Startup.com; E-Dreams

 

"Companies come and go. It's part of the genius of capitalism."

 

--Secretary of the Treasury Paul O'Neill speaking on Enron

 

 Similarities between last year's "Startup.com," now available in video, and "E-Dreams", currently at the Quad Cinema in New York City, are striking. Both documentaries focus on failed Silicon Alley e-commerce ventures run by Asian-American CEOs who once worked at Goldman-Sachs. In key scenes both proclaim that they will not allow themselves to ever "lose." Furthermore, while both films are riveting in their own ways, just as Tolstoy's unhappy families are unhappy in their own ways, neither can really explain exactly *why* these businesses failed except in terms of the stock market collapse of 2000. This is circular reasoning raised to astral levels.

 

Although Startup.com's Tom Herman dreamed up the idea for a website that could process parking ticket payments and other transactions involving municipal government, he really needed high school buddy Kaleil Isaza Tuzman to run the company, which they would call Govworks.com.

 

They are a study in contrasts. Herman is a soft-spoken, somewhat prissy New Hampshire native who has trouble focusing on the bottom line. During a meeting with venture capitalists, he begins speaking rapturously about the possibilities for Govworks in terms found in the pages of Edward Bellamy's utopian fiction. Tuzman, a muscular and testosterone-laden type-A personality, bawls out his co-CEO and friend after the meeting. Don't ever do that again, he warns him. Don't let venture capitalists think that we are flaky, they will never give us a penny. Jehane Noujaim and Chris Hegedus, the directors of Startup.com, somehow managed to allow their principals to reveal their innermost thoughts, which often are repellent, as one might expect given this milieu.

 

Although Tuzman seems cut from the Wall Street "big swinging dick" mold of places like Goldman-Sachs, not is all that it appears. He is also a practicing Hindu who is seen meditating and praying early in the mornings and in moments of crisis, which appear frequently during the documentary.

 

At first Herman's parents, who can best be described as UTNE Reader/NPR types, are thrilled that their young son has embarked on this grand adventure. During a corporate retreat at their New Hampshire home, Tom Herman's father plays banjo and sings a sappy folk song to the top management of Govworks.com. Towards the end of the film, after Tom has been unceremoniously booted from the company and escorted from the office by a watchful employee, his parents commiserate with him in their kitchen. His mother says that Govworks seems to have robbed him of the values they raised him with.

 

Joseph Park, the co-CEO of Kozmo.com is a completely different kind of character. Unlike Tuzman, this unassuming son of immigrant Korean dry-cleaners is all smiles. You never see him in a suit during the entire film (directed, edited and produced by Wonsuk Chin). By contrast, Tuzman is always in a Paul Stuart suit, the regimental uniform of Wall Street. (I gave all my Paul Stuart suits to a thrift shop about a year after going to work at Columbia University.)

 

Short and a little pudgy, Park leads not so much by authority but by good nature and a kind of democratic interaction with all the workers in his company, including the lowliest bike messenger. (Kozmo.com started off as an online video rental company in New York City that would deliver within an hour. It branched off to other products and cities before crashing and burning.)

 

Their respective boards fire both Herman and Park after the economic downturn of 2000 sets in. Although the effervescent dot.com world described in the films is only 3 or 4 years in the past, it seems like ancient history now. Both companies are shown expanding rapidly in 1999 and 2000, fed by venture capital cash. Their employees are seen in company meetings or at parties clapping hands or toasting each other with champagne with every giant leap forward. Park tells his followers that they will be as big as amazon.com one day and that he hopes to make each of them millionaires.

 

After Govworks.com crashes, Tuzman and Herman reconcile and start a new company that consults on dot.com bankruptcies. Meanwhile, Joseph Park gives an interview in which he is philosophical about the whole journey he has just been on. His main consolation, he says with a characteristically broad grin, is that he can now have a social life. He has been out every night for 3 weeks straight. Neither film tells us how the lower ranks of each company made out, including the mostly minority bike messengers of Kozmo.com.

 

In an article in the November 01, 2001 trade journal "Supply Chain Management Review," former Kozmo.com manager John C. Wu offers his thoughts on the "Anatomy of a dot-com," a question that neither film deals with to any degree of satisfaction.

 

Although Wu begins his articles by hailing the innovative mix of electronics and "brick and mortar" components that made for early success at Kozmo.com, he is forced to deal rather gingerly with what he describes as "The Problem of Low Volume."

 

"Buying power was a big problem for us in the perishable categories. >From the viewpoint of the manufacturers and distributors, even our peak consumption volume made us roughly the equivalent of a small grocery store. Our small size meant it was just about impossible to obtain preferential or discounted pricing from these suppliers."

 

In other words, Kozmo.com had no future as a profit-making operation. Wall Street investment banks gave both Govworks.com and Kozmo.com hundreds of millions of dollars without the slightest assurance that either outfit could ever make money.

 

In a July 9, 2001 The Ottawa Citizen article, a panel of computer executives shared their ideas on the economic and technical issues that "Startup.com" ignored. Natalie Prowse, the chief technology officer of an online hiring system, said:

 

"Everybody in the dot-com space was claiming market space in the billions. If you didn't, you didn't get investment money. It's part of what drove the insanity factor up. I know of companies that started with modest business plans but were forced to create more grandiose (and unrealistic) plans in order to get any money. If you wanted $1 million to $5 million and had a plan to be moderately profitable in the next year, nobody would look at you. You had to ask for $20 million to $50 million and have a business plan to take over the world before most VCs would even deign to look in your direction."

 

Not surprisingly, the dot.com euphoria even affected the radical movement. Economist Doug Henwood began writing a book on the "new economy," which presumably would have either explained the success or failure of the project in Marxist terms. Since Henwood has moved away from Marxism and since the "new economy" has disappeared, there is some question of whether this book will ever be written or published--and if published, will be marketable. In other words, it might be another "new economy" casualty just like Kozmo.com or Govworks.com.

 

You can also see how the euphoria affected Peter Camejo, an ex-Trotskyist who is now running for governor of California on the Green Party ticket. To this day, Camejo still believes that the "new economy" is viable and urges his clients to stay invested in high technology (http://www.camejogroup.com).

 

In the May-June/1999 "Against The Current," Camejo wrote a critique of Robert Brenner's NLR article that predicted a worldwide financial meltdown. Briefly stated, Camejo argued that there was no stock market "bubble" and that, if anything, stocks were a reasonable investment and no risk at all.

 

He stated that something is qualitatively different about that period of capitalist expansion, which mapped to the bull market that was at a climax when his article when his article was written. Namely, the silicon revolution has dramatically increased the productivity of labor. He wrote, "We are living during the greatest technological revolution of all time, based on the microchip and other advanced technologies, and that will continue into the foreseeable future." This presumably included e-commerce, which was just beginning to explode.

 

Turning to another key economic indicator, Camejo described the P/E ratio as incorporating new realities:

 

"The rule of thumb on Wall Street is to multiply U.S. government interest rates by .76, invert the number and multiply by 100 to get a price-to-earnings ratio. If we do that with interest rates at 5% we get a 26 P/E. Estimates for 1999 earnings on Wall Street for the S&P 500 are over $50, which at a 26 P/E gives us an S&P of at least 1300, whereas the S&P 500, or about a 25% drop. A drop to 920 would only put us back to where the market dropped on October 8, 1998."

 

The problem with something like a P/E ratio is that it is based on future earnings expectations. How in the world can one predict what that will look like in a year or two? Finally, and most critically from the standpoint of the two films under discussion, Camejo believed that American companies can not be judged simply by book value, which was at an all-time low. Book value is the sum of the assets of a company, like buildings, machinery, land, cash on hand minus liabilities. From that standpoint, Govworks.com and Kozmo.com were worthless. As are the arguments of Peter Camejo seen in retrospect.