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Steve Perlman's start-up wisdom

CNET's Michael Kanellos sits down with serial start-up maven Steve Perlman and hears what would-be entrepreneurs need to do to achieve glory and, perhaps, outrageous wealth.

The recruit wanted to be paid $7 million dollars over a three-year period, guaranteed. But he wasn't a film star or an athlete. He was a vice president of engineering. "He went to a dot-com," said Steve Perlman, the founder of WebTV and Moxi Digital, who decided to hire someone else for the position back in 2000. "I'm just delighted that we've shaken off some of the silliness," he added later, in a lunch interview last week with CNET

Perlman lives in a different world than that inhabited by most of us. The 40-ish executive has sold two companies--one to Microsoft and the other to Digeo, a start-up partially funded by Paul Allen's Vulcan Ventures--for a collective total that probably exceeds $500 million.

In his latest venture, Rearden Studios, engineers are tinkering with software for the film industry. Rearden's office in San Francisco, which was photographed for an issue of Town & Country magazine, features floors made of "plyboo"--plywood made from bamboo.

When asked where he wanted to eat lunch, Perlman rattled off a string of highly touted restaurants in the neighborhood. At the same time, he doesn't come across as pretentious; this is just daily life on a nice budget.

(Quick movie cutaway to the CNET offices. They've started stocking blueberry Pop-Tarts in the vending machine on the sixth-floor break room again, and someone told me that to get batteries, you have to see the guys in the mailroom.)

So, me or Steve Perlman--who would you rather get advice from about striking out on your own? Here's Perlman's take on achieving glory and, perhaps, outrageous wealth:

Advice tip No. 1--There's probably money in blocking spam
Although the economy remains mired in the swamp, technology to block junk e-mail could become hot. Everyone hates spam, and a federal court recently upheld laws restricting junk faxes. A number of companies are rushing to fill the void by coming out with new products or with tweaks for open-source spam-filtering applications such as SpamAssassin.

No. 2--Cut the cable
Wireless and broadband technologies are also bringing life back to the start-up realm, Perlman said. Consumers have already locked onto convergence, and it's only a matter of time before technology for swapping video and audio files between PCs and television is more easily obtainable.

These new spam and wireless start-ups, though, will kick off in a different financial climate from their dot-boom predecessors. Not only will they receive less funding, venture investors will expect less of them.

"If you can make $100 million a year, they won't say 'You suck,'" Perlman said. "There's not a lot of companies that grew up and became successful that really had a fast start...Cisco (Systems) is the exception."

No. 3--Joining a large company is never easy
After Microsoft bought WebTV in 1997, the formerly independent employees at first wanted to continue using their Eudora e-mail accounts. So Perlman--who had been kept on to run the WebTV unit--sent a note to Microsoft CEO Steve Ballmer to outline what he felt were the problems and excessive features in Microsoft's Outlook 97 e-mail software.

The Outlook product manager wrote back. "I got this 'flame-a-gram' that said, 'What the hell are you doing telling Ballmer that there are bugs with our product?'" said Perlman. The manager then explained that many of the features in Outlook were included because similar features could be found in Lotus Notes.

Perlman returned to Ballmer. Ballmer explained that it would be difficult to sell customers on Outlook, if the company's own employees didn't use it.

On another occasion, the imported group tried to bring video streaming to WebTV by signing a deal with streaming media specialist RealNetworks. Microsoft nixed the deal, as Real's media

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player competed with its Windows Media Player. The group then approached the Windows Media Player people about porting the software over to WebTV. "They said they didn't have time because they were too busy competing with Real," Perlman said.

But the experience of becoming part of Microsoft wasn't entirely fraught with difficulty. When it was still an independent company, the WebTV board of directors had insisted on selling the product for $329. "It was a big mistake," Perlman said.

No. 4--The customer is always right
And, preferably, you might want to be tipsy when dealing with them. After Microsoft dropped the price of WebTV boxes to $199 for the 1997 holiday season, sales surged. Most of these new units were plugged in on Christmas Day. "We were getting thousands of subscribers every hour," Perlman said. "Our servers were overwhelmed."

Every employee in the WebTV division had to come in and work the support lines. Luckily, someone remembered to bring in a spiked bowl of eggnog, Perlman recalled--which made it easier to stay calm when dealing with irate subscribers.