Burn Rate

by Michael Wolff

  Rubin rose from his seat. From his body language, it was obvious that he just didn’t want to be contained anymore. He wanted a higher ground. He was rich, after all. He didn’t have to be sitting with us in a sinking couch.

  “Listen, this is the opportunity for you guys. If this company is doing what you are going to be doing, then you have the opportunity to buy with paper what otherwise you’d have to pay cash for. You just have to decide if this company has built what you might have use for.” He paced.

  “Hmm,” Halsey said.

  “There’s a lot of interest here,” Shelby said, but passively.

  “Great, how do we move it along?” Jon Rubin prodded.

  “I don’t understand these books,” Halsey Minor said, holding up one of our books as if it were a recent and unpromising invention.

  Selling out my career and education, not to mention much of civilized history, I said, “You really shouldn’t look at them as books but as just another outlet of a content business. We create content. Whether books are an efficient expression of that content is an opportunity that we have to continually evaluate. So far, we’ve found that books are a successful adjunct to an electronic business.”

  “Online users of tomorrow are in the aisles of Barnes & Noble today,” said the EVP, repeating a line that I’d come up with that seemed more and more sinister in its implications.

  “I’m just not sure anybody is going to value books,” Halsey said, but he was flipping the pages as though interested. “Books,” he said, as though in a private meditation.

  “They work,” I said.

  “It’s not going to help our share price. It doesn’t make much sense for us to buy your content for more than we’d pay to create it ourselves.” That logic seemed crystal clear to him.

  “But—” I said. “I mean, obviously we have an audience—”

  “It’s an audience but it’s not traffic. Wall Street doesn’t value a book audience very highly.”

  “And then—I’m not sure, really, that it would be economical for you to try to recreate our content.”

  “What do you pay for one of these little reviews? What do you use, freelancers?”

  “I’m not sure the specific cost per unit is what’s really relevant.”

  But we were gone, I knew. This was not a point of departure that would ever get us to where we wanted to go. Now it was just a matter of getting us out of here with some dignity.

  “Shelby wants us,” I said as Rubin, the EVP, and I walked through the lobby of the CNet building.

  “Halsey’s such a prick,” Rubin said.

  “I actually think there’s something here,” I said. “I do. Really. I think when they think about it—”

  We went out the door into the San Francisco mist.

  “Michael?” Rubin reached for and held my arm. “I need those papers.”

  “Did you get comments from Alison?”

  “Michael, I need those papers signed.” It was not just anger in his voice. There was panic. He was afraid of Jesse, too.

  “I’m ready to sign,” I shrugged. “As soon as you’re okay with Alison’s points. There’s no issue here, Jon.” I paused. He let go of my arm. “Anyway,” I said matter-of-factly, “I’m on my way to San Antonio. I’m speaking to the newspaper editors of America. It should be an interesting conference. I sent you an e-mail about it.”

  “I want to talk tonight,” he said. “Tonight!” he repeated, threateningly.

  I was moving down the stairs to the street. “I have a really bad flight. Through Denver and Houston. I should get to San Antonio by eleven or so.”

  Rubin’s car and driver were waiting. Our call-a-cab got there just then, too.

  On the one hand, you had to be tough, I thought, to play this game; on the other hand, if you just kept going, not thinking too hard about the implications of any one particular move, it wasn’t that hard to play.

  My room in San Antonio overlooked the Alamo.

  There were half a dozen messages from Alison and another half dozen from the office. Otherwise, no one else knew where I was staying.

  “Jon’s been calling at least once an hour,” Alison said. “I finally just left the office. It’s bad.”

  “Well, how bad?” At this remove, even here above the Alamo, I wasn’t feeling very vulnerable at all.

  “My guess? He hasn’t told his father or Jesse that he gave you the money and somehow didn’t get you to sign the papers.”

  I giggled.

  “When he does, that’s when we’re going to have problems. They’ll just be looking for blood. They’ll sue us, I’d guess, right away. We could get buried pretty quickly in litigation.”

  “You sound calm, though.”

  “We have a little advantage now. Jon will deal, I think. If he fesses up to his father and Jesse, he looks like a jerk. If he comes back with an agreement, even with some important modifications from the original position, he can argue that out on a business basis.”

  “Uh-huh.” I wasn’t eager to start negotiating. I was quite comfortable with a straight fuck-you line.

  “We can give him an illusory control,” Alison proposed. “We’ll let him have control of the board but we’ll maintain our seats and we’ll go for the right to pay back the loan, hence restoring control to the common shareholders. In other words, we will have put him in the squeeze he’s put us in. For a hundred and fifty thousand dollars we can have control of the company. It’s actually sort of wild,” she said. “We’ll have none of the disadvantages of control, the responsibilities, liabilities, risks. But we’ve effectively reserved the right to buy back control at any time with his money.”

  “And he’ll agree to this?” It seemed doubtful to me that he would.

  “I’ll fax him a red-lined version tonight. I’ll really mark it up. He’ll go through the roof. Then we’ll settle for our two points.”

  At their conference in San Antonio, the newspaper editors of America were not looking good. The newspaper business had been savaged first by the broadcast media and then by sweeping demographic changes (young people don’t read newspapers) and was now looking at a new information medium coming into people’s homes.

  It was a cross section of Middle-America that I saw in the audience. Two hundred or so inartfully dressed average Joes. They had a far different look from the software groups and technology business audiences I usually found myself in front of. The newspaper editors lacked an edge. They seemed to be looking for a way not to be noticed whereas those other groups were strictly a “shine that light over here” bunch. Newspaper people had fallen way behind the technology curve. Their management, fat on monopoly profits, had no incentive to make the investment in the resources that technology demanded. It was a sad state. Newspaper editor was a job alongside schoolteacher or bank teller. It was a small-town job, underpaid, underskilled, inexorably being downgraded from profession to back-office function.

  I was pleased to be able to escape my own problems for a moment by addressing theirs.

  After my talk, explaining why they would all soon be toast, I stepped from the symposium out onto the lawn and switched on my phone to call the office. Instead of sending, I opened the line and got the factotum.

  “Where are you?”

  “I’m in San Antonio. Where are you?”

  “I’m in the office. I’ve been calling you nonstop. There’s something wrong with your phone, I think. I’ve been trying to get you since yesterday.”

  “I’m in the middle of a panel discussion,” I said, “about the future of newspapers in America. Not a very pretty picture. There but for the grace of God—”

  “We have a problem.”

  “We do?”

  “You took the money,” he said censoriously.

  “No,” I said with pointed innocence. “I didn’t take the money. It was wired into our account.”

  “You have to sign those papers.”

  “That’s sort of the point,” I said calmly. “I d
on’t have to sign those papers.”

  “That’s completely unethical!”

  I blinked in the Texas sun. This former Drexel Burnham investment banker, now a managing director of one of the most hard-nosed investment firms in New York, whose office I had sat in for the better part of a year listening to the ins and outs of how to get the better of this or that fool, was telling me I was unethical. “Isn’t it wonderful,” I said.

  “I don’t think sarcasm is going to be helpful.”

  “Listen, let’s try to move this forward.” This was a favorite rhetorical tactic in business: no matter how obdurate and disruptive you were trying to be, always advocate returning to a positive basis of discussion. “I suppose I should ask if you’re speaking as shareholders of the company or as bankers, and if you’re speaking as bankers, who do you represent?”

  Pause. “We represent the board.”

  “Good. Then the board hereby directs you not to communicate with any of the preferred shareholders.” I savored my directive: projecting authority feels close to having authority.

  He maturely decided not to challenge me. “I’m trying to help you resolve this. I’ve spoken to Jon. He’s basically said that we have twenty-four hours to get this resolved. Come on. The Rubin family controls billions of dollars. If the choice is between writing off a few million dollars or dealing with a person they don’t want to do business with anymore, they’ll write off the few million. I’ll guarantee you that. And don’t think they won’t make your life miserable to boot. Do you have any idea what these people can do to you?”

  “Are you threatening me now? Or is Jon threatening me?”

  I wasn’t exactly enjoying this. But the adrenaline was certainly pumping.

  “No one’s threatening anybody,” the factotum said wearily.

  “Okay. Let’s try to find a reason, other than your idea of an ethical life, for why I should sign this deal. It’s obviously not for the money, because I have that already. So I would do it only to preserve a working relationship with Jon. Now, that may not be possible at this point—”

  “I think it will still be possible.”

  “Sure thing.” I laughed, then said, getting down to business finally, “Alison has provided Jon with a marked-up agreement. That’s what we’re willing to sign—”

  “Michael—” the factotum interrupted, frustrated.

  “If Jon has another suggestion for how to make this agreement acceptable to us, of course we’re willing to listen.”

  Pause. “I’ll get back to you.”

  “Right.”

  The second I was free, the phone was ringing again.

  “Michael?”

  “Jon,” I said weightily. With only the briefest pause, I switched to nonchalance. “Have you received Alison’s comments?”

  “I’m not renegotiating! You gave me your word!”

  “And I believe,” I said, formally articulating the terms of the battle, “that you gave me your word, that you gave it to the whole board, about the terms for putting in five hundred thousand dollars.”

  “Is there an agreement? Show me an agreement. We’ve discussed many different financing options with regard to this company.”

  “Fine, Jon.”

  “You’re fucking me over! You’re screwing me. I’ve been up all night trying to get you on the phone. You don’t have any idea what you’re doing! You’re just fucking me!”

  “Jon, I’m in the middle of a panel discussion—”

  “I don’t care where you are. This isn’t between the two of us anymore. You let it get out of my hands. It’s too late. You are going to be fucked, Michael! Do you hear me?”

  For a second, I thought the cell phone had, as usual, cut out. But then I realized that he had hung up on me.

  “He just lost it,” I said to Alison, reporting the conversation.

  “Really? Wow.”

  I think we were both a little frightened.

  It’s easy to start to think that your own behavior is extreme when carefully composed, highly analytic, proudly reasonable businessmen start to scream at you. How far out on a limb was I? How much had I defied ordinary business conventions and manners by what I had done? It seemed to me I was just negotiating. Being tough was supposed to be a business virtue. But I was beginning to feel like an outlaw. No doubt, this is what your adversaries want you to feel. The context is dominance and submission. Money is dominant. Or believes, however irrationally, it should be dominant.

  Part of money’s job is to control the entrepreneur. In business mythology the entrepreneur is a breed apart. The entrepreneur is neither capital nor labor, neither investor nor employee. While the entrepreneur is the inspiration, the visionary, the leader (i.e., the unreasonable risk taker), the entrepreneur is also the unstable element.

  The coming together of an entrepreneur and capital, with the attendant participation of lawyers, bankers, and other lesser interests, is an economic and political bargain of the most opportunistic sort. Conflict is inevitable. In most cases, the entrepreneur will be “dealt with.” Sometimes though, if the entrepreneur has particular reserves of nerve and wile, well, the outcome might just be unexpected; the entrepreneur might turn the tables.

  I was now functioning under this burst of hubris.

  As I went back to my panel discussion on the future of newspapers in the brave new world, I considered all of the various elements conspiring with me or against me:

  1. We had just released a good product. Business Week had praised it; USA Today had profiled us. Traffic was growing. It was a hit. What’s more, it was useful. We had built, potentially, that mythical user-friendly front end.

  2. We had real live prospective buyers lining up, heavy hitters, major names. The Washington Post Company. Ameritech. Yes, there was clearly a market for us.

  3. It was hard to get rid of me. I had plastered my name over everything. I had an author’s pride rather than a developer’s team spirit.

  4. Patricof had begun to push out in front of other New York investment firms for East Coast Internet deals. They needed ours to hold together.

  5. The last thing Rubin wanted right now was for us to blow up in his face.

  The last point, I realized, was probably the most important one. Rubin was not going to want to do anything to screw up his carefully choreographed efforts to take his online transaction company, First Virtual, public.

  First Virtual was an anomalous little system conceived in the earliest days of privacy worries and credit card anxieties. You could buy merchandise online with a password connected to your credit card, but you would never have to expose your credit card to the open Internet. Every purchase you made would be confirmed by e-mail. Unlike credit cards, which charged merchants a 2 or 3 percent transaction fee, First Virtual charged 15 percent. It was not, therefore, particularly attractive to traditional merchants. But it actually achieved quite a wide use among porno dealers. (One of its early successes was individual photos, priced at $1.25 each, of Inga, the girl from Denmark, in various poses, complete with a description of each photo in a charming broken English, the entrepreneurial brainstorm of a student at Haverford College.) Bear Stearns, along with two other brokerage firms, was preparing a public offering of First Virtual, a company that had never topped $700,000 in annual revenues, and had losses of more than $10 million, which they hoped would value the company at almost $100 million.

  While there were men rich enough to kiss off the $5 million invested in our company, there may not have been any so rich as to kiss off $100 million.

  By the time I arrived back in New York from San Antonio, Jon Rubin had agreed to the two paramount changes we were insisting on: Alison and I would remain on the board, and control of the company would be returned to us as soon as we repaid the outstanding $150,000 loan.

  Alison was right, he could not have done otherwise.

  Still, all we had really managed to do was to draw the battle lines.

  Almost immediately, I turned aroun
d and headed to Washington for our meeting with executives of the Washington Post Company.

  The factotum, the EVP, and I were shown into Mrs. Graham’s office—a gracious, frozen-in-time tableau, set off by black-and-white photos of the Kennedys and other pantheon-worthy politicians—which looked onto a serene outdoor terrace. I had left vague and shifting messages regarding the time and place of this meeting for Jon Rubin and idly hoped that he would miss it. With no such luck, he arrived as coffee was being poured into Mrs. Graham’s china.

  “I understand Kay’s hip replacement surgery went very well,” Rubin said as he joined the meeting. “My father had the same surgery last year, and he’s been coaching her.”

  These were ranking executives from the Post’s business side, financial side, and editorial side, but they did not seem to feel they were senior enough to idly chat about Mrs. Graham’s health and soberly avoided comment.

  There was a deep seriousness to the meeting, almost a grimness. The Post was already feeling a bite on its classified advertising from Digital Cities, AOL’s Washington, D.C., Web guide. In addition, the Post could look forward soon to having Microsoft as a local competitor. The District of Columbia was a target market for Microsoft’s Sidewalk project, another online city magazine dreaming of a windfall in local advertising.

  “With our cash flow I wouldn’t exactly say we are afraid of AOL,” said Chris Schroeder, treasurer of the Washington Post Company and the company’s primary acquisition executive. He added pointedly, “I’m not sure, though, we’d have the same feelings about the man in Redmond.”

  A boyish finance-oriented executive out of the Bush administration, Schroeder was a self-consciously styled straight shooter. Virtually everything he said was couched as bad news or less than good news.

  “We think you’ve built an exciting company,” he said in a halting and pained cadence. “I think the synergies are evident to everyone here, operationally and philosophically.” He twirled a pen in his fingers. “I will be honest that we have looked at substantial numbers of Internet-related ventures. While we are, obviously, continuing to evaluate our strategy and strategic interests in this area, I think I can reasonably say that yours is the company that we are most interested in. Having said that, I want to caution you that we are continuing our discussions internally and that our timetable may not be your timetable.”