Is A Dot-Com Era Case Study

Share: is a documentary from 2001 that serves as a case study from the dot-com era.  govWorks had the plan to make money by collecting municipal fees like parking tickets online on behalf of local governments.  In 1998, that was an exciting new idea.  Over the next three years, govWorks would grow to more than 250 employees, a burn-rate of $1 million dollars per month, and finally file for bankruptcy.  Several venture capitalists recently sounded the alarm of current startup spending as “unprecedented since ’99”.  So its timely now to look back on for lessons learned from the dot-com boom.  Like my book review of Venture Deals, this post represents an expansion in scope on this blog to include matters that draw on my own knowledge and experience of what I think is broadly relevant to people interested in startups.

General Observations shows details you often hear about involving startups.  There’s early disagreements about the company name.  One co-founder doesn’t spend any time on the startup and gets cash for his equity just so the company can close a round of funding.  A montage shows meetings with big-name investors.  During one pitch to investors, two co-founders begin to argue after one of them starts explaining a new way they could make money.  At another meeting to close a round, a person concedes he hasn’t reviewed the term sheet and the meeting turns into four hours of negotiation.  One co-founder later fires the other as some sort of sacrifice to appease investors.  And then, after millions of dollars have been raised, there’s discussion at the company about revenue being “flat”, which is to say nonexistent.

Important Observations For Founders

Whenever I see a startup, even now, with big fancy offices and a large head-count, I tend to think of this documentary.  Notice all the employees at govWorks.  Those people will all gladly put on clean clothes, get to work on time every day, look busy, and do the company cheer as long as you pay them a salary.  Cut to the govWorks offices completely empty and the lights off after the company files for bankruptcy.  The lesson is the good times never last forever.  And as soon as the company is low on cash, those people doing the company cheer are all quietly looking for new jobs.  Startups can never get back the money spent on office rent and payroll.  Better to not have those fancy offices, not hire those people, and spend every dollar like its the last.  That may sound cold and mean, but that’s just a fact of startup survival.

Technology in 1999

Paying for things online was still a revolutionary concept in 1998.  Watching again, I also noticed a brand new original iMac, RealPlayer on Windows 98 to watch a grainy webcast, and as the product’s built-in help functionality.  There’s a scene of usability testing that requires groups of people to physically attend at a scheduled time and sit at rows of big beige monitors.

The Founders

Kaleil Isaza Tuzman attended Harvard University and worked on Wall Street at Goldman Sachs for five years.  Tom Herman graduated from college with a degree in computer science.  Mr. Tuzman and Mr. Herman are govWorks’ two primary co-founders.  As a documentary, my primary complaint about is that it spends too much time on the personal lives of the founders and not enough time showing details of the business.

I lived in San Francisco in 1998 at the height of the dot-com boom.  In those days, the “New Economy” meant that companies didn’t need to rely on sound economic principles or have legitimate income.  Company success was often measured by headcount, the more employees the better.  Startups could actually pay office rent with stock.  Nobody thought the good times would end.  Then the bubble burst, venture capitalists were bitter, and the startup community evaporated.  I see a similar unhealthy trend in the way startups are currently spending money on fancy offices and headcount.  Hopefully watching will serve as a reminder to those founders about the importance of treating every dollar like its their last. Documentary Trailer

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