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the risks and rewards of entrepreneurship
taking the leap

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the home fires burn

          At its heart, every marriage has a contract about boundaries and who will go where and how far.  The entrepreneurial experience tempts the entrepreneur, in some cases almost demands, that he or she break those boundaries.  I broke mine in a big way.  I had been with my wife since high school, so it was a long marriage, but she was into home and family and wine.  I took us progressively further, in steps.  There is always a false bottom in the suitcase, and it just kept getting lower until, by Christmas of '97, it was bad.  Everything was gone.  We had met with or talked with maybe 100 VCs at this point, and there had been no joy.  Nothing was happening.  I remember coming home one night and Danielle was sitting by the Christmas tree.  There was a pitiful little necklace of presents around the bottom of it.  My brother had kicked in a couple of thousand dollars, which is the only reason we still had the heat on.  The dining room ceiling was falling in because I couldn't afford a plumber to find the leak to fix it.  We had canceled guitar lessons and karate lessons and dance lessons and my daughter was still sleeping in her crib, corner to corner.  She was so long now, but I couldn't afford a freaking bed to move her into.

          I realized that we were getting right out there on the limb.  At this point, my house, my marriage, my family, it was all hanging out there on a thread.  Danielle turned to me and said, “You know, Tom, we can't eat moonbeams forever.”  I realized that I had gone past a lot of deadlines and a lot of promises and I just flat out asked her, “Are you going to leave me?”  It was getting close.  You could smell it.

          She sat and looked at these three presents for a long time, then she turned and I saw a little humor in her eye, which I knew meant, “Okay, okay, maybe it's not so bad.”  She said, “I'm not going to leave you now.  If I left you now, I'd be the one paying you support.”  Another bullet dodged.

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the dark and the dawn

          I want to read you another little section here.  This is from one of those bottom of the barrel times.  Since you are entrepreneurs, I hope you will appreciate some of the dynamics of what's going on here.  We had been abused, I had eaten more rejection in all of this than I had in all of the rest of my life combined.  I'll give you just a little snapshot.  Here I was with my partner, Rolly Rouse, and w had been talking with lots of people . . .

          Hearst said no. They would not invest now. They were very hot on Home Portfolio, but the company was too young for them to invest in. Please come back in six months.

          Six months! We could be dead in three!

          US West said no. They couldn't get agreement between their Colorado and Boston offices on whether this was a priority for them. They were undergoing their own corporate reorganization. Maybe later. Ciao.

          Oak said no. At least not yet. We weren't sufficiently “consumer-ready” for them. A very fair point. Despite our star turn on NetCaster, we knew we were not really ready for prime time. But how were we going to get ready without resources?

          Here were three big rejections in a row, and that didn't even count the investors who hadn't been interested in the first place. I had eaten more rejection in the past twelve months than in all the rest of my life put together. This rain of blows was grinding me down.

          “What is it?” I ranted, sitting in the wild clutter of the office. I was losing it. We couldn't wait forever. Our great vision was starving to death. “Do we smell bad? Is our cosmic fly down? What exactly is the problem here? Do we sound stoned to these people?”

          “Not at all,” said Rolly pushing right back, “We’re on the right track. And the proof is in the hearings we’re getting. These aren't brush-offs. These are real hearings. Visits. Serious considerations. It's just that we’re not quite there yet.”

Do you hear this?  Have you been there?  Do you know what I'm talking about?  It’s just the two of you alone in the office and everything sucks and you are trying to buck it all up.

          This guy was amazing. He had a point. I got it. But I also knew his reflexes now. Put him in a corner, and he would spin stories of imminent success all night and all day. He would turn that big brain on and scour every angle and tiny crevice for hope, for light, for tools of rebuttal. And he would find them.

          But behind that reflex he was hurting, too. We had walked away from careers. We had worked seven days a week until midnight for a year. We had put everything on the line. We had nearly abandoned our families. And his bed was the one groaning with a mother lode of plastic.

          “Okay, maybe they are right, then,” I said, “Maybe the company is too young. But how do we get older without money?”

          Our little operation had gulped Rick's latest hundred thousand down like a snack. We had bills stacked up all over. Just keeping the telephone service turned on was a challenge.

          We sat in silence for long minutes. Rolly's eyes clouded over.

          “Well, the reality is, everything has its clearing price,” he said. I knew what he was thinking. We could slash our asking price for equity in the company. Forget the $5 million valuation we had won in the seed round. Take whatever we could get. Let Rick and Scott be crammed down, let their stake in the company be gutted by a fire sale valuation on the next round. I pictured us selling to some ruthless, bottom-feeding investor looking for a distress sale. Vulture capital. I pictured us lashed into the deal, working like slaves for a tiny share of our company.

          “Even junk gets sold at yard sales,” Rolly almost whispered. I had never heard him talk like that before.

          “You don't want that,” I said. “and I don't either.”

          The phone rang and it was Jeff.

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Jeff was an investment banker, the kind you use when you are young.

          “We’re going to have to aggressively pursue a bridge round,” he said, meaning a smaller investment that could tide us over until we would get a big one. “We’re just too early for most of the people we've been talking to. The question is, how do we keep going until we’re ready for the big money?”

          I loved this guy. I really did. He was as crazy as we were. He was hanging in. Another can-do dreamer, smart and crazy all at once, just like the rogues in the old all-American storybooks. Lock them in a room and anything seems possible. Slap them around with some sharp reality, and five minutes later they’ve brainstormed their way back to the dream, like bobbers that just won't go down. They’re like ecstatic worshipers, like coal walkers. They chant the words, they caress the idea, the vision, and it makes them high, makes them impervious to pain. It's their cocaine, their khat, their peyote. And ruin is the snake they handle. Look, it won't bite me, they say. I can wrap utter ruin all around my neck and lay its fangs on my throat and howl, and it won't bite me. I am armored by belief, made imperishable by vision.  Even ruin is not ruin. Only my flesh is vulnerable, and I am not flesh. I am one with the vision. I will walk on water, I will pull the sun up with my bare hands. I will be immortal. I will make new worlds. I will rise above all ordinary cares and fly.

          But he was also retreating. Forget the big money for now, guys, Jeff was saying. Squeak out what you can.

          “How far could you get on a million dollars?” he asked.

          “We could make it to launch. We’d make it to January,” said Rolly.

          “Would you take it at $5 million pre-money?” asked Jeff, meaning no increase over our seed round valuation, no bump for all the work we had put in.

          “We would do it at $6 million pre-money,” Rolly said, and then he remembered all the desert and wasteland around us. “Well, okay, we'd do it at five million.”

          We'd be lucky to get that. We were in deep shit.

          “Chin up, guys, I'll talk to you tomorrow,” said Jeff. And he was gone. And our $3.5 million dreams were gone with him. A bridge round! It would be just as much work as a big round, maybe more, and then we would still have to get the big round.

          We sat like statues for a long time. We didn't feel like heroes. We didn't feel anything. The road was getting way too long. And it just got harder. We were going to have to go back to Rick on our knees. This was supposed to be a gold rush. It felt more like building a railroad through the Rockies with no shovel. Like walking naked across Death Valley.

          Rolly threw his head back in his chair and flung his arms out, wide and beseeching.

          “Why do people do this?” he moaned. “How do they survive it? It's just too hard! And then it's humiliating!”

          “Amen, brother,” I said. “And if you screw up, you’re bankrupt. You’re a stupid, pathetic, overreacher, a penniless fool.”

          Whoa! Things were getting a little shaky here. It was my turn to steady the boat.

          “But look, we’re doing it,” I said reflexively. “We’re on the path. We’re still standing.”

          In a matter of speaking.

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          You may have been at that place.  It's not a fun place.  But happily, within a couple of months of that day, and the desert days around it, we made our first sale, signed our first contract and were flying out to Chicago on the cheapest tickets we could score online, renting the tiniest car we could rent at O'Hare, driving in a blizzard out to see Grohe America, the US division of a big German faucet maker, giving our spiel for the thousandth time and waiting for them to say no so we could go back to Boston and go bankrupt.

          And they said yes. 

          We almost couldn't believe what we had heard.  We stood in the parking lot in the snow crying because our marriages were shot, everything was gone, but that first sale, that cash in the door was the proof of concept that the VCs had been looking for.  With that proof of concept and the chain of manufacturers that came in behind them, including Gaggenau and Viking . . . I remember going down to sell Viking in the Yazoo River Valley in the Mississippi delta, still broke, but they came in.  Suddenly, we did have the VCs, and suddenly we were there.  We began to pull out of that long, dark night where we had tested ourselves and our marriages and our families to the brink and someplace beyond that.

how far should you go

          The experience of writing the book was an important one for me.  I knew going into the company that I would write it.  In fact, the advance on the book was part of the early funding for the company¾a novel approach to Internet startup funding and my publisher's gamble, I would say.  I used to think, “What will I say if we don't make it?  Who wants to read that book?”  The advance fed the family for about two months, then it was just more debt, just one more gun to the head with all the others lined up there.

          But the beauty of it was that it helped me bring my old career, in some dimension, along to this new one.  They say that in this New Economy we'll all have half a dozen careers in a lifetime.  I think it's important, as you do that, to bring along the things you love from your old career.  Life is not a series of chopped up pieces; it's got to have some continuity to it.  Make sure that you can bring things you love along, because the place you are going you don't know yet.  You might love it and you might not.

          The book kept it all together.  At this point, it's interesting because of all the feedback it brings and lots of business schools are picking it up.  At Babson College’s business school, outside Boston, they are using it as the text for the introductory month and a half that all the incoming B-school students take.  We were sitting there with the faculty 10 days ago.  The finance course will be built around it, and the business plan writing course will be built around it, and the ethics course will be built around it.  I got the distinct impression that the professor of ethics at Babson believed that I had ultimately behaved unethically in the degree of risk to which I had exposed my family.

          Well, so I did it.  What can I say?  Hang me now, but it's an interesting thing for everybody to think about.  Exactly how far should you go?  You do get obsessed; you do become intractable.  I learned a lot of things about myself in this process.  I learned that I was completely intolerant of nonbelievers.  I didn't want to hear it.  If you didn't believe in what I was doing, get out of my face.  It was partly because I was a guy on a mission, like everybody who is doing this, and partly because I was vulnerable and that was a vulnerability.  People start nibbling away¾when your wife thinks you’re nuts, when your friends think you’re nuts, when the VCs aren't responding.  It's a funny balance to keep, to stay humane with the people you love and stay on the rails of where you are going.

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houston, we have a company

          Let me tell you a little bit about the end of this story and how it proceeded.  In the spring of '98, three or four months later, the full working Web site at HomePortfolio.com went up and the first people began signing on, paying cash and we closed our first round with Scripps Ventures, the venture arm of the E. W. Scripps publishing company.  Lucky for us, it’s also the company that was the seedbed for Home & Garden Television, HGTV, which was a huge story in the early- to mid-'90s.  It was the first 24-hour cable channel devoted entirely to the home.  It had been a huge success, and it meant that Scripps knew this vertical sector very intimately.  They understood what we were talking about when we gave our pitch, which had become much better in the lapidary process of thousands of rejections.

          We closed a $3.5 million round, and, a year later, we closed a $20 million round led by Oak Investment Partners, great players in retail and technology and a real blue chip VC.  I'm happy to report that just last month we closed another $48 million round, this one led by HGTV and including strategic partners CondéNet, the online arm of Condé Nast, which publishes Architectural Digest and House & Garden magazines, and Meredith Publishing out of Des Moines which publishes Better Homes & Gardens, Traditional Home and Renovation Style.  These three together represent the major media powers in the home design world.  Their simultaneous investment in one dot.com, when they could have invested in any dot.com, as well as their investment coming after the market swoon in March, and at a good valuation, is very, very heartening to us.

          Today, HomePortfolio.com is the leading online marketplace for home design products, information and services.  We have 100-some employees working in Newton, Massachusetts, just outside Boston.  We have offices in five or six cities now, a network of 1200 top manufacturers showing their products on the site and more than 65,000 physical retailers in a network we direct consumers to so they can touch, feel and buy.

          It's amazing when I look at it some days.  We are still in the same old church building where we started out, up in the garret, up in the eves, but it's bursting at the seams now.  There's tremendous activity there, and it kind of blows my mind what's happened.  We're going into a new world, and that's my story.  I hope that I can share it with you in the book.  I'm very grateful to the Morino Institute and Netpreneur.org for setting this up today, and to all the people who have been so helpful along the way.  One thing I'm sure that you have all seen and learned is how important the contributions of individuals are when you are in this entrepreneurial mode.  You are at once powerful and incredibly vulnerable when you are on fire with an idea.  The people who share that dream a little bit, who are willing to extend themselves, they become precious as gold¾more than gold really, because they keep you going and they make it all happen.  I'm very grateful to all of these people.  It's great to be with you.

[continued]

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