The boomerang effect

Several founders who stepped aside or sold their companies have stepped back in to rescue their brainchilds from an increasingly crowded dot-com dustbin.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
6 min read

Company founders buy back labors of love

By Greg Sandoval
Staff Writer, CNET News.com
February 16, 2001, 12:30 p.m. PT

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Gazoontite CEO sneezes at critics
Soon-Chart Yu, CEO, Gazoontite

Soon-Chart Yu didn't have much choice last summer when the financial backers of his health site, Gazoontite.com, told him he had to step aside for a more seasoned CEO.

"Boy it was hard to let go," said Yu, who acknowledges that he's more of an "idea guy" and went along with the move. "It was you who built the company from scratch. It was you stocking the shelves, sweeping the floors and connecting with customers when they came in. Walking away was not an easy thing to do."

It turns out Yu was walking in circles.

Less than a year after stepping down, Yu stepped right back up, snatching up most of Gazoontite's assets in bankruptcy court for an undisclosed amount. Now he and his new partners are running Gazoontite again, including five brick-and-mortar stores.

Several other company founders who stepped aside or sold their companies have made the same move, rescuing their brainchilds from an increasingly crowded e-commerce dustbin. Despite a shaky economy and particularly tough times for e-commerce, these original upstarts who created the companies all believed in them, even after they passed through someone else's hands.

Many analysts agree that lots of good companies got swept up with the bad in the past year's dot-com purge. Sick of seeing Web companies burn cash, backers have walked away from the sector and taken their money with them. Companies that may have survived--had they received the funding that would have allowed them to mature--have run out of cash and perished along with the rest.

Others who stepped back into the e-commerce game to reclaim their companies include Eric Silverman, who bought back his online pet specialty store, Flying Fish Express, from Pets.com, and Zorba Lieberman of health information site Citeline.

They were part of that incredible Internet zeitgeist of the late '90s, members of an army of 20-something entrepreneurs, consumed by creating cutting-edge technology--and making loads of money. Owning your own tech company was a laurel wreath to the "geeks" of Silicon Valley. One analyst put it bluntly: "If you don't own your own company...who are you?"

Companies and their founders got famous, with the personalities of the two often becoming intertwined. Indeed, the founder's name often became synonymous with the company. Personal relationships also strengthened ties to the company. A founder may have forged strong friendships with top lieutenants and employees.

"There were a lot of good people there," Lieberman said on buying back Citeline. "I wanted to save jobs, find a new home for the company, and make some money in the process."

Some analysts are more skeptical about the founders' motives.

"A lot of this is ego," said Jonathan Gaw, research manager at Internet research firm IDC. "Some of these guys want to show the world, 'I just didn't get rich by being at the right place and right time. I really can change the world.' For them, this is chance for redemption. They want to prove that their idea was right."

Gaw doubts that fortunes of these comeback companies will be any better the second time around.

"There were a lot of ideas that came out of the Internet revolution," Gaw said. "But not all of them made for good businesses."

For Silverman, Flying Fish Express has proved itself a money maker. He launched the niche online pets store that primarily sold live aquatic fish in March 1997. Two years later, when investors were throwing money behind any dot-com venture, Silverman, 29, sold Flying Fish to Petstore.com. Other than to say that he was surprised how much Petstore was willing to pay, Silverman declines to reveal the price.

"It was a multimillion-dollar deal," he said.

Flying Fish changed hands again when Pets.com acquired Petstore last July--and then Pets.com went belly-up in November.

Silverman, who worked as a consultant to Pets.com and helped oversee Flying Fish's operations, said he faced a dilemma. His former company was up for sale as part of Pets.com's liquidation. Buying the company and rescuing it meant taking a risk. E-tailing companies seemingly were shutting down every day, and times were particularly tough in the online pet store sector.

"It would have been a tragedy to let it go down," Silverman said. "Especially knowing what a great asset it is."

He wound up buying it back for far less than he received when he sold it to Petstore. And Flying Fish, Silverman said, was bigger than when he owned it the first time. It had grown from nine employees to 23 and was writing much more business, although Silverman wouldn't discuss how much.

"Sure, there was an emotional bond. The company was a passion," Silverman said. "But it had also been profitable. I'm a businessman, and this was a much more solid company than the one I sold."

As proof of that, Silverman again sold Flying Fish two weeks ago to an investor group in Los Angeles after owning the company the second time for less than two months. He once again made a profit but declined to reveal the amount.

"Flying Fish has been profitable since day one," Silverman said. "The entire staff stays intact with the new owner. Everybody wins."

Lieberman also is looking to sell his company, Citeline, a second time. After founding it in 1996, Lieberman sold the company, which builds Web search products for the health care industry, in 1999 for $13 million to Atlanta-based MediRisk.

After MediRisk filed Chapter 7 in November, Lieberman plucked the company's assets out of bankruptcy court for a fraction of what he sold them for.

"Nobody was going to bid on the assets because nobody understood the company like me," Lieberman said. "Nobody knew what to do with it to make it profitable, and I do. I could see a way to operating it profitable from day one."

He's done that by operating Citeline "virtually." All seven full-time employees work out of their homes. Likewise, an employee runs the company's IT structure from inside his home.

Both Lieberman and Yu say that, this time around, they'll be keeping a much more disciplined focus on the bottom line.

To help out, Yu sought the help of Craig Womack, former president of Sharper Image, the luxury goods retail chain, to run the remade Gazoontite.

Gazoontite will spend less and plan for much smaller and more realistic growth than it had previously, Yu said. Two years ago, such talk would be considered heresy. The name of the game then was acquiring customers

and building brand names. Many Web companies spent huge chunks of their cash on advertising and marketing.

For example, Yu said that San Francisco, Calif.-based Gazoontite, which operates brick-and-mortar stores in New York, Los Angeles, San Francisco and Chicago, will wait at least six months before investing in an e-commerce site for Gazoontite.

Until then, Gazoontite will throw its resources behind its retail stores. At the company's San Francisco location, the shelves, which were mostly empty after the company's bankruptcy, are now stocked again with boxes of air filtration systems and jars of inhalation beads, and aroma mist sprayers spritz the air with soothing scents.

And employee morale is up since Yu returned, said Shannon Barnes, the first San Francisco store manager hired by the company back in September 1999.

Barnes said she and most of the San Francisco employees stayed at Gazoontite during the dark times, when nobody knew whether they would have a job from one day to the next.

"He came around a few months ago and said that he was going to try and save it," she said. "He understands the customers, and it was obvious that he loved this business."

Yu knows he wears his heart on his sleeve: "The situation is almost the same as when an old girlfriend comes back to you," Yu said.

"It's as if she says that the guy she left you for wasn't good to her and she wants you back." 


Gazoontite files for bankruptcy

Gazoontite asks investors to cough up vital cash

End of the beginning

Online pet stores could be swimming in fish sales


Founder: Soon-Chart Yu; bought back company in bankruptcy court 
Flying Fish Express
Founder: Eric Silverman; bought back company from Pets.com 
Founder: Zorba Lieberman; bought back company in bankruptcy court