The Wall Street Journal
August 23, 2002The Wall Street Journal
Founders of Failed Dot-Com Learn Hard Lessons, Start New Venture
by Peter Loftus, Dow Jones Newswires
Wednesday, August, 2002
Page B9A
NEW YORK -- It is no secret that Kaleil Isaza Tuzman and Thomas Herman had a few lessons to learn after their dot-com start-up business failed in late 2000. p>
After all, the messy demise of Govworks.com, an online government-services provider, was chronicled in the 2001 documentary "Startup.com."
The film showed a company enriched by $60 million (61.9 million euros) in venture backing growing too fast and losing focus. A low point came when Mr. Isaza Tuzman fired Mr. Herman, his childhood friend and Govworks co-founder.
Both men say they have learned their lessons, and they are using them in their latest venture. Mr. Isaza Tuzman, 30 years old, now heads Recognition Group, a New York firm that invests in and advises distressed companies. Mr. Herman, 31, is an affiliate partner with the firm, although he recently took a leave of absence to assist his father's business in New Hampshire. The friends have reconciled since their falling out over Govworks.
Recognition Group seeks controlling stakes in distressed companies with less than $150 million in annual revenue. The firm works on behalf of other private-equity firms and workout groups within banks. Since late 2000, Recognition Group has advised about 25 companies and purchased controlling stakes in three firms. It has sold two of those companies for solid returns, Mr. Isaza Tuzman said.
Fame from "Startup.com" has been a mixed blessing. When Mr. Isaza Tuzman meets with prospective clients or investment targets, they often recognize him from the film. He first tells them what he calls the bad news: "I've lost some very powerful people a lot of money. I thought I was smarter than I was, and I made some stupid decisions. My reputation is colored as a result and you should know that if you're going to do business with me."
Then the good news: "I'm trying to internalize the lessons I've learned and avoid similar mistakes in the future. I'm as hungry as anyone out there because I'm trying to restore my reputation."
One of the biggest lessons he's learned is that the various parties involved in a startup must communicate with each other.
"Say it truthfully, say it completely and say it first," Isaza Tuzman said. Investors should be willing to tell entrepreneurs when they intend to take "critical and brutal action" with a troubled startup, for example.
Entrepreneurs must be willing to hear dissenting voices, whether it's from a venture backer or from elsewhere in the company, he said. Founders must also be willing to step aside to let more experienced managers run the company.
Another lesson is to address problems before it's too late. A common mistake for entrepreneurs is to deny when their companies are in trouble, Isaza Tuzman said.
Founded in 1999, Govworks grew to more than 200 employees within a year. But the Internet bubble popped, drying up funding. Govworks wasn't generating enough cash to keep going. It filed for bankruptcy in late 2000 and its assets were purchased by First Data Corp. and American Management Systems Inc.
Mr. Isaza Tuzman and Mr. Herman are trying to put behind them any pain caused by "Startup.com." But, when possible, they have used it to their advantage. Mr. Isaza Tuzman, who worked in investment banking at Goldman Sachs Group Inc. before Govworks, has written a book on entrepreneurship that will be published by Harvard Business School Publishing in January 2003.
Dow Jones Newswires