The Dot.Com Bubble On Film
Night for Netpreneurs and Startup.com, The Movie
|(Falls Church, VA) -- July 17, 2001)
In 1999, Tom Herman and Kaleil Isaza
Tuzman had an idea for an Internet
company that would let citizens conduct government business
online, such as paying parking tickets and renewing
driver’s licenses. Tuzman’s
roommate, Jehane Noujaim, a
former producer at MTV, also had an idea¾to follow the two with a camera and film the creating of an Internet
company from the inside.
The company was called govWorks, and the film, startup.com, tells the story of its meteoric rise and fall.
It’s an emblematic tale of the dot.com frenzy, and
last night Morino Institute’s Netpreneur hosted a private
screening of the film for over 400 entrepreneurs at the State
Theater in Falls Church, VA.
The event featured special appearances by both Herman
and Tuzman to provide commentary on the film and answer
questions about what went right and wrong at govWorks.
Idea, Boy Loses Idea, Boy Gets Idea
In a nutshell, the govWorks story goes like this: Herman
inseparable friends since their early teens, started an Internet
company that would facilitate interaction between citizens and state
and local governments. In
the space of two years, they raised over $60 million dollars,
employed as many as 233 people, and, ultimately, were sold to a competitor
under Chapter 11 bankruptcy for $6.5 million.
Before the company folded, the two friends bought out their
third co-founder and even set lawyers on each other in a squabble
over corporate control that led to Herman’s termination.
Friends again today, they recently co-founded The Recognition Group, a consulting firm that leverages the
experience they gained at govWorks to advise startup companies, and
specializing in restructurings, reorganizations, rapid
technical/operational audits, and turnarounds of venture-funded
While some of the specifics of the tale may have been
unique to govWorks, such as a break-in by a competitor in an act of
corporate espionage, the large themes were common to the audience at
last night’s event, which was all but entirely made up of people
who have been part of the Internet business revolution themselves¾entrepreneurs,
funders, advisors, and others.
In the govWorks story was reflected many of their own
successes, opportunities, challenges, and failures.
Both govWorks founders were extraordinarily open in their
discussions, and the crowd appreciated their frankness.
As Herman put it, their experience is "something to
learn from; what we did right and what we did wrong."
No Biz(.com) Like
Of course the singular difference between govWorks and
just about every other startup company in the world is that it was
the only one to be followed by a camera from the early days until
its demise. The
filmmakers were given almost complete access to business meetings
and personal lives, including meetings with VCs, visits from
competitors, and such private moments as Herman braiding his
daughter’s hair and Tuzman calling his mother at 1:00 am to talk
about life, business, and girlfriends.
And while it’s not exactly a complaint, Herman and Tuzman
point out that the filmmakers chose to focus on the personalities
involved more than on the business development process.
So, why did they allow the filming, especially since
neither founder had any involvement with or made any money from the
film? According to
Tuzman, they though it might generate some good buzz for the company
or, at least, become a business school case study.
It grew into much more, of course, a feature film released in
theaters across the country.
Luckily, the filming process was not nearly as intrusive
or “Hollywood” as one might expect.
According to Tuzman it was mainly one videographer with a
camera sitting quietly in the corner.
From the time Tuzman left his position with Goldman Sachs to
become full-time CEO for govWorks, right up to the time he informed
his semi-estranged partner about the bankruptcy, the crew shot over
420 hours of film.
That early scene of Tuzman packing his office and leaving
his secure, highly-paid job at Goldman Sachs captures the rampant
enthusiasm entrepreneurs felt in the late 1990s and even early 2000.
“I’m going to start an Internet company!” he beams into
the camera while setting his boxes on the sidewalk.
The unbridled optimism of this and similar scenes
notwithstanding, one early segment presages the tensions that would
grow more acute later¾the
founders in a dispute over the name for their new company.
the film progresses, we see much more from an insider’s
perspective. A staccato
of scenes shows the team preparing for, debriefing after, and
actually meeting with a succession of potential investors.
One turns them down, the next offers a term sheet, but the
partners struggle to reach their lawyer for advice.
From the funding chase to the product release, veteran
entrepreneurs in the audience saw a host of familiar situations and
emotions from frustration to elation, empathizing with an anxious
Tuzman who says at one point, “It’s going great, but each day I
wake up with this morbid fear.”
One scene in particular offers a key warning to
entrepreneurs on the funding trail¾get focused and get your
stories straight. It’s
a scene in which the business guy on the team, Tuzman, and his
technologist partner, Herman, begin telling conflicting stories
about what they have to offer investors and the market, a
prescription for disaster. A
later scene shows another common entrepreneurial challenge when
development deadlines are missed and the team finds their product
lagging behind those of their competitors.
These are key factors in the eventual removal of Herman, who
admits candidly that the company had grown too big, too fast for
people as young and inexperienced as he and Tuzman to manage.
The Kids In The Hall
During the Q&A following the movie, Tuzman was asked
about unanticipated factors, to which he replied, “The mantras
that turned out to be bunk.”
Guru-speak and aphorisms such as ‘first mover advantage’
and ‘grow big or go home’ had replaced proven business practices
in the market, but, as Tuzman admits, “We bought into it and so
did our investors.”
And so did many other entrepreneurs and investors.
One such popular cliche was the icon of the 25-year-old CEO
who was the only one who could really understand this brave new
business opportunity of the Internet.
It took speed, flexibility and youth to make overnight
millions, or so the conventional wisdom went, and maybe that’s why
the inexperience of the govWorks team seems so prominent from
today’s vantage point. It’s
captured clearly in scenes such as when they meet with investors,
negotiate the buy-out of an original third co-founder, or when
Tuzman’s girlfriend, perhaps smarting a bit from the lack of time
they have to spend together, speaks about the pride she has in how
they act like grown-ups.
Two scenes, both post-mortems in the car following
meetings with investors, highlight the language of the times.
In one, the team is joking about the words and phrases they
are becoming so tired of hearing, like heuristic, holistic, and query.
In another, Tuzman rankles at comments received from one VC,
ending his tirade with perhaps the most common mantra of the bubble
days, “This guy doesn’t get it!”
A Day That Will Live
The wheels started to come off the runaway dot.com train
on April 14, 2000, at least that’s as good a day to pick as
another if you’re looking for the point at which the bubble burst. It’s shown in a clip from Fox News when the Nasdaq plummets
and commentator Neil Cavuto points out that it’s the same day as
the sinking of the Titanic. Times
changed, markets dried up, investors got conservative, the bloom was
off the tulip and many of the dot.com mantras hit the brick wall of
It wasn’t just govWorks; it was oh, so many technology
businesses that were either ahead of their time or behind the curve.
At one point Tuzman is reciting a new, less cheerful mantra,
“flat revenues, bloated infrastructure, longer than expected sales
cycles, complex implementations, acquisitions that may not work out,
and no clear path to profitability.”
Ultimately, govWorks went Chapter 11 and was bought by
eOne Global, where it is succeeding nicely under the name govOne.
Some lucky investors only lost 80 cents on the dollar, most
lost everything, and Herman and Tuzman walked away with nothing.
back on those times, Tuzman says, “It was really all dependent on
cheap capital.” Much
is made today about how everyone forgot the “basic business
fundamentals” during the dot.com craze, and, while Tuzman
doesn’t identify a particular point at which the fortunes of
companies like govWorks changed, he does remember a particular
meeting when they had $39 million in escrow and realized that they
weren’t sure what to do with it.
Beyond the general downturn, Herman and Tuzman also point to
such factors as the company’s hyper-growth, a lack of focus and a
lack of seasoned management. And,
while the film tends to focus on the personal stories and the
dramatic downturn, the govWorks team produced significant successes,
according to Herman, including a well-articulated vision, a strong
team of advisors and board members, and a solid product that is
generating revenue today.
The New Glory Days
Shortly after their offices were ransacked and their
systems compromised in an act of industrial espionage, there is a
scene where Tuzman is fretting over how they may have just
experienced a fatal error. “Maybe
so,” replies Herman, “but we still live in nice places; we’ll
move into great jobs.”
Despite the decline and fall of govWorks as an
enterprise, that optimism and confidence permeates the film, and was
especially clear in the two partners’ willingness to honestly
answer tough questions from the audience.
Even though things may have gotten ugly for a time, both
partners spoke as if their stint at govWorks was just another
experience among many that the two long-time friends have shared.
The deeper relationship is what will go on.
Even before the movie ends, they are back together taking
Herman’s daughter to the circus (while continuing to argue in the
front seat) and working out together in the gym while discussing the
bankruptcy. As Tuzman
said, some people can watch the movie and see reasons why friends or
family shouldn’t start a business together, others will see why
they should, “I’d rather be in business with someone I care
about than with someone I don’t know or trust.”
Copyright © 2002 Morino Institute. All rights reserved.