3 wounded vets of Web wars tell all

What went wrong? Three start-up veterans tell about the hardships of launching an Internet company.

Start-ups

September 27, 2000|By Rona Kobell | Rona Kobell,SUN STAFF

If seed money still fell like rain into the Internet economy, Michael Teitelbaum probably would have been somewhere else yesterday.

Instead, the co-founder of Mom.com shared the stage at the Timonium Holiday Inn with two other start-up veterans for a question-and-answer routine on what went wrong. About 120 curious entrepreneurs listened as Teitelbaum and his co-panelists, Gr.8 LLC founder Craig Ziegler and RewardsPlus founder Jack Kwicien, dispensed advice on how to - and not to - grow a business.

Teitelbaum sported the freshest battle scars, having run out of money to pay Owing Mills-based Mom.com's 28 employees in July. Half the staff stayed anyway, working for a mix of cash and stock options. Teitelbaum and three other top executives still don't take salaries.

Like many start-ups, Mom.com followed a build-it-and-they-will-come revenue model. It spent heavily on promotion, figuring people would visit the Web site, read about child-rearing and buy related products.

But often, the model proved not to be a recipe for profits, and left little in cash reserves. Today, Mom.com is selling itself as an advertising and marketing agency for parent-oriented Web sites.

"Now," Teitelbaum said, "business fundamentals rule the day."

Ziegler, in contrast, founded Gr.8 as a marketing and design firm before the Internet age and built it slowly over 15 years. The 85-member firm, which logged $6.4 million in revenue last year, enjoyed their creative independence.

But Ziegler wanted to land larger accounts. So he offered Earle Palmer Brown, a global marketing agency, a minority stake in Gr.8. The marriage started out on the rocks, and Ziegler said now it's headed for divorce, blaming creative differences.

"Check your bedfellows," Ziegler warned the group, adding that the partnership "didn't kill us. But it fractured us. It took some time to untwist it. ... It was a true bloodbath for awhile."

Ziegler said Earle Palmer Brown's infusion of cash and contacts was "very enticing," but the corporate culture of the marketing colossus didn't gel with the free-wheeling thinkers at Gr.8.

Now, Ziegler says, Gr.8 will take on those million-dollar accounts it coveted alone. And if he decides to court another partner someday, he plans to do more homework.

Unlike Ziegler and Teitelbaum, Kwicien offered little in the way of cautionary tales. The former Maryland Casualty Co. executive started RewardsPlus as an Internet insurance company and has seen it grow in four years to 160 employees. It just secured $69 million in its fifth round of financing. This month, it hired a new chief executive officer who it hopes will take it public.

For the past two years, though, Kwicien has watched RewardsPlus' growth from the sidelines. And he's liked the view just fine.

"I'm a self-proclaimed start-up junkie," he said, "but I'm the wrong guy to finish the race. That's an important distinction. It's critically important to know when to lead and when to let go."

Kwicien has moved on to found incube8.com, a private incubator company in which Ziegler is also a partner. His only regret is not jumping off the corporate track sooner.

"A bad day on the entrepreneurial side beats a good day on the corporate side any day of the week," Kwicien said.

As for Teitelbaum, he and Mom.com are holding on. He still worries about running out of money before the new revenue model blooms. And he recognizes that his staff won't work for stock options forever. But Teitelbaum, who is married with three sons, thrives on the idea that he is building something. He said it's what keeps him going all those long, unpaid hours.

"Someone will make Mom.com a great company," he said. "Maybe there's pride that we can do it."

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