Net executives may yearn for old-guard stability

As competition weeds out weaker Net companies and market volatility undermines stock option value, some newly minted Internet executives could find themselves yearning for the stability of established firms.

4 min read
As increasing competition weeds out weaker Net companies and recent market volatility undermines stock option value, some newly minted Internet executives could find themselves yearning for the more stable environment of established firms.

Dave Dorman Executive David Dorman left the top spot of a local phone carrier to lead a start-up called PointCast, only to watch plans for the "push" technology pioneer's initial public offering fold and the company sold for cheap. Now he's gone corporate again, returning to his telephone roots as the head of a joint venture between telecommunications giants AT&T and BT.

While headhunters are not seeing a stampede back to companies that make up the "old world" economy, they are seeing a growing number of dot-com refugees. These executives, like Dorman, are returning to smaller divisions within large corporations with hopes of keeping that Internet edge.

"Lots of people go in thinking theirs is going to be the home run," Dorman said. "But if you really want to be in the game, you have to resign yourself and say, 'I may not make the first one work, but I'll keep trying.'"

The recent market downturn hasn't made living in the Net world easy. Stock volatility has sliced the market value of a number of start-ups by more than half. Early Wall Street darlings such as CDNow and Peapod now face serious financial problems and possibly the auction block.

"As the success ratio of these companies falls--as it must--you will see either waves of people coming back to traditional companies or a high turnover rate at start-ups," said Net analyst Andrea Williams Rice. Williams Rice left a post at investment bank Volpe Brown Whelan to join Web investment start-up E*Offering. After a short stint there, she decided to return to established player Deutsche Banc Alex. Brown.

Many Internet retailers are expected to go under by the end of 2001 because of poor performance and a dwindling cash hoard, according to Forrester Research.

Bill Malloy Once trading at a high of more than $16, online grocer Peapod has watched its stock fall to less than $3, as financing problems and a hypercompetitive market ate away at its early lead. Amid this turmoil, chief executive Bill Malloy, formerly of AT&T's wireless unit, took his leave. Peapod earlier this month grabbed an investment to keep it afloat, only after Malloy had left. And when the proposed merger between CDNow and mail-order music club Columbia House crumbled, former president of Macmillian Publishing Scott Flanders, who was slated to take the helm of the combined company, was left to look for a new post.

As the market matures and weaker players are pushed out, executives will have to determine what their next step should be.

"The survival of the fittest will not only happen at the company level but also at the executive level, which means that the second- and third-tier executives will most likely have to go back to the traditional markets," said Youssef Squali, an analyst at ING Barings. "The ability of the second- and third-tier players on the Internet to attract or retain top talent given their dwindling stock prices is going to be very difficult."

But it's not all gloom and doom for executives who take their chances in the dot-com world. Many headhunters believe that working at a Net company increases the worth of CEOs and other senior managers. Increased ability to take risks, innovate or build a team from the ground up are some of the characteristics companies in the 'old guard' now covet.

Williams Rice said that her experience at a start-up was invaluable.

"What I bring is a better understanding and appreciation of what it's like to be at a start-up," said Williams Rice. "That is valuable insight and experience."

Even so, some think that it's a tough step backward for some executives used to the speed of the Net world.

"People get hooked on the adrenaline," said Wayne Luke, area managing partner at Heidrick & Struggles, a recruiting firm. "It's harder for people to go back to a more stable, slow-moving environment."

Dorman's return to the telecommunications industry as the head of Concert, a new venture between AT&T and BT, gave him the best of both worlds, he said.

Curt Hockemeier "Concert was really appealing because it had the characteristics of a start-up," he said. "It gave me the ability to run my own show, to put together a business from day one."

Headhunters say that top executives are still drawn daily to the dot-com world. Yet amid market turmoil, many are making sure their jump isn't a blind one.

"Clearly people are being much more selective than they were a year ago," said Chris Butler, a director at recruiting firm Spencer Stuart.

AT&T executive Curt Hockemeier recently left the telecommunications giant for a start-up in the hot broadband sector. AT&T also lost wireless division president Dan Hesse after he decided to join Seattle-based communications start-up TeraBeam Networks as CEO.