Crain's New York
June 23, 2002Crain's New York Business
Bouncing Back From Cyber Limbo :
Pseudo, Globix, YourGrocer up and running again; is this a growing trend?
By Lisa Fickenscher
June 24, 2002
The bin of failed dot-coms may be overflowing, but a few New York companies are beginning to crawl out.
Pseudo.com, the online television network that filed for bankruptcy 18 months ago, is back on the Web dishing out news about the music scene. Globix Corp., the Web-hosting firm, emerged from bankruptcy in April with a new focus on well-established companies. YourGrocer.com, which ceased operations last November, has found new investors and is delivering groceries again.
In their second life, these companies have a steely focus on keeping costs down, staffs lean and budgets pegged to current revenues.
They share one other, more important attribute: The services and products they offer are sound and were not the cause of their recent demise.
"The companies that bounce back tend to have balance sheet challenges instead of fundamental operation problems," says Kaleil Isaza Tuzman, president and co-founder of Recognition Group ,a restructuring advisory firm in Manhattan.
For now, there are only a handful of these companies in Silicon Alley and elsewhere in the country. But some experts say there will be others. In large part, those will be companies revived by the sale of their technology or assets.
"There are more companies shopping in the bankruptcy aisle," says Mr. Tuzman.
YourGrocer.com, for example, disappeared after running out of money in November. Max Enock, chief executive of the company since 1998, found two customers who were willing to provide new capital and formed New YourGrocer in April.
The online grocer trimmed its staff by half, to 20. It also got rid of warehouses and decided to rent its delivery vans. "We were never extravagant spenders," says Mr. Enock, "but the company was structured around an assumption of very high volume that was not realized by anyone."
New route structure
The new business plan calls for a scaled-down delivery route. The company dropped Nassau County, Queens and New Jersey for now. One-third of Mr. Enock's customers are investment banks and software companies in Manhattan. They buy mostly water, soda, breakfast and prepared dinners from the online grocer, which also serves Brooklyn, the Bronx, Westchester County and parts of Connecticut.
Tech executives who get a second chance are keen on proving their humility. Mr. Enock of New YourGrocer says he accompanies his drivers on delivery runs to help train them. "Although I'm CEO," he says, "I'm CEO of a much smaller business."
Globix has a new mind-set, too. After being burned by customers who couldn't pay their bills and racking up $600 million in junk bond debt, Globix based its re-emergence from bankruptcy on conservative financial strategies.
Globix shed 500 of the 800 people it employed a year ago and named a new management team. "The major lesson we learned is that you don't hire someone on the basis of future business," says John McCarthy, acting chief financial officer. Globix had 380 employees at the end of the first quarter.
He is frequently asked if the company will survive the next six months, and he frequently has to bite his tongue. "There are companies that have credit much worse than ours," he adds.
Different customers
The customers are decidedly different as well. Originally, Globix chased after the next hot dot-coms for its clients-which eventually meant that it didn't get paid. Now, nearly 70% of Globix's customers are traditional bricks-and-mortar companies.
Globix's customer composition is not nearly as surprising as the fact that the poster child for the excesses of the Internet boom, Pseudo.com, is back on the Net. In its heyday, it burned through $2 million to $3 million a month on annual revenues of just $1 million. Its free-spending ways at least ensured a brand name that still has value.
Most of Pseudo.com's assets, including the rights to its name, cameras, software and two leases, were bought 14 months ago by INTV, another Manhattan-based Internet startup. INTV provides streaming media and other technology services as well as content for the Internet and television. It bought Pseudo.com for $2 million, or $7 million less than its value stated in bankruptcy court, says Ed Salzano, president of both INTV and Pseudo.com.
Several weeks ago, Mr. Salzano got Pseudo.com into the limelight again when the dot-com captured exclusive video footage of hip-hop artist Wyclef Jean's arrest.
Mr. Jean had been at a rally on the steps of City Hall along with other musicians protesting Mayor Michael Bloomberg's school budget cuts. MTV News and Fox News aired the confrontation courtesy of Pseudo.com, which had a cameraman planted five feet away from the scuffle between Mr. Jean's bodyguards and the police.
The publicity is helpful, but Mr. Salzano also has to focus on bigger moneymaking opportunities. Mr. Salzano is courting corporate clients that use INTV and Pseudo.com for their studios and technology. The New York Post, for example, hired INTV almost a year ago to manage the installation of the newspaper's new printing technology.
"We make money doing corporate events during the day," says Mr. Salzano. "The studio is being used around the clock now." The former Pseudo.com would never have seen itself as a service company, adds Mr. Salzano.
There are doubters. Despite attempts at cost-cutting and new business strategies, second-time startups have half the success rate of brand-new companies, says Chip Austin, managing principal and co-founder of i-Hatch Ventures. "It's much harder to repump life into a company," he says.
The executives know that truism, but they also see the gains they are making. "Globix can see profitability," says Mr. McCarthy. "We still have a lot of work to do to get there but we can feel it and taste it."