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Catching The Dot.Com Bubble On Film
Opening 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 theThe State Theatre 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.

Boy Meets Idea, Boy Loses Idea, Boy Gets Idea
In a nutshell, the govWorks story goes like this: Herman and Tuzman, 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 Tom Herman and Kaleil Isaza Tuzmancompetitor 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 companies.

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."

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No Biz(.com) Like Show Biz(.com)
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.The Balcony View

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.

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Great Dot.com Expectations
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.

AudienceAs 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.

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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!”

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A Day That Will Live In Infamy
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 reality.

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.

Networking after the movieLooking 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.

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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.

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