January 4, 2000
Ex-NBC Executive Fumbles His Options,
But He Isn't Giving Up on the Internet
By JONATHAN KAUFMAN
Staff Reporter of THE WALL STREET JOURNAL
Steven Carter seemed to have it made. An executive vice president at
NBC, Mr. Carter earned more than $400,000 a year, including bonuses.
He owned a five-bedroom house in affluent Greenwich, Conn., and sent
his two teenage sons to private school. When in London on business, he
entertained the network's clients by whisking them off by limousine to such
events as the Wimbledon tennis tournament.
Then, Mr. Carter left NBC to join an Internet start-up as its chief of sales
and marketing. Over the next nine months his career and his finances
unraveled. He clashed with his boss at iVillage Inc. over what he
considered her unrealistic expectations, and was fired. By the time iVillage
went public in a promising initial public offering last year, Mr. Carter's
chances of making millions on stock options had already evaporated.
"I wanted to get on the speedboat," he says. "Instead, I jumped
overboard."
As the Internet revolution rolls on, the promise of
lucrative options packages and the glamour of
being on the economy's cutting edge is tempting
more and more managers to leave the relative
security of big corporations. In a study of top-level
hires at 500 Internet companies, executive-search
firm SpencerStuart found that 88% of those hired
in the final quarter of 1999 came from traditional
companies, up from 38% in early 1998.
"Nobody who has an opportunity to participate in
this explosion is willing to sit on the sidelines," says
Jeff Christian, president of Christian & Timbers,
the Cleveland firm that recruited Mr. Carter for the iVillage job.
But there is a darker side to the start-up life. For every executive who ends
up making millions, there are others who find themselves caught in a career
quagmire, stripped of the stability of corporate life, working for demanding
bosses and compensated with potentially worthless stock options. In
1997, a survey of more than 4,500 senior executives by the American
Management Association found that roughly the same number -- about 2%
-- had returned to big companies that year as had left them to join
start-ups or strike out on their own.
For its part, iVillage has a reputation for high turnover. While some
executives recruited from major corporations have thrived there, former
Chief Financial Officer Joanne Hindman, a 12-year veteran of Washington
Post Co., left after four months. Todd Kenner, a lawyer recruited from
Gaylord Broadcasting to be general counsel, was dismissed after nine
weeks. Mr. Kenner is suing iVillage in U.S. District Court in New York,
alleging that it failed to give him stock options he was promised when he
was hired. Mr. Carter and Ms. Hindman have filed affidavits in support of
Mr. Kenner's lawsuit alleging that the company also misrepresented the
terms of their options packages. IVillage denies those claims
A 'Ludicrous' Idea
IVillage Chief Executive Candice Carpenter, who pushed hard to hire Mr.
Carter and then fired him nine months later, declined to comment
specifically on Mr. Carter's dismissal, citing litigation. But, she said, "the
idea that everyone should quit corporate jobs and join dot-coms is
ludicrous. There is a reason you make a lot of money in this space if you
succeed -- it's a big risk."
As Mr. Carter quickly found out. The executive, who is now 46 years old,
boasted a stellar corporate record as an ad salesman. In the 1980s, he
worked with Ted Turner at Turner Broadcasting, helping build up the TBS
superstation and on later projects at CNN. In 1994, he joined NBC as a
vice president, selling ads for the network's international cable properties.
The company then promoted him to executive vice president of sales for
the network's domestic-cable properties, CNBC and MSNBC. But in
May 1997, frustrated and feeling he had risen as high as he would go at
NBC, Mr. Carter resigned to seek another job.
"There was a lot of cool stuff going on," he says, although he concedes he
had little firsthand knowledge of the Internet and rarely used the computer
in his office at NBC. Since he was 44 at the time, he adds, it seemed that
the time to make the leap was then or never. "I felt, 'If you don't stick your
neck out, the return is limited.' "
Assurance From a Recruiter
Three weeks after leaving NBC, he got a call from a recruiter representing
iVillage, which was building a Web site aimed at women. "The person who
takes this job will get rich," Mr. Carter says the recruiter told him.
The job was crucial to iVillage's success; with an IPO in its future, the
company needed ad sales to generate revenue. Three people had held the
top sales and marketing post in the space of two years; two had resigned,
and a third had taken another job at the company.
Ms. Carpenter met with Mr. Carter and launched into a hard sell. As is
typical for executives joining start-ups, Mr. Carter would have to take a
pay cut -- to $175,000, plus a signing bonus of $50,000. But he would be
entitled to 280,000 stock options over four years; the options, whose
exercise price was around $1.60 a share, represented about 1% of the
company's equity -- a stake that could make him rich when iVillage went
public.
Mr. Carter says Ms. Carpenter gave him 48 hours, suggesting she might
trim his options package if he demurred.
He accepted before the deadline expired -- in part, he says, because he
found the atmosphere at iVillage invigorating. "I liked the energy, the rush
of people drawn to something new and different," he says. "I knew there
was a lot of risk." Though he says his wife thought he was "crazy" to take a
60% pay cut, "I figured, 'I can live for a year on this drastically reduced
income level, and then I'll use some of the stock as current income to
maintain my lifestyle.' "
In July 1997, Mr. Carter reported to iVillage's offices in Manhattan's
Flatiron district for his first day at work; he was the only person wearing a
tie. The situation there was "chaotic," he says. The company needed to sign
up advertisers as fast as possible, but the sales staff seemed disorganized,
and several clients who had initially signed on weren't renewing.
"I was blitzed by people needing things," says Mr. Carter, who spent his
first month on the job getting organized. He sent out a memo to the 15
people reporting to him asking them to detail "the good, the bad and the
ugly" of the company's sales effort. He asked everyone at iVillage to pool
their Rolodexes to compile a master database of sales contacts.
His moves were standard operating procedure in big corporations, but
they irritated many at iVillage who felt Mr. Carter was spending too much
time on process and procedures and not enough rolling up his sleeves and
digging in.
Ms. Carpenter directed Mr. Carter to sign up 80 advertisers in less than
six months, a figure he says he quickly realized was unrealistic. Advertisers
were reluctant to spend money on an untested medium. "Advertising
targeted to women on the Internet was a very immature business," he says.
But Ms. Carpenter didn't want to listen to his analysis, Mr. Carter says,
"The attitude was 'Mario Andretti's here. We're going to the Indy 500 this
year,' " he recalls. In a memo to the staff, Ms. Carpenter said Mr. Carter
would bring in several large advertising accounts "by sheer force of will."
As 1997 came to an end, ad sales were below Ms. Carpenter's goals.
Hopes for two big ad purchases -- by Nike Inc. and Levi Strauss & Co.
-- were dashed. Mr. Carter blamed slowing sales at both companies,
which had led them to reduce their ad budgets.
Ms. Carpenter soon began accompanying Mr. Carter on sales calls. Mr.
Carter says he found her involvement exciting, but, in retrospect, he says,
he was setting himself up for second-guessing.
While declining to talk about Mr. Carter specifically, Ms. Carpenter says
that at this point in the company's history, "we had to perform to stay alive.
If you do nothing for three months in a big company, the process will carry
you. In a little company, if you do nothing for three months, the process
comes to a halt."
"I'm a tough boss," she adds, "I really expect performance."
Ms. Carpenter set a goal of $27.5 million in ad sales for 1998. As the year
unfolded, the target was cut to $17 million. Everyone in the company,
including members of the board of directors, pitched in to sell ads.
(Ultimately, the company sold less than $15 million in advertising that
year.)
The pressure on Mr. Carter grew. He would get home at 8 or 9 p.m., have
dinner, then be on the phone to the West Coast for several hours. He
began missing his sons' football games. Ms. Carpenter began calling him at
home at midnight. "No one at NBC ever called the house at midnight,"
says Mr. Carter's wife, Suzie.
'Too Much'
"Often a lot of these entrepreneurs are out there on their own because they
were brutally successful but people didn't like working for them," says Mr.
Carter. "You slap the label 'entrepreneur' on them, and they feel they can
treat people any way they want."
Robert Levitan, a co-founder of iVillage who subsequently left it to head
up another start-up, says that in hindsight, Mr. Carter's job "was too much
for any one person to step into. I don't think anyone at iVillage realized
how much was involved. You had to pitch companies, then you had to
come up with ideas" for advertising, "then sign them on, then provide
creative content, then track the results and report to them." Mr. Carter, he
adds, was overwhelmed, and "didn't have enough experience to draw on."
In January 1998, an iVillage colleague warned Mr. Carter his job was in
jeopardy, but Mr. Carter says he dismissed such concerns because Ms.
Carpenter had assured him he "had the support of the company." At her
direction, he began hiring more sales staff. When recruits expressed
concern about reports of turnover at iVillage, Mr. Carter says he reassured
them, saying, "Don't worry. You're coming to work for me. I'll be here."
In March 1998, Mr. Carter began a search for a new deputy, a vice
president of sales. He spent much of his March vacation in Florida on the
phone, but his top prospect turned him down.
'Talk to Candice'
A few weeks later, on Good Friday, Mr. Carter was back in New York
interviewing a sales recruit who said she had heard the new vice president
was coming to iVillage after all. Confused, Mr. Carter called the man and
asked him if the rumor was true.
"You'll have to talk to Candice," he says the man replied.
Ms. Carpenter agreed to meet Mr. Carter downstairs at a coffee shop.
She fired him. "I begged for mercy," Mr. Carter recalls. "I was in disbelief."
His first-year options -- for 70,000 shares -- didn't vest for another three
months. He would be leaving iVillage empty-handed.
The following Monday morning, Mr. Carter says he received a voice-mail
message from Ms. Carpenter saying he could stay on three more months
to vest his options plus an additional three months as part of a severance
package. If iVillage went public as expected with a price in the mid-teens,
Mr. Carter's options would be valued at about a million dollars.
Back on the job market, Mr. Carter found his prospects dimmed. Instead
of an NBC executive making $400,000 a year, Mr. Carter was now a
middle-aged, $175,000-a-year sales executive fired from a hot Internet
start-up. Recruiters steered him to ad-sales jobs paying $150,000.
"All of a sudden you're damaged goods," says Mr. Carter, "There is an
easy assumption that only young, hip people get the Internet."
Still without a job, Mr. Carter left iVillage on Oct. 15, 1998. Two months
later, iVillage sent him a FedEx package with the paperwork for exercising
his options, a transaction that would cost him $100,000.
The terms came as a shock. Mr. Carter says he had believed he would
have 10 years to exercise his options, the usual period for public
companies. But iVillage was still privately owned and insisted he had to act
within three months of leaving the company -- by Jan. 15, less than a
month away. With his job prospects uncertain, a mortgage, and two kids in
private school, "I didn't have $100,000," says Mr. Carter.
Mr. Carter says he decided against taking out a loan for the sum because
he wasn't sure the company's IPO would be successful. Even if it were,
Mr. Carter would have had to wait until the end of a six-month lock-up
period to sell his shares, by which time the stock price could have
plummeted -- though it was unlikely to fall below his purchase price of
about $1.60 a share.
He let his options expire. Two months later, iVillage went public at $24 a
share, which would have made Mr. Carter's stake worth $1.7 million. The
stock rose to $80 on its first day of trading on the Nasdaq Stock Market
and went as high as $130 in April before retreating; Monday, iVillage
shares closed at $19.875, down 37.5 cents.
While he looked for work, Mr. Carter economized by canceling the
family's annual vacation, as well as his sons' guitar lessons. After consulting
for a few months, he hooked up with Harrison, N.Y., start-up e-Save
Network Inc., an Internet-based distributor of grocery coupons. His
starting salary: $150,000, since raised to $175,000, plus stock options.
"It's a terrific opportunity," says Mr. Carter. "I have no intent of going back
to corporate life. Do I bail out and go back and say I'll become head of
sales of a cable network? No way."
Still, Mr. Carter concedes, his leap into the unknown has been scary. "I
have to get up every morning saying, 'It's going to happen. Keep on going,'
" he says. "In a different world, I could sell my house, take our kids out of
private schools and disrupt our lives. But I'm optimistic my skills will pay
off. If I wasn't, I couldn't get up in the morning."
Write to Jonathan Kaufman at jonathan.kaufman@wsj.co |
