[WSJ] Seeking Survival, Start-Ups Go Into Hibernation Mode

Gordon Mohr gojomo@bitzi.com
Sun, 30 Dec 2001 22:42:11 -0800

Bitzi's hibernation gets four paragraphs in the middle. They spelled
our name right, so it's good publicity in my book!

Subscribers: http://interactive.wsj.com/articles/SB1009750982915782560.htm

Might work for non-subscribers:

# December 31, 2001
# Seeking Survival, Start-Ups
# Go Into Hibernation Mode
# SAN FRANCISCO -- With venture-capital spending in a deep freeze, dozens
# of entrepreneurs stranded in the technology recession are choosing an
# alternative only slightly preferable to death: hibernation.
# While innumerable start-ups have met their maker, jettisoning staffs and
# selling off the Aeron chairs, a hard-headed handful are crawling back
# into their garages, bedrooms and basements until, they hope, the arrival
# of better days. Some of the same entrepreneurs who were raising millions
# of dollars a couple of years ago, when starting a company seemed easy,
# now find themselves making daily sacrifices to keep their dreams alive.
# Earlier this year, HotDispatch Inc. (www.hotdispatch.com), an online
# marketplace for technical services, was riding high with a Silicon
# Valley address, a chief executive whose resume included a senior-
# executive stint at Oracle Corp., and a board studded with top-drawer
# venture capitalists. Having raised $22.2 million, HotDispatch burned
# through as much as $800,000 a month to grow fast, offering its customers
# $25 credits to use its system. Then, in April, the venture capitalists
# demanded their money back.
# To buy out the venture capitalists and keep the company afloat,
# HotDispatch's 43-year-old co-founder, Hazem Sayed, agreed to give back
# some money and forgo severance pay. The CEO decamped in July.
# Now, Mr. Sayed, along with one other full-time person and seven part-
# timers, is working out of a tiny office in Cambridge, Mass., with worn
# floors and grimy walls, having drastically cut expenses to keep total
# monthly costs at $55,000.
# Mr. Sayed, who has sunk most of his savings into the company, is so
# strapped he rarely goes to movies and hasn't seen his parents in Kuwait
# in over a year. Still, he refuses to concede defeat. "This changes the
# world," he declares of his venture, which allows people in distant
# countries to exchange ideas and work together. "This is the kind of
# stuff that one generation can do that another generation couldn't do,
# and I'm very attached to that idea."
# Hibernation is only the extreme version of the belt-tightening affecting
# almost everyone in Silicon Valley, as venture capital dries up and
# corporations slash spending on new technologies. So many venture
# capitalists are putting their start-ups on ice that Silicon Valleyites
# now commonly joke about the "cyrogenic treatment." "[W]e all needed to
# become cyrogenicists over the past few months," says Allen Morgan,
# general partner of Mayfield, a venture-capital firm based in Menlo Park,
# Calif. He says six Mayfield-funded companies are in scaled-back mode,
# waiting for an economic turnaround, and he estimates that at least a few
# hundred others in the Valley are in the same boat.
# While many start-ups blame venture capitalists for their woes, venture
# capitalists say entrepreneurs must share the blame as well, for assuming
# the huge demand and unlimited cash would go on forever. "A lot of what's
# going on now is the result of a mismatch between perception and
# reality," says Stewart Alsop, a partner at venture-capital firm New
# Enterprise Associates and a former investor in HotDispatch.
# At tiny Bitzi Corp. (www.bitzi.com), reality used to be offices in San
# Francisco's trendy South of Market section, where the technology
# company's employees could walk into a kitchen and pull a soda from the
# refrigerator. Now, they can get a glass of water from a faucet in the
# kitchen of Bitzi co-founder Gordon Mohr's apartment -- after yanking out
# the board Mr. Mohr places over the sink for scribbling notes.
# Mr. Mohr, Bitzi's two other co-founders and one unpaid employee have
# been working on a technology that can catalog and sort digital files.
# They have been holding their weekly staff meetings at the table in Mr.
# Mohr's kitchen since October; the rest of the time, each works from
# home. To cut costs, the company's server computer has been moved from a
# professional hosting facility to the back bedroom of an employee's
# apartment.
# The three partners started the company with $200,000. Mr. Mohr says he
# realized Bitzi was going to have to make its dollars last as long as it
# could. So he and his partners gave up the office, decided to forgo
# salaries and let go one of the firm's two nonpartner employees, cutting
# total monthly expenditures to $3,000 from $20,000.
# In November, Mr. Mohr decided to make light of Bitzi's new status by
# throwing a "hibernation party." "We're fighting through the
# disappointment that we haven't gotten done everything we wanted to," he
# admits. He did hit on some good luck last month, snagging $5,000 on an
# episode of Comedy Central's cheeky quiz show "Win Ben Stein's Money." He
# says he'll use the money to retire personal debts.
# As Bitzi and other enterprises hunker down, Valley veterans warn that
# many may just be delaying the inevitable. What little venture capital is
# being invested is going to newer, sexier technologies. And once a start-
# up is perceived to be in financial straits, customers will often balk at
# buying from it for fear the company might not be around much longer.
# "Most often when these companies start to tip, they continue to tip,"
# says Mayfield's Mr. Morgan.
# Jeff Adams has experienced the frustration of not appearing to be big
# enough. Working out of the upstairs bedroom of his Belmont, Calif.,
# home, the chief executive of Intensifi Inc. (www.intensifi.com) has
# pared his monthly spending to $6,000 from $150,000 as he tries to find
# customers for his technology, which adds speech to Web pages. In 1998,
# when he landed $2.5 million in venture funds, Mr. Adams rented offices
# and hired a staff of 13. But the bottom fell out of the venture market
# just as the company finished its product.
# Mr. Adams says that many customers he talks to like the technology but
# want to deal with a larger company with bigger assets. He now gives his
# company a 50-50 chance of surviving in any form. "No matter how good our
# technology is, there isn't a good chance people will get to see it," he
# says.
# Which may explain why some entrepreneurs refuse to be tagged with the
# term "hibernation" at all. "I prefer to think of this as a restart --
# not a hibernation," says Mark Vogel, the 45-year-old founder of Encirq
# Corp., a online marketing-services company that's scaled back from 100
# to 10 employees and is turning itself into a software concern. "We're
# not losing any momentum."
# Write to Lisa Bransten at lisa.bransten@wsj.com

Gordon Mohr, gojomo@
bitzi.com, Bitzi CTO
_ http://bitzi.com _