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Chapter 9: The Fall, April 1, 2000 - June 30, 2000 - Episode 6

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It’s June 7, 2000. The NASDAQ seems to have stabilized around 3800 after being below 3200 in May. Brave investors are tiptoeing back into the market. The price of hackoff.com has also stabilized in the low sixties. This is less than forty percent of its all-time high, and a third down from the price of the secondary. But the price decline is no worse than most of the stocks that went public the year before. However, antihack is only down twenty percent from the price of its secondary.

Larry Lazard is presiding over a staff meeting in his office. He sits at the middle of his conference table looking out towards the East River. The day is clear, but the morning sun is red as the light fights through the haze of Brooklyn. At the table with Larry are Donna Langhorne, Dom Montain, Frank Folger, Aaron Smyth, and Eve Gross. Technically, Eve is not one of Larry’s direct-reports because she reports to Frank, but Larry said he wants her at this meeting.

“The main reason for this meeting,” says Larry, “is to figure out what to do to get the stock back up again.”

“What makes you think it can go up at all?” asks Donna. “Maybe we’re lucky if it doesn’t go down further.”

Larry says: “The market panicked. That wasn’t our fault. We got punished for it along with everybody else. A little worse than it had to be because Barcourt did a shitty job supporting us — something that you and I, Donna, still have to work on. There’s no fucking reason why we should do worse than those assholes at antihack.”

“Right. They didn’t position as ‘e-commerce squared’,” says Donna.

“Cubed!” says Larry. “We’re ‘e-commerce CUBED’.”

“Even worse,” says Donna. “That positioning is asking to get whacked and we did. Your logic was that when e-commerce goes up, we should go up exponentially. That was fine when e-commerce was going up. When it goes DOWN, we go down exponentially. Surprising we didn’t get hit worse.”

“Donna, we’ve been over this a million times,” says Larry. “That positioning got us to the party. It got us public. It got us through the secondary. Sure, it hurt when the market panicked; I’m not being defensive about that.  now that the market is coming back, it’ll help again.”

“Who says the market is coming back?”

“Higher prices. Cash inflow into mutual funds. There are lots of signs. And e-commerce never really went away. It’s continued to grow. Sure, some of the flakier companies that never had a chance are gone, but that just leaves more room for the winners to grow.”

“Some of those ‘flakier companies’ were our customers,” says Donna. “Even some of the wannabes that we booked last quarter are gone now, and we have to write them off  this quarter. That’s not going to help.”

“Good. It’s time we started talking about this quarter,” says Larry.  “Donna’s being a pain in the ass but she’s right that we have to show results if we’re going to get our share of the money that’s coming back into the market. It should certainly help that we show steady growth in operating profit. Even better if we showed sharp growth. Frank, what’s the chance of beating our goals for the quarter? What do we have to do to come in higher than we planned?”

“I don’t think there’s anything we can do to beat our numbers,” says Frank.  He doesn’t look up as he talks.

“What do you mean?” asks Larry. “If we’re going to make our numbers there must be something extra we can do to beat them. We have most of a month left in the quarter.”

“We’re going to have a hard time making the numbers, boss,” says Frank.  He still hasn’t looked up.

“What the fuck do you mean?” Larry’s voice is sharper. “Two weeks ago you said we had it made. Now you’re telling me we can’t make our numbers?”

“The deals aren’t closing,” says Frank. “It’s a different world out there. We really had to start the funnel over this quarter. You know we drained it last quarter.”

“Don’t give me that shit. You knew about the end of last quarter when you told me two weeks ago that we’re solid. What the fuck’s going on?”

“Are you gonna let me tell you, boss?” asks Frank.

“Go ahead. But make sure you end with how we make the numbers. I’ll listen to the excuses, but just so I can understand what you’re gonna do to make the numbers for this quarter.”

“We started with the funnel empty,” says Frank.  “We decided to do that because we needed to make the numbers last quarter…”

“You already said that,” says Larry. “You knew the funnel was empty when you made your forecast. You must’ve thought you had some way to deal with it.  Damn it, you gave me numbers and now you say that you’re not going to make them.”

“The numbers for this quarter are the same numbers we set for a goal way back at the beginning of the year. We didn’t revise them down when we pulled everything we could into the last quarter.”

“You COULD have revised them down,” says Larry. “You just didn’t. I assumed that meant you had confidence that you could make your numbers.”

“I tried to tell you, boss. You didn’t want to LISTEN. You said sales had to grow quarter over quarter.”

“You didn’t try to tell me anything. Yeah, you tried to get quotas reduced so you guys could make more money, but you always do that.You told me two weeks ago we were going to make the fucking numbers. Now you’re telling me you won’t! What the fuck changed?”

“We’re NOT CLOSING DEALS,” says Frank. “Deals that I thought would close — deals that would’ve closed last quarter, that certainly would’ve closed last year — they’re just not closing.”


“I don’t know. Different reasons.”

“For example?”

“A lot of customers say there’s just no time to make the the decision. Some have been laying people off because they can’t do IPOs or secondaries in this market and they’re running short of cash. So sometimes the guy we’ve been dealing with isn’t there anymore and we have to start over with someone new. And some don’t want to pay the price. If it’s a cash deal, they don’t want to pay the cash. The equity deals are getting hard because a lot of them are in tough negotiations with their VCs over another round of financing and they can’t issue any new stock. And finance isn’t helping by taking forever to approve any equity—”

“Frank, don’t try blaming finance,” says Donna. “You’re bringing us shit and we’re not gonna let you book it. You bring us good stuff, we’ll accept it.”

“Two deals got turned down yesterday that were just like the ones we booked last quarter,” argues Frank.

“We warned you last quarter that booking those wannabes with no money and no financing wasn’t gonna happen this quarter. We’re already writing off some of that crap we let you book last quarter.”

“Well, the sales guys aren’t getting a clear message,” says Frank. “They don’t know what they can book so they waste a lot of their time.”

“You didn’t GIVE them a clear message.”

“We don’t have time for this fucking bickering,” Larry interjects. “We gotta figure out how we get a decent quarter out of this. Frank, I asked you how do we recover?”

“Well, if the problem is that we’re not closing sales, then we gotta do things that make our customers want to close as much as we do.”

“Here we go again,” says Donna to Dom, but loud enough for everybody to hear.

“Let him talk,” says Larry to Donna. “Frank, how do we make’em want to close?”

“I think same as we did before works, boss. We give’em a price break that depends on closing before the end of the quarter. We cut’em some slack on valuing their equity. And maybe we do something for the salespeople to keep their heads in the game.”

“I don’t fucking believe it,” says Donna. “Larry, how can you be listening to this? It’s the same old crap he gave us last quarter. Including the fucking extra comp for sales guys who aren’t doing enough to earn their REGULAR comp.”

“It worked last quarter,” says Frank, his eyes on Larry. “You know sometimes we have to do what we don’t wanna do if we’re gonna win. We wanna win, boss, we do.”

“It dug us a hole last quarter,” says Donna. “It dug us a hole and now we can’t get out of it this quarter so he wants to dig it deeper.”

“If we do all this,” says Larry, “what do we get in sales for the quarter?”

“I can’t give you a number,” says Frank.

“What’re we looking at if we don’t change anything?” Larry asks.

“Looks to me like sales’ll be about flat with last quarter, about fifteen mil,” says Frank. “That’s pretty good considering we pulled everything into the first quarter we could.”

“That’s pretty shitty considering the forecast is NINETEEN mil,” says Donna. “And considering we need at least 17.5 mil for operating break-even that’s really pretty shitty. Not to mention you’ve got five more feet on the street this quarter.”

“Wait a minute,” says Larry. “Last quarter we had an operating profit with FIFTEEN mil of revenue. I know we added some people, but how did expenses get to where we need 17.5 for break-even now? How come I don’t find these things out until it’s almost too fucking late to do anything about them?”

Donna says: “Because sometimes, Larry, you don’t listen. You approved the extra people. By the end of the quarter we’ll have about 165 heads, thirty more than we had at the end of the last quarter. All kinds of insurance went up, especially D&O because of the class actions. We’ve been advertising more; we have a lot of trade shows in the second quarter. Won’t happen in the summer, but it’s happening now. We’re paying lawyers even more than we budgeted…”

“We already budgeted an increase,” says Larry. “We paid a fucking fortune to lawyers for the secondary last quarter. How can we be spending even more than this quarter?” This question is aimed at Aaron.

“We pay now or we pay later,” he says. “You want to sue customers that didn’t pay us. Suits cost money. They counter-sue, we gotta defend. That costs money. You don’t want to settle the ‘wrongful termination suits’…”

“Fuckin’ ‘a’,” says Larry. “We fire someone because he or she or it is fucking incompetent or lazy and then we’re supposed to pay a penalty because they’re old or black or gay or young or purple? Not gonna happen. We fight.”

“Yeah,” says Aaron, “I understand how you feel, but fighting shows up in legal bills. We didn’t budget for this much fighting or this much suing deadbeats. And we have to defend ourselves on the class actions…”

“I thought the D&O insurance takes care of that. Donna just said the premium went up because of all this class action shit.”

“It should mainly,” says Aaron, “but there’s still the deductible. Obviously, that gets spent up front so we have to expense most of that this quarter when we spend it.”

“Okay,” says Larry, “anyone else got any more bad news? Dom, how’s the new release coming?”

“So,” says Dom, “we’re almost on schedule.”

“What the fuck does ‘almost on schedule’ mean?”

“I think we’ll be about a month behind.”

“You think? You THINK? You managing this project or are you just ‘thinking’ about it? Why are we behind?”

“You added new features,” says Dom flatly. “They took time.”

“You didn’t tell me we were going to slip when you added them. You said ‘no problem, Lar, we’ll get them in.’ Now you’re using that as a bullshit excuse.  I don’t buy it. And we needed those features — antihack says they’re gonna have them.”

“I didn’t say they wouldn’t add time to the schedule. Feature creep always adds time. They took longer than I thought, partly because I’m down two people. One cashed in his options and is going wind-surfing forever in the canyon in Oregon where all the Microsoft guys go. The other just retired in place when he got rich. I had to fire him. Maybe we can catch up some when we replace them.”

“IF we replace them,” says Donna.

“What do you mean ‘IF’?” ask Larry and Dom simultaneously.

“You guys been listening? WE’RE NOT MAKING OUR NUMBERS.  Our headcount’s already up from where we were last quarter and we’re lucky if we get the same revenue we had then. We can’t just keep piling on expense.”

“We gotta grow,” says Larry. “That’s what Internet companies do. The Street’ll shit if we start shrinking. We’re not AT&T; we can’t cut our way to glory.”

“And we gotta have developers to do new stuff if we’re gonna grow,” says Dom. “I mean guys quit and I need more heads, not less if we’re gonna keep up.”

“This new release — how’s it gonna make us money?” asks Donna.

“We gotta have it,” interjects Frank Folger. “It’s hurting us not to have the features antihack has. People are already expecting it.”

“Does antihack really have the new features?” Donna asks.

“They’ve announced ‘em,” says Frank.

“We announced ‘em, too,” says Donna.  “Larry talked about them at Internet World. We’ve got lots of slides.”

“I can’t sell slides,” says Frank.

“You’re not selling much of anything, right now,” says Donna. “All antihack has is slides. No one’s got this ‘heuristic hacker hunter’ stuff or whatever it’s called. It’s vapor-ware, Frank. Customers can’t get it anywhere so it doesn’t matter if we have it or not.”

“I’ve got lots of email from our existing customers,” says Frank. “They really need Triple-H technology.”

“Right,” says Dom. “They gotta have it.  My panel at Internet World — that’s all anyone was talking about it.”

“We don’t charge for upgrades,” says Donna. “Remember? We get the chunk of equity up front and then we’re their partners and we give ‘em updates forever. They pay cash, we charge ‘em the big bucks up front and they’re set for life or something.”

“Yeah,” says Larry. “That’s our business model. So?”

“So it doesn’t matter what the existing customers want. They already bought and they’re not going to give us any more money. And no one has this Three-H stuff, whatever it is, so it’s not hurting us in the marketplace that we don’t have it. We can’t just keep spending money and then spending more money. When the market was going straight up, it didn’t matter. The value of our portfolio went up and we were okay.”

“Yeah,” says Larry. “That was the plan. The appreciation in the portfolio pays for the innovation we do plus some more. So?”

“So, maybe you’ve noticed — THE PORTFOLIO ISN’T APPRECIATING. It’s losing value. We can’t just keep spending more.”

“When we have the new features, we’ll sell more,” says Dom. “Then it’ll be good those assholes at antihack don’t have it. Companies need Triple-H technology, they come to hackoff. That matters. That’s why I’ve got to get the people to get it done.”

“I don’t believe this,” says Donna. “We say we’re going to have this. Customers KNOW they’ll get the upgrade free. But we’re not closing sales. Listen to Frank.”

“It’s not the same as really having it,” says Frank. “Just saying we’re going to have it.”

“Anyone put off buying until we have Three-H?” asks Donna.

“I’m sure there are,” says Frank.

“Who? You didn’t give this as one of the reasons you aren’t closing sales. This is bullshit. I’m not gonna sit here and watch us spend ourselves into a hole because YOU wanna have the coolest technology on the block. We gotta GROW UP!”

“I’ll have to get back to you on who,” mumbles Frank.  No one seems to hear him.

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