From Business Week:
THE WILD AND WOOLLY TALE OF
A NET STARTUP
BURN RATE
How I Survived the Gold Rush Years on the Internet
By Michael Wolff
Simon & Schuster 268pp $25
Decades from now, we'll look back at the latter half of the '90s as the years
when the Information Age was created. Like the Industrial Age, we'll note, it
was built on the sweat and brainpower of the brightest minds of the time. But
lest nostalgic souls attribute too much nobility to the cause, we now have what
may be the first true chronicle of the times. Michael Wolff's Burn Rate: How I
Survived the Gold Rush Years on the Internet pierces the hype to lay bare
the forces driving the Internet frenzy. And they are not always pretty.
Burn Rate is a hilarious and frightening account of the life of an Internet
startup. Wolff, a journalist who has written for The New York Times and
other publications, started Wolff New Media LLC in the early 1990s. By 1994,
he had stumbled on to the Internet--then just a geeky network used by
comparatively few--and into the forefront of the digital revolution. His first
Internet product, NetGuide, a book that reviewed resources and sites on the
Net, was quickly followed by a series of expanded Internet guides and two
Web sites. Overnight, his modest publishing venture became a hot property
sought after by venture capitalists and investors.
From this vantage point, Wolff observes the exhilarating early days of the Net,
a world where hype matters more than reality, buzz more than revenues, and
where a mere idea can be dressed up and sold to eager investors, creating
paper fortunes overnight. The book begins in 1996. Wolff is at an industry
schmoozefest trying to drum up interest from investors and potential
acquirers. He has hooked up with Robert Machinist, president of New York
investment bank Patricof & Co. Machinist is hot to cash in on the
company--he figures it's worth $60 million, maybe even $100 million. And
when he tells Wolff that ''our minimum goal is to get you out inside 18 months
with $30 million,'' the entrepreneur begins to believe him.
No matter that Wolff New Media has slightly more than $1 million a year in
revenues and losses of around $3 million. Or that, at the current ''burn
rate''--the amount of money consumed in excess of revenues
generated--Wolff will run out of money in six weeks without fresh funding. The
quest to feed the burn rate takes Wolff on a wild ride.
First, Machinist tries to combine Wolff New Media with Magellan, a West Coast
search-engine company. The pitch: Wolff's content will keep people on
Magellan's search site longer, generating more ad revenue. And the
combined entities will make for a more powerful initial public offering. Magellan
is far bigger than Wolff, but Machinist shrewdly manages to turn the deal into
a merger of equals and then into a takeover of Magellan. Negotiations bog
down, however, and the window for Internet IPOs slams shut. Magellan is
eventually sold to Excite, a competing search-engine outfit.
For Wolff and his investors, it's on to Plan B, then C, then D. Wolff's narrative
wanders, and the sequence of events is sometimes confusing. Eventually, he
hits on the idea of producing a magazine version of NetGuide, sort of a TV
Guide for the Internet. The only problem is, for all of the comparisons to TV,
the Net is nothing like it. Fortunately for Wolff, most of his potential funders
have never actually used the Net.
That includes executives at CMP (CMPX), a publisher of computer trade
magazines. Having just launched its Windows magazine, CMP is looking for
the next big thing, and its brain trust is convinced the Internet is it. Wolff sells
them on NetGuide with canned tours of the Net. ''They had no real
experience to get in the way of their enthusiasm,'' writes Wolff. ''They seem to
believe that we have captured the Internet and bottled it. And they want it.''
Indeed, Wolff is stunned when CMP offers to buy NetGuide, then nothing
more than a name, a concept, and a database of ephemeral Internet
content--''absolutely nothing. There were, really, no assets''--for a
seven-figure sum. (After spending $15 million to $20 million to buy and
develop the venture, CMP would eventually kill the magazine.)
As these charades play out, the investors grow impatient. Desperately
needed money comes with strings attached: Wolff would be kicked off the
board, and his main investor, Jon Rubin, would become chief. Wolff narrowly
escapes this trap and looks for new partners: Ameritech (AIT) and
Washington Post Co. (WPO) show interest, but no deals materialize.
Through Wolff's tale, an insightful history of the commercialization of the
Internet emerges--from the days when media titans declared ''content is king''
to the realization that the best hope for making money in this new medium
may lie in E-commerce. We witness the birth of Louis Rossetto's Wired
magazine and get a peek inside the hallowed halls of Time Warner Inc.
(TWX), where Walter Isaacson and Bruce Judson cook up Pathfinder, the
high-profile Web site later dubbed a money-losing ''black hole'' by a ranking
Time Warner exec. And there's a comic account of America Online Inc. (AOL),
''the world's most dysfunctional company.''
As the fantasy starts to unravel, Wolff begins having some doubts about his
fundamental premise. ''In some perfect irony, we had invented this new
publishing medium, and no one reads [on the Net],'' he muses. The new
insight led him to return to his roots. The result, Burn Rate, is a fascinating
cautionary tale that should be required reading for all would-be Net
entrepreneurs.
BY AMY CORTESE
This book is available for immediate shipment at:
barnesandnoble.com |
