Burn Rate

by Michael Wolff

  I took note that this was clearly a prepared statement. Obviously, too, it made sense that if they had prepared this far, they knew where they were going. I began to compose the press release:

  WASHINGTON POST COMPANY

  ACQUIRES WOLFF NEW MEDIA

  Deal Valued at $62 Million

  I cleared my throat and made my statement: “We believe that we are looking toward a period of rapid consolidation within this industry. It would be my supposition that if we attend the conference where you saw me speak next year, we’ll find far fewer and far less exciting independent companies. The decision in front of us is, Whom do we embrace and what is the nature of our relationship? We are in the interesting position of having two clear directions, two distinct choices. We can partner with a technology company, or we can partner with a content-oriented media company. I think most of you people here know my background as a journalist. While I’ve spent a lot of time recently on the West Coast, up and down Highway 101 as well as in Redmond, I’ll be honest that it is hard for me sitting in this office—particularly this office—not to feel that I am home.”

  They liked my attitude.

  The senior editorial executive said, “I think it’s clear that we understand each other on an editorial level. We’re not in the software business, we’re in the journalism business: the Washington Post Company and your company.” Disconcertingly, he added, “if I had the money and the resources, I’d create the kind of site you’ve created.”

  “Perhaps,” I said, “we should acquire you.”

  A touch of laughter.

  “We’d like to present three directions to explore with you,” Schroeder said.

  Moving right along, I thought.

  “We can enter into an alliance that I think could be valuable for you in the short run wherein we would be an acquirer and perhaps distributor of your content. We can begin to talk about this relationship almost immediately.”

  This was the “let’s be friends” approach.

  “We can make an investment in your company.”

  A mutually satisfying sexual relationship.

  “We can acquire you.”

  Marriage.

  “And which,” the factotum asked, “is your preference?”

  “I have no preference,” Schroeder was careful to point out. “And I don’t know what the company will prefer. But I think I can share with you my sense that it is probably easier for this company to act within your timetable if we were to discuss an acquisition.”

  We, on our side, reacted with appropriate poker-faced consideration.

  “Of course, the Post Company is not going to offer an IPO value. I can tell you that.”

  WASHINGTON POST COMPANY

  ACQUIRES WOLFF NEW MEDIA

  Deal Valued at $40 Million

  “What was the value of the last round?”

  “Approximately ten million dollars,” said the factotum.

  Schroeder raised his eyebrows.

  “You’re looking at needing another five to reach breakeven?”

  “Approximately.”

  Schroeder tapped a pen. “Do you have a price?” He asked but did not really expect an answer.

  It felt, now, like $25 million to $30 million to me. My take would be $15 million. Of course, I hesitated. It was $15 million versus letting the chips ride. Having practiced, on the bourse of my dreams, the strategies for trading up to vast sums, I knew that the way to play this was to get the Post Company to invest $5 million at the $25 million valuation (in other words they’d get 20 percent of the company, leaving me with—my math was failing me but I could expect to get, later in the day, a computer run on relative share value from Patricof) and then to go public in the hundreds-of-millions-of-dollars class.

  “I think what we have to do is discuss this on our side and then let you know if we are ready to proceed. I think I can have an answer for you on that in forty-eight hours,” Schroeder said.

  And that was that. It was a smell-test meeting, and unless we were inured to our own stink, we had passed the test and a deal was there to happen.

  I could well imagine the contentment and rosy glow and power aura of having sold my company for a personal take of $15 million. The fantasy was different from the $100 million fantasy, but there was a satisfying modesty to the $15 million. One’s life was enhanced, improved, made qualitatively better, but it was not irrevocably changed, as it would be in the $100 million deal.

  “Do you want to have lunch?” Rubin maneuvered me aside as we came out of the Post building. I was ready to deflect a meeting, but in the way he held my arm and looked me deep in the eye this was clearly a makeup lunch. I could feel the emotion here.

  It was a casual lunch. We went to a barbecue joint. There was a little talk about Kay Graham and the dinner his parents had recently had with her. Then he said, taking a breath, “This has been a difficult period—”

  “It has been,” I agreed, and added, “I’m glad we’ve been able to get through it.”

  “Honestly.” He crossed his arms and looked at me intently. “I think you have used extremely bad judgment.”

  I was nonplussed. It took me rather a long moment to realize that we were apparently not making up. “Hmm.” I looked at him closely but had no idea what to expect here. I was curious, though. “Obviously,” I shrugged, “I disagree.”

  “I think if you thought about it, you would agree that you made a bad decision.”

  I wondered if there weren’t perhaps some official eating crow that was expected of me.

  He pursed his lips. “You made a bad decision. The reason I wanted to sit down with you is to tell you that I don’t feel I’m in a position to work with you any longer. I think you made a bad decision, and I don’t think we are going to be able to recover the trust that clearly needs to exist in a working relationship like ours.” How had I ever missed that this was coming? I wondered. Either my head was totally in the clouds, or his demeanor was far off message. Then he said that what he wanted to do was have his technology advisor step in as CEO and the EVP step up to COO.

  “This is what you want me to agree to?”

  “You made a bad decision. My concern is for the company and how we get it running again.”

  Having never been fired before (having hardly ever had a job before), I briefly considered the nature of the experience of having the kind of comprehension delay that I was encountering, before I fully processed the fact that it was really not so easy to fire me. The ties that bind capital with an entrepreneur are tightly twisted ones. I could, and I imagined I probably would, make it as difficult to shake me as it would be to shake a woman seriously scorned.

  “As you know,” I said, “the terms of my employment contract provide for termination with cause only in the event of a felony conviction.”

  “Indictment.”

  “No, I’m quite sure I have to be convicted.”

  He seemed sour about that.

  “At any rate,” he said methodically, “we don’t have to talk about termination. We think an appropriate role for you will be as vice chairman and to remain involved on the creative side of the company and as its spokesperson.”

  All across the technology industry there are entrepreneurs whiling away their middle years as vice chairmen.

  I quickly analyzed the cycle of dependence. Because my name was plastered all over the company, my presence was required to maintain the company’s value, at least in the short term. It would be unlikely, I weighed the bet, that the Washington Post Company or CNet or Ameritech or anyone else would do a deal for the company if I were blowing raspberries on the sidelines. On the other hand, it was possible that the Rubin interests, having achieved at least temporary control of the company, had no desire to do any of these deals but, rather, to solidify control and to use the company for other purposes.

  I knew that a good businessperson, a true businessperson, would look at this strategically and economically. I tried to imagine what Alison’s advi
ce would be. I could almost do it, too. Her counsel would be to figure out where I wanted to be at a reasonable point in the future. Did I want to get as much money as possible and be free of the company? Did I believe that if I held on, there would be infinitely more money to make? Did I want to stay running the company, building it, helping it grow, working with the people I’d brought together? Define the goal and work backward, she would say. Develop a strategic and tactical path to get where I wanted to be.

  But, honestly, for what seemed like a long period—minutes, not seconds; ten minutes, twenty minutes maybe—I weighed the pros and cons of just hitting Rubin in the nose. There was no question that I could do it. It would be the first time in a long time, but not the first time. A surprise fist would take the day.

  That’s not what I did. But I didn’t much follow the path of my economic interests, either.

  “No,” I said. “Fuck you. No accommodation. No nothing. I’ll bury this company. I’ll bury you. I’ll bury anything else you’re trying to do in a firestorm of publicity and litigation. I want you out of my company. You’re a lightweight and a snot nose. Get out of my company. The longer you stay, the more money and pain it will cost you.” I tried to remember later what I really said here, how close it came to those words. I think pretty close.

  I don’t believe I’d ever seen a face change so dramatically and rapidly without special effects. His color drained and then was replaced by a red and purple hue. A muscular reaction seemed to almost flatten the upper and lower jaws. The nostrils were like a bull’s. The veins on the front of the neck seemed sculpted by Michelangelo.

  I thought that he was going to hit me—probably an ideal outcome.

  But again his face changed, almost as dramatically, as he forcefully recomposed. It was a masterful job of regaining control.

  “I am an investor,” he said. “I will have investments that work out and other investments that do not.” He was breathing very heavily. “When they don’t work out, I will, like all investors, go on to the next opportunity. You, however, just have this company. It carries your name. If it goes down, you go down with it.”

  “Actually,” I said, suddenly appreciating what had been something of a disadvantage, certainly an oddity, in my business life, “I’m a writer. If this company goes down, I will continue to do what I have always done, which is write. Perhaps about you.”

  He stood, calmly. Emptied his wallet on the table. And walked out.

  It’s amazing how few things actually change when you’re expecting everything to change. You wait for the roar, the flood tide, and nothing happens. The work keeps getting done. More desks keep coming. The Internet becomes a household word.

  Ameritech came in to see us and seemed to be head over heels impatient, in a midwestern sort of way, to invest its money with us.

  We had said to both the Post and to Ameritech, in a kind of Internet white lie, that we were doing, oh, about seven million impressions a month, give or take, and that we were scaling up quickly, that in a year we’d hit twenty million per month, certainly.

  There were, fortunately, only a handful of people in America who understood Internet numbers, but there was an emerging math. For each impression, generated by each set of eyes that saw the page, an advertiser would pay $.02. So if we had five million impressions a month, we would be making $100,000 every month.

  I was fairly confident I could make us a deal and get us an audience, or at least get us impressions.

  The EVP and I flew out to the West Coast to make the deal that would give us the numbers we were proposing to sell to Ameritech and to the Washington Post Company.

  Because in an astoundingly short period of time—hardly more than twelve months—the Internet had gone from a utopian moment, wherein the Web had created a new era in publishing with a new technology and a new economic model—as profound and as democratizing as the advent of movable type—to a system on its way to being as monolithic and as unbeatable as the television dial; if you wanted traffic, you had to make a deal with a search engine.

  Yahoo, Excite (which had bought Magellan), Infoseek. Up and down Silicon Valley on Highway 101. And Lycos, too, in Boston.

  We had meetings scheduled with everybody, but I liked Infoseek best. Robin Johnson, Infoseek’s CEO, was out of Time Warner. He had a background in the media business. I had more in common with him than I had with the software developers and executives at the other search engine companies.

  The EVP and I met Johnson in a windowless interview room at the San Francisco airport. He was heading east, just as we arrived out west.

  Since the conference in Laguna Beach, Johnson and I had been talking about a deal that would introduce our content to Infoseek users. We would be the cream on top of Infoseek and, hence, get a share of Infoseek’s one hundred million monthly impressions.

  I hoped we could do this deal with Johnson, but I knew that he was almost as embattled an executive as I was. Infoseek’s stock was trading at half its offering price. Someone had to be blamed. (We’d had one meeting with Johnson during which he left for a lunchtime board meeting and returned a different man. “He was chewed up and spit out during lunch,” observed the factotum, obviously familiar with such boardroom dining habits.)

  But maybe we could help each other out.

  During the flight west, the EVP had been intently crunching numbers. Now, in the fluorescent-lit interview room at the airport, he took Johnson through the spreadsheet, analyzing the ebb and flow of traffic through Infoseek’s search results and through our more narrative content. There it was: a visitor to Infoseek registered an average of 3 impressions—3 clicks—per visit whereas our users, appreciating, it would seem, our wit and opinions, registered 5.5 impressions.

  While 5.5 clicks seemed paltry and unsatisfying to me, both Johnson and the EVP were taken with these findings. Our user was worth almost twice what an Infoseek user was worth.

  What this user or these impressions were really worth was another issue entirely. We had, for instance, a book we’d published about online investing. We were able to buy the search word cigars on Infoseek, thinking the cigar crowd would be men with an interest in money (most of the other money-related words were taken). The cost was $.02 for every person who typed in the word cigar. What you, the Web surfer, would see, in addition to the forty thousand or so references to cigars on the Web, was our horizontal ad across the top of your screen. Because this space was so cramped and abbreviated, in order to get the full significance of our message you would have to click on our ad and be transported to our Web site, where we would tell you about our book and give you an opportunity to place an order. In general, three percent of the people who searched on the word cigar, for whom we had paid $.02 apiece, clicked on our ad. In other words, instead of a cost per thousand of $20 for people to see our ad (about the same as is charged by personal-finance-related magazines, for instance), our real cost was something like $666 per thousand. Of those people, .005 bought a book—a $22 book. In other words, for $666 we generated $110 in sales.

  Still, for the moment, I was happy of course that we were operating in our own little world.

  “Let’s do a deal,” Johnson said.

  Finally, we received proper and formal, and uneventful, notice of a board meeting to be held at the law offices of the hated and feared Jesse Meer.

  As backbenchers now at our own board meeting, we in fact had no idea of what was to transpire. I could be fired. The company could be reorganized, sold, merged, repurposed. The unknowns about which the Rubin side had to be concerned had to do with whether or not I was ready to negotiate sensibly and whether or not I was a crazy man without the sense of his own economic interests. How can you predict what a crazy man will do?

  Obviously, too, it complicated their plans that Rubin, having gained control for a mere $150,000, could lose it back to me for the same mere $150,000. It was an unnerving balance of power.

  Alison had prepared me for the meeting, as a doctor with a go
od bedside manner might go over all the possible points of pain and trauma for a surgical procedure.

  The worst case, for all concerned, was an all-out exchange of retaliatory weapons. They could fire me. I could respond. We had a press release in the fax machine; we had lawyers poised to file motions.

  Another possible denouement was an attractive offer. In some ways this one seemed like the most difficult to deal with, but Alison assured me that I had a price and that the world would not think less of me for it.

  But the most likely outcome, according to Alison, was a set of steps designed to curtail my authority, frustrate my relationships with other managers, and isolate me from the operations of the company. In other words, I would be made vice-chairman in fact if not in name. I was to expect, too, according to Alison, a set of measures meant to punish me through small humiliations—lesser office, curtailed expenses, loss of my cell phone.

  “They humiliate you,” she said, “because it’s the kind of stuff that brings on the emotions, that makes your voice break. When that happens, forget it.”

  So most of all, as we went into the meeting, I was afraid of crying.

  Jesse Meer’s law firm was, like every law firm in midtown Manhattan, made of expensive wood veneer, glass, and granite. You would not single it out as particularly son-of-a-bitch decor.

  The Patricof people were subdued but genial.

  The firm’s creditors’ rights partner, who came out to greet us, was gentlemanly enough.

  Our CFO and EVP, who would be waiting outside during the meeting, were fine with pretending nothing much of moment was going on.

  Even as Jesse Meer, Jon Rubin, and the technology advisor, who had been added to the board, entered the conference room from a side door, it was still a businesslike air. Any additional tension was hardly perceptible. It was almost possible to imagine that everyone here had a reasonable working relationship.