>>Friday, May 24, 2002
By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER
Naseem Tuffaha left the comforts of Microsoft Corp. in February 2000 to take a chance on an Internet start-up.
It was bad timing.
Two months after founding Bellevue-based Fidesic Corp., the tech bubble burst and the Nasdaq stock exchange started its 25-month swoon.
Tuffaha wasn't the only former Microsoftie testing the entrepreneurial waters during that period. From 1997 to mid-2000, dozens of Microsoft executives and managers -- including Adam Bosworth, Usama Fayyad, Karl Jacob, Greg Maffei, Peter Neupert and Raghav Kher -- fled the company in hopes of staking their claim in the emerging Internet sector.
But even with years of experience solving complex technical and business problems at the world's largest software company, many of these former Microsofties -- also known as "Baby Bills" -- weren't ready for the high-tech bust. Some of the companies they created have either filed for bankruptcy or significantly chopped staff. Others are teetering on a tightrope, trying to wait out the downturn.
I caught up with a few "Baby Bills" recently to ask them if life after Microsoft is what they expected. Remarkably, most say they are glad they made the entrepreneurial leap.
Tuffaha, who spent six years at Microsoft holding titles such as director of Web services, said he's never looked back. Even though his start-up has encountered some hardships in the past two years, the 30-year-old remains upbeat.
"Fundamentally, if you are trying to build a real business you are going to have challenges regardless of the time frame," said Tuffaha, who cut a few staff members in the past month and is currently trying to raise a second round of capital. "I grew up in a family where my father was an entrepreneur ... so I had a realistic perspective of what it takes: the challenges and the twists and turns. Part of the excitement in entrepreneurship is that you don't know what is going to happen the next day."
Mark Consuegra, who sold the technology assets of his company to Loudeye Technologies this week, said he has no regrets about leaving Microsoft to found Wonderhorse Corp. Consuegra, who helped create online travel site Expedia while at Microsoft, rates his three-year entrepreneurial experience at Wonderhorse as a "solid single or double."
"The ultimate would be a home run, and a home run is going IPO or being acquired for a very high price," he said. "Are we happy with what we achieved? From an entrepreneurial point of view absolutely. For us, it was about seeing if we could do this outside of the walls of Microsoft and we feel like we have."
Consuegra said he had only two bad days while at Wonderhorse, both of which occurred when layoff notices were handed out to employees.
Greg Maffei, the former Microsoft chief financial officer who took the reins of 360networks in December 1999, hasn't been so lucky. He's encountered plenty of turmoil while managing the money-losing fiber optic network provider. Four months after joining the Vancouver, B.C., company, the telecommunications sector entered a deep slump. Since then, 360networks has filed for bankruptcy, laid off nearly half its staff and received a subpoena from the Securities and Exchange Commission as part of the agency's investigation of Global Crossing. Maffei's personal holdings in 360networks have tanked as shares of the company now trade below a quarter.
Looking back, Maffei said he would not have joined a telecommunications start-up knowing what he knows now.
"Basically, every emerging telecom company and even many traditional players have needed to undergo dramatic surgery," said Maffei. "And while the industry will be better for it, the process is quite painful."
Still, Maffei learned a lot over the past 2 1/2 years, including what it takes to win customers for a new product from an emerging company.
"I am not someone who looks back when there is little you can do about it," said Maffei when asked if it was a mistake to leave Microsoft. "I would rather attempt to learn from the situation and put that knowledge to use in the future."
For many who left Microsoft during the Internet boom, it was not so much about the money (many had already become fabulously rich by executing stock options) as it was the experience of doing something on their own.
That's what motivated Peter Neupert, who left Microsoft in July 1998 to join drugstore.com. At first, Neupert wasn't sure about leaving his vice president post at Microsoft.
But after turning down venture capitalist and drugstore.com investor John Doerr four times, Neupert finally made the leap to the online pharmacy.
"The bottom line for me, as it was recently quoted, (is that) Microsoft is the Bill and Steve show," said Neupert. "While I enjoyed working for both of them and give them a lot of respect, what I wanted to do for myself was figure out if I could be a leader of a company."
While he holds no regrets about his decision to leave, Neupert admits that building a new company from scratch is tough.
Managing the change in expectations after the Internet bust was especially difficult, he said. Drugstore.com cut 125 employees last year as it attempted to bring expenses in line with revenue. The stock, which at one time traded at more than $60 per share, now trades below $3.
"I've learned a ton of things," said Neupert, who gave up the CEO title last April and now is chairman of the board. "I have learned really what it takes to be the leader and try to create a culture of success and a culture of open debate and teamwork. ... I've learned how financial markets work or don't work as the case may be and how important liquidity and financing is. ... That is not something you worry about at Microsoft, you worry about (profit and loss) and you worry about making money but it is different when you have to go out and raise it."
Much was written about the Microsoft brain drain during the late '90s. But now that the Internet boom is over, the pendulum has swung back in Microsoft's favor. It has rehired 439 former employees in the past two years, many of whom tossed the dice with unsuccessful Internet start-ups. These so-called "replants" are finding a safe haven in Microsoft, one of the few local high-tech companies that is hiring.
Meanwhile, the number of managers leaving Microsoft to start entrepreneurial ventures appears to be declining. Of course, that is tied in part to the slumping venture capital market. No one really wants to start a new company when capital isn't flowing.
"Overall, we are seeing fewer teams coming out of Microsoft where they are saying 'we are going to go off and create this new thing,'" said Steve Arnold, a former Microsoft vice president who now leads Polaris Venture Partners.
Arnold also has encountered people who have returned to the Microsoft ranks in recent months.
"As Microsoft expands, I think they are being aggressive about bringing those folks back because there is talent in the marketplace," he said. "Even though there is a gentle breeze in the economy here in Seattle, particularly in the start-up community, it was not the kind of frenzy that it was before. A lot of those folks see the opportunity to go back to Microsoft, and clearly they are going to remain market leaders in a bunch of sectors in the IT world, so it is not an unreasonable thing for them to do."
Tuffaha, of online bill payment start-up Fidesic, isn't ready to head back to Microsoft.
"We still have huge optimism for the long-term potential of what we are doing, though we just have to work through the short-term bumps," he said. "We didn't leave as part of a get rich quick scheme, we saw a real opportunity."
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