baddest” company in their field while failing to deliver their products. He says Boxer Learning is a great example of a good idea that wasn’t good enough.
“[Boxer Learning] got all big, but they didn’t think about profit. They thought about stock price,” Speidel says.
Musictoday.com is a local company that connects musicians and fans through Internet sales of tickets and gear, as well as by running online fan clubs. Though the middleman strategy of the privately held company is reminiscent of Value America’s corporate plan (see sidebar), Musictoday.com has managed to stay afloat.
“We are the tortoise. We did not have a lot of venture capital,” says Ford Englander, chief operating officer of Musictoday.com, which is owned by local developer and musical giant Coran Capshaw, also known as the manager of Dave Matthews Band. “We built our business in a more traditional sense. We had hard goods that we were selling.”
Local dot-commer Jack Smith also attributes part of the survival of his company, PeopleSpace, Inc., to the fact that he never got major venture capital. Also a Kesmai alum, Smith started PeopleSpace in 1997. The company develops games, polls and other interactive devices to help websites attract visitors.
“I never had a huge influx of money, so I’ve never been able to go nuts on a budget,” Smith says. However, his company still grew fast. By 2001 he had a monthly overhead of around $25,000. But when the economy took a nosedive after September 11, Smith lost several major clients, and came close to throwing in the towel. He says his frugality kept him afloat. An art collector, Smith “stripped the walls” and sold off his art to pay the bills. He also claims he stayed in New York City on business trips for as little as $20.
Though he has no employees, relying instead on two regular contractors, Smith says his client list is better than ever before. But he says he’ll avoid the profligate spending of the dot-com gilded age. Citing a dot-com insider cliché, he says he’ll never buy the expensive Aeron chairs that were popular during the boom.
“My conference chair is from Wal-Mart, with the canvas and the beer-holders,” Smith says.
Before the boom, Smith founded a regular meeting for local Internet workers. The group, which calls itself the Neon Guild, meets twice monthly and has about 350 members.
The Neon Guild’s first and only “Guildmaster” is Debra Weiss, who runs a Web design company called drw Design. With the aesthetic of an orderly housewife, Weiss hardly fits the slacker chic stereotype of the Web set. A silver scooter would look woefully out of place in her tidy home on Hedge Street, which serves as her office. Despite her mild-mannered appearance, Guildmaster Weiss doesn’t pull her punches when decrying the foolishness of dot-bombs, saying that many of them had a “business model based on air” and that often, “the idea was stupid, and unworkable.”
One particular failure cited by Weiss and other techies is NeigborhoodFind.com. Founded by local real estate agent and business owner Kenneth Clarry, the company strove to give the specs on the nation’s neighborhoods (schools, businesses, weather and more) to people looking to make a move. Clarry secured big dollars for the website, hired dozens of employees and hoped to have real estate agent sponsorship from all over the country. According to Smith and Weiss, Clarry’s vision was too rigid for the capricious nature of Internet commerce. Clarry’s company hit the skids, and he later died when the small plane he was piloting crashed near the Shenandoah National Park.
“[Clarry] didn’t bend as things changed in the market. I think initially it was a good idea, but he didn’t let it evolve,” Smith says.
In addition to flexibility, Charlottesville’s dot-com survivors highlight diverse clients as a key factor in keeping them afloat. And one of the ways local programmers and Web designers have found work over the years is through the Neon Guild, despite the fact that the group’s members are all competitors.
“We figured out a long time ago that this is a small town, and it’s better to collude than compete,” Weiss says. “It’s not who you know in Charlottesville, it’s who knows you.”
The Neon Guild has seen more than 1,000 members come through the doors over the years, and besides its networking payoff, Weiss says the Guild became a support group when the boom went bust. The group also spun-off a more formal organization for tech workers called the Virginia Piedmont Technology Council.
Smith says that beyond the Guild, other members of Charlottesville’s business society helped Internet workers when they fell down on their luck. For example, he says developers Gabe Silverman and Allen Cadgene and even local banks could be forgiving when money was tight.
“Charlottesville really is a community town,” Smith says.
Weiss says her Web design company has had some slower years, but claims she’s always managed to make a living. Rather than looking for the big score, she says she’s always worked with small and mid-size businesses. She currently has 50 to 60 clients, most of whom she’s worked with for more than five years.
Jennifer Hoyt Tidwell is a 1996 graduate of UVA who, along with three partners, founded her Web design company, Category4, in October 1998. She says her company has always worked with a broad variety of clients from among nonprofits, government agencies and educational institutions, rather than with a few big budget, but more volatile ventures. Tidwell says the decision wasn’t necessarily based on wisdom, saying that the company chose these projects because they were the ones in which she and her partners had the most interest.
But even colleges and government agencies demand a good product, and Tidwell says many other dot-coms just couldn’t deliver. She says many dot-coms were “trying to do too much” but were only competent at some of their work.
“A lot of people call themselves designers who had no business doing that,” Tidwell says.
Another crucial mistake cited by several dot-commers is one that almost tanked Ashenfelter’s company: the nonexistent paycheck. The massive stock payoff seemed just over the horizon for many in the business, so tech companies often offered stocks or options en lieu of actual payment. Weiss resisted this chimera.
“I wanted to be paid for my work,” Weiss says. “I don’t work on spec, and I don’t work on sweat equity.”
Category breaker
How Category4 resisted the Web’s excesses
The financial chart for most dot-coms looks like the profile of Mount Fuji—a steep climb followed by a precipitous decline. Category4, a Charlottesville-based Web hosting and design firm, has bucked this trend with steady growth. In 2001, Caegory4’s worst year, the company grew by 15 percent, according to founder and president Jennifer Hoyt Tidwell.
Tidwell, a 1996 UVA graduate, and three other UVA grads started the company in October 1998. They cobbled together $50,000, bought a printer and some hardware at Sam’s Club and began running the company out of a den in one of their homes. They hired their first employee the following spring, and now have 13 people on the payroll.
“We were just thinking, ‘We’re probably better as a group,’” than as freelancers or being unemployed, Tidwell says of the company’s founding philosophy.
During the boom, Tidwell and her partners thought the company would have as many as 25 employees by 2003, and that it would continue to almost double its size every year. When reality and the dot-com fantasy collided, Category4 focused on profitability instead of growth and worked on building a broad list of clients.
“It was just a matter of riding it out,” Tidwell says. “We knew the Web wasn’t going to go away.”
Over the past five years, Tidwell says Category4’s staff members have stuck to their specific skills of creative design or programming, rather than being jacks-of-all-trades. She says some of their competitors tried to do it all, “but it just wasn’t good.”
Tidwell sees a promising future for Category4, which will soon move into the new SNL Financial building on Seventh Street. Though successful in a turbulent field, Tidwell, who was an English major, says it wasn’t a path she envisioned.
“I never saw myself as a business owner,” she says.—P.F.
Valuable lesson
How one local dot-com company flamed-out big time
Perhaps no company embodied dot-com audacity better than Charlottesville’s own Value America, which sought to revolutionize retail by forging partnerships with manufactures and then selling goods online to consumers—all without any inventory of its own.
Value America managed to garner early high-dollar support from Fed Ex bigwig Fred Smith and Microsoft co-founder Paul Allen. On the day it went public in April of 1999, the company raised $145 million and the share price hit $74.
Value America’s founder, Craig Winn, was a billionaire on paper, but only for a day. Less than 16 months later, on the day when Value America went bankrupt, its stock was trading at 72 cents per share, 185 of its employees were let go, and its website was dormant.
In the aftermath of Value America’s flame-out, former executives and employees decried the company’s massive overspending and literal failure to deliver the goods.
“[Value America] couldn’t figure how to deliver products reliably,” says Rusty Speidel, a former company executive. He once ordered a washing machine from Value America, and says it was dumped on his driveway—hardly a sterling example of customer service.
While Value America’s rank-and-file were getting their walking papers—about 300 employees were laid-off just days before the holidays in 1999—several of the company’s top executives were reportedly making a mint on the company’s hollow value. Business Week reported that Winn made over $50 million on Value America, and C-VILLE Weekly found that several other senior company execs filed for stock sales valued at as much as $3.2 million.
“[Value America] is one of the great tragedies of this town,” says local Web designer Debra Weiss. “When they folded, they did it in such a rude, horrible way.”
For further reading on Value America, both Winn and Value America’s former flack, J. David Kuo, published books on the company’s saga. Ironically, Kuo’s book, dot.bomb: My Days and Nights at an Internet Goliath, received a favorable review on Amazon.com, Value America’s former nemesis.—P.F.