Lucky Seven - Company Operations

Industry Standard, The, Dec 18, 2000 by Karl Schoenberger

These CEOs built companies strong enough to go public and weather the Nasdaq storm this year.

Now they're very, very rich. Here's how they did it.

It was a tough year to make a buck. As the Nasdaq was sliding I inexorably toward its lowest level since 1987, we took up the challenge of finding a few bright patches among the dark clouds menacing the new economy.

Our goal was to find 10 CEOs who defied the odds and actually got rich through successful initial public offerings this year. We thought we found the full complement of examples, until the market grew even uglier in November, savaging technology stocks across the board -- and eliminating three of the executives from consideration. At press time, only seven of the original CEOs held more than $20 million in stock value and remained on our list.

The executives who prevailed weren't motivated by delusions of grandeur to become all things to all people. They were focused instead on the pragmatic goal of using the financial market to strengthen their competitiveness in a strategic slice of Internet turf.

As the year began, all but two of the seven were worth about $1 million or less. Some were financially stretched and others lived modestly, until they watched their fortunes balloon with the price of their company stock. Why do their shares get valued so highly, against the odds, when the vast majority of companies going public in 2000 have fallen victim to the Nasdaq's downward spiral?

According to CommScan, a New York financial research firm, shares in the 152 Internet-related companies that went public before the end of November were trading on average 47 percent below their offering price. On Nov. 30 only 19 traded above their IPO offer price. Compared to the average gains of 94 percent for the 292 Internet IPOs in 1999, that's a gruesome set of statistics.

But the seven CEOs who survived defy last year's stereotype of the young, cocksure millionaire. They are older and more experienced, and like Ron Croen of Nuance Communications, they spent many years slowly building the foundation of their companies and refining the commercial viability of their technology before preparing to go public. Some, like Bombay-born Subrah Iyar of Webex, intentionally avoided venture capital funding until the end of their development cycle, fearing the pressure to go to the market prematurely.

Not surprisingly, the CEOs who prevailed lead technology companies that provide basic Web-related software and hardware tools. Brand-building e-retailers scrambling for customers and media content players competing for advertising dollars didn't make the cut. Our magnificent seven all focus on selling goods and services to corporate customers, and they keep a respectful distance from individual consumers.

Players in the fiber-optics sector performed relatively well in this year's IPO game, but most of their CEOs were too wealthy before the start of the year to make our list. The rise of wireless communications was another strong trend -- two of our seven CEOs design and develop microchips that power wireless devices like cell phones and handheld computers. Exploiting the efficiency of the Web to conduct training programs is an idea that impressed investors, and one of our CEOs is the leading software developer in that field. Another CEO making his debut leads the market in voice-recognition technology, providing software that layers artificial intelligence into automated telephone systems used by airlines and brokerage houses. One executive sells software that enables businesses to host streaming-media conferences on the Internet. Another offers predictive network management software, which rationalizes the way companies conduct business online. Rounding off the list is a CEO running a global-data storage com pany who envisions clients using his services with the same ease as turning on a lamp.

All of our CEOs have seen their share prices falter and fortunes decline as the Nasdaq unleashed its fury in November. But they kept their heads above water mostly because of old-time values that aren't often associated with the Internet culture: They had the patience and vision to develop a viable product and the wisdom to resist short-term gains at the cost of long-term strategy. They originally launched their businesses in the mid-1990s or earlier, reflecting an appreciation that taking a small company public still requires many years of hard, sometimes tedious and frustrating work.

Once they hit the IPO jackpot, these CEOs seemed almost embarrassed by their instant wealth and were reluctant to talk about it. It's not polite to crow while one's peers are sobbing. But the discomfort with their new financial status seems also a product of their work ethic - building a flourishing company from scratch has its own rewards. Brian Long, CEO of Pathus Technologies, captured the spirit of the times: He splurged, modestly, on a state-of-the-art bicycle with his windfall. He later bought an expensive car - a Mercedes S Class I - because that's what successful CEOs are supposed to do.