Cover Story: Dot-com blues

The call came just after noon on the last Thursday in May.

After four years of covering the “New Economy,” digitalsouth magazine was a victim of it. “I’m shutting down the magazine,” the in-house lawyer for our bankrupt parent company, ?LocalBusiness.com Inc., informed us.

In fact, little did the five of us know that out in the hallway lurked two computer technicians, awaiting their cue from that same lawyer. No sooner did we hang up than they moved in, accompanied by an Atlanta cop, and started confiscating chairs, desks, computers, power strips and staplers.

It felt like a drug bust. But we were no criminals. We’d busted ass for two and three years putting out a damned good technology business magazine, with limited resources. We were proud of it and of each other. It was the only job I ever had where I liked and respected all of my immediate co-workers and felt completely comfortable with their work.

And this is how it would end. There would be no severance pay. Our health insurance would last another two days. And because a single company laptop was missing, corporate was threatening to withhold our last paycheck, never mind that we’d already earned it.

Thanks for the hard work.

My story is hardly unique. As the Internet balloon has deflated, thousands of workers have been sucked into the vacuum of unemployment and uncertainty. Today, they gaze wistfully at back issues of Fast Company and share war stories at pink-slip parties. Some are disillusioned. Some are angry. Some are rolling with the punches, while others have abandoned the field altogether.

One thing is constant, though: While economists insist this is not a recession, it sure feels that way to those of us scanning help-wanted ads. Twenty years ago, it was factory workers who took it on the chin; today, it’s white-collar’s turn. Thought you weren’t expendable? Think again.

It wasn’t supposed to be this way. The Internet revolution was supposed to put people first. You could bring your dog to work, listen to Radiohead and get rich in the process. It was fantasy, fueled by investors and entrepreneurs drunk with optimism and a press that glorified it and egged them all on. And in few places was the party more raucous than in Atlanta.

In 2000, according to the accounting firm PricewaterhouseCoopers, investors poured $2 billion of venture capital into privately held Georgia companies — virtually all of them in metro Atlanta. That’s nearly triple the amount for 1999 and seven times as much as in 1998. Almost all of this money went to technology companies in 2000. The single category that claimed the biggest share included dot-coms, which took in 31 percent of the $2 billion, or about $600 million.

But as it turned out, the New Economy wasn’t exempt from the Oldest Truth — the relentless demand for profit.

In the last year, tech firms big and small have been shedding people like a magnolia drops leaves. In the past seven months alone, tech companies have notified the Georgia Department of Labor of plans to slash 4,058 jobs in metro Atlanta, according to Federal Worker Adjustment and Retraining Notification (WARN) Act filings with the department. Companies must file WARN notices if they plan to cut 50 or more jobs. Thus, these figures don’t include the droves of startups with 20 or so workers that have failed during the same period. That adds at least a few hundred more jobs to the scrap heap.

The list of Atlanta tech startups that have closed, or been gutted and sold at fire-sale prices is long: RealEstate.com, Derivion, WebMD, Home Wireless Networks, eTour, Figleaves.com, Everythingdecor.com, Epanacea, SideTalk, Vet Exchange, eGulliver, hSupply, Ultigo, Nexchange, Fibermarket.com, Changeaddress.com. There was even one called Myfavoriteshoe.com.

Where’d all those people go?

Chris Mangum, who runs an Atlanta consulting firm for tech startups called VentureX Group, says many entrepreneurs who had started IT firms here have gone into hibernation.

“They’re joining the Peace Corps or going back to big corporations if they can,” Mangum says. “So you talk to the VCs (venture capitalists), and there’s no deal flow.” No deal flow means few companies are being formed for the venture capitalists to invest in.

And at least one dot-com entrepreneur, Changeaddress.com founder Graham Balch, really did join the Peace Corps after his company collapsed. He traded his funky Spring Street offices for the jungles of Guatemala.

One former colleague of mine was laid off by a local tech company late last year, then found a new job, only to be laid off again and then rehired again. What’s worse, he thinks the ax is about to drop again. Along the way, he’s seen one executive betray another and get him fired by investors.

“I’m completely soured,” my former colleague says, asking that I not use his name because he doesn’t want to jeopardize his severance package (if there is one). “I don’t want to work in technology ever again. I wasn’t bitter after the first two layoffs. But I am now. Some people in management and some investors are literally feeding on each other like piranhas. It makes me sick to my stomach.”

Learning on the fly
Drawn like so many corporate soldiers to the luster of a dot-com startup, Tim Hart left BellSouth’s Internet operation in February 2000 to join LocalBusiness as a business development specialist. “One of the biggest lures was I would be able to make a difference in a company,” says Hart, 33. “We were lean and mean. I’d have the chance for advancement, and I’d learn a lot on the fly.”

The flight was short. A few months ago, Hart was crafting deals involving Internet “page views” with the likes of The Boston Globe and Yahoo.

His agenda changed on April 27. Sensing that the end might be at hand, Hart took that afternoon off. But a noon e-mail alerted LocalBusiness’ 80-person staff that there’d be an all-hands conference call at 2:30. Hart called in from home. The CEO, who’d been on the job all of three months, broke the news that the company was closing. No need to go to the office on Monday.

There was an explanation of insurance and so forth, some bitching from employees, and that was that. Hart says he felt strange because he didn’t know how to get in touch with most of his co-workers, many of them in south Florida, because everyone was sent home immediately.

For Kara Sweeney, a 28-year-old Web designer, the path to layoff land was longer. Until May, Sweeney was with the Internet consulting firm iXL. IXL had gone public in 1999 and at one time boasted a stock market value of $4 billion. (Its market value has since shrunk to about $100 million.) Thus, Sweeney had felt the company was more stable than many of the fledgling dot-coms with which she had interviewed.

Sweeney joined iXL in April 2000. Her timing couldn’t have been worse. In her first month on the job, iXL’s stock price slid from about $57 a share to $16. Revenue was lagging. Layoffs soon followed. This would be uncomfortable for any company, of course, but especially for one that had spent lavishly to transform a nondescript bunker on Peachtree Street into a sleek Internet age showplace with a movie theater, an exercise room, a quasi-virtual reality chamber and even a bar. As it turns out, a lot of iXLers could use a belt, in the office or outside.

Employees, Sweeney says, were assured that the first round of layoffs would be the last. Management was refining strategy. Business would improve.

Only it didn’t. IXL’s stock price is hovering around $1 now. The company has laid off more than 1,200 employees and as of March 31, employed 1,370 people. Chairman and founder Bert Ellis still has a job, and he’ll not soon be sleeping under a bridge. But he’s certainly felt the pain in his pocketbook: His stake in iXL was worth $223 million in January 2000; it’s now down to about $5 million.

Management at iXL hasn’t turned the company around, but it has learned to better orchestrate layoffs. The first group that was let go got e-mails summoning them to a meeting, where they were dismissed en masse and later shown out by security. “That was pretty bad for morale,” Sweeney says.

For subsequent dismissals, including Sweeney’s, employees were called to the human resources department individually. “It was much friendlier but in a way it was more depressing,” Sweeney says. More depressing because those to be laid off were told to report to the HR department by their direct supervisors — people they worked with daily and knew well. “So there was a lot of shock and sadness,” Sweeney says. Good severance packages were not enough to stop the crying and goodbye hugs.

Lee Haraway slipped out of his office more quietly. Haraway, 25, was laid off by Netifice, which helps companies craft networks to plug telecommuters and others in the field into the office computer systems. As at any company, word got around that job cuts were imminent. And when Haraway showed up for work early on June 22 and was denied access to the company’s computer network, he knew what it meant. A couple of co-workers fired up their PCs only to be similarly blocked.

It’s fittingly symbolic that being cut off from e-mail and a computer often is the first tangible sign that you no longer work for a technology company. Essentially, the machine is telling you you’re fired. Hart says that on the final LocalBusiness conference call, one of the first things the workers heard was that e-mail was being unplugged immediately. Haraway’s screen told him “access denied. See your administrator.” A little late for that.

“I just started packing my desk up,” Haraway says.

A vice president came out to give him and several others the official word. All things considered, it was handled reasonably well, Haraway says. He and his former colleagues got two weeks’ severance pay. And the company’s president wrote letters of recommendation.

It’s not just layoffs, though. Part of the lure of the Internet economy was the chance to work for small upstarts — companies unfettered by layers of management, where independence was a premium. Take Robert Barylak. He was a technology consultant with a relatively small firm, Computer Management Systems Inc., when it was swallowed by Computer Associates, a multibillion-dollar acquisition machine.

Computer Associates, which has gobbled up more than 200 companies, is not known for kindly treatment of newly acquired employees. In a March 2000 cover story on CEO Charles Wang, BusinessWeek wrote that “Wang probably ... holds the record for firing programmers, most of whom were canned just days after CA took control. The top executives of acquired companies were always the first to go.”

Barylak says he and most of his colleagues quickly soured on Computer Associates, as the new owner tried to run the consulting shop like a software company. “As opposed to seeing their employees as a valuable resource, they viewed our code as valuable,” Barylak says.

So the decision to bolt was easy. Barylak realized he couldn’t stomach the tumult of a shaky young company. He joined Home Depot as a systems engineer, and says he’s glad he did. He won’t have the ear of the CEO, but Home Depot isn’t likely to call in the cops anytime soon, either.

Not everyone’s as lucky as Barylak. The startups that are surviving are living on bread and water. And few established companies hiring. Check out some of the names among the WARN filings: BellSouth, WorldCom, Rockwell Automation, NCR, Motorola and Nortel. Hart says most companies he talks to are under a hiring freeze, unable to add staff even where they need it.

“All I’m doing is taking calls from people looking for jobs,” says Susan O’Dwyer, marketing manager for the accounting firm PricewaterhouseCoopers in Atlanta. The resumes are coming from former dot- commers, financial types and even high-level sales people from big companies like Nortel, O’Dwyer says.

Bottom line: The job market’s tough. In May, 10,702 people in metro Atlanta filed new unemployment claims, a 76 percent jump from May of 2000. In April 2001, 10,195 filed new claims.

“While I’m getting sympathy from people, I’m not the only person they know who’s unemployed,” Hart says. “Right now anyway, everybody knows at least a handful of people who are unemployed. And instead of me going against three or four or five other people for a position, it’s me going against 20 or 30 people for the same position.”

Where do we go from here?
Hart and the other casualties of the tech bust seem to have come away wiser and, in some cases, cynical. For example, Haraway, the 25-year-old sacked by Netifice, says he’d rather steer clear of traditional 9-to-5 work. He’s not necessarily averse to working at a technology company, but he’d like it to be a more nontraditional arrangement. He says he’s considering returning to school to study graphic design.

Hart, likewise, says he’d go to another startup. After toiling inside BellSouth and Cox Enterprises, both corporate Goliaths with thousands of employees and billions in revenues, he says, it’s a rush to have the CEO actually know you, and maybe even listen to you. And it’s nice to wear what you want to work and feel your boss trusts you. Still, Hart is more skeptical on job interviews, asking potential employers a lot more pointed questions about business models and management teams.

Meanwhile, Hart has been planting azaleas in his yard, mowing a friend’s lawn and hunting a job. Some days, he hears about promising leads, people return his calls, an out-of-work friend finds a job and he figures there’s hope. Other days, the phone sits quiet and the e-mail in-box stays empty. Worse, he hears a company has put off hiring until next year. “Emotionally, there are ebbs and flows,” he says. “Some days you feel like working. And other days you’re depressed.”

Sweeney was never really unemployed. Cox Radio Interactive, a subsidiary of Cox Enterprises, sought her out to be a design manager right before she got laid off at iXL. Had that job not come along so quickly, she says she probably would have hunted something intriguing outside of the Internet business. “I was getting burned out on it,” she says. “I was getting tired of seeing all the layoffs.”

Several of her former iXL colleagues have found jobs working on Internet strategy, but for companies with substantial offline business. One left to teach school, while a couple of others bolted from Atlanta to make a fresh start, Sweeney says.

Back at digitalsouth, the missing laptop turned up, so we got our last check.

Thing is, we all could’ve quit a month earlier. The parent company had filed bankruptcy in late April, shutting down its two dozen business-news websites and sacking 70 of the company’s 80 employees. (Lucky suckers got two weeks’ severance pay. From reporting and personal experience, I’ve found that the earlier you go, the better the severance because there’s a little money left. And normally the bigger the company, the better the package.)

Digitalsouth was supposed to keep generating decent revenue and attract a buyer. One of the parent company’s investors, in fact, seemed all but certain to acquire us. But then ad sales, already slipping, cratered for the July-August issue. Result: no buyer, no July-August issue.

In subsequent news stories, the in-house lawyer insisted that the magazine wasn’t necessarily dead. It could very well be revived, she said. Yeah. That’s exactly what I was thinking as a cop watched me throw a few notebooks and a clock into a cardboard box next to what had for two years been my desk. Lord only knows where the desk and computer will end up. But one thing’s certain: you can get them cheap.??