BusinessDallas DOT. COM RISK TAKERS

HAVE THE GREAT Internet fortunes already been made? Everyone, it seems, is jumping ship to work for a dot.com-from CEOs and MBAs to bankers and accountants. In the last six months, Dallas has turned into a hotbed of online activity- and it’s your neighbors and former classmates who are making the move online.

We wanted to know the story behind the mania. Is it the money? The options? The challenge? What do these people know that we don’t, and how much of the new economy is passing us by?

We’ve talked to scores of professionals who have made the Internet switch. Of these we picked five-a top executive, a young entrepreneur, two bankers, and a lawyer-to profile because they epitomize what we discovered. One has made his first fortune and is already itching for his second; one is moving back to Dallas to lead a corporate remake; the others are launching new businesses with their fingers crossed. Here’s what’s happening in Dallas right now. Are you missing out on the action?

The Entrepreneur



Even a good ol’ boy can try to strike it rich online. Scott Sexlon was born and raised in Highland Park, went off to Baylor University right after high school, and promptly relumed to his hometown after getting an accounting degree in 1992. He was a varsity basketball star in high school and college, but he also knew how to have fun. spending many a weekend at fraternity parties. After all, lie didn’t have to worry; he’d been groomed for the family business.

Sexton went to work for his dad. who had founded a food ingredient and packaging brokerage named Bakery Associates. After a yearlong stint as a salesman for Bakery Associates in Mexico City and seven more years in Dallas, young Sexton was getting restless. “My dad didn’t even have a computer when I started.” he says. “He still had his receptionist typing things up for him.”

Sexton also saw a lot of inefficiencies in the way suppliers sold their ingredients to food manufacturers. An attempt to duplicate- and improve–this system on the Internet would be too expensive a proposition for Bakery Associates, so Sexton began to think about how to set up a separate company.

In 1998, Sexton quit his father’s company and called Chris Renner. his childhood friend, college roommate, and fraternity brother. Sexton had eight years of industry experience-not to mention a lifetime of his father’s stories-and Renner had been working in the financial technology sector since they had parted ways eight years before. The duo founded one of the first and only online start-ups in the food and beverage manufacturing industry.

“I don’t think there was any question thai the industry needed to move online,” Sexton says. “The transactions were so inefficient. This way, I could continue the family business-but online. My dad was really excited to see that I built off of his business platform.”

The first steps were to build a learn and secure financing. The team part was easy-the two partners dialed up a few college fraternity buddies. Four members of management and nine employees came from these phone calls-some were even wooed away from lop companies such as Microsoft, Arthur Andersen, and Computer Sciences Corp. What brought them? In Sexton’s own words: ’’Slock option opportunities and high salaries.”

But all is not e-topia. The new business-to-business Internet company they formed. INC2inc, secured $4 million in its first investment round from local venture capital group Spyglass Equities, but that was only to set up the model and prove its feasibility. To shift into full operation will require more capital. “We’re moving right into our second round of funding,” Sexton says. “Part of hyper-growth is burning through funding and getting people into place, it’s scary, because you have to get enough money to bum in (he second round to maintain the rate you’re already burning.”

At least INC2inc is off to a good start: it went live in March 1999 and just one year later signed H-E-B Food Stores as a client. Through the web site H-E-B can now streamline the ordering of raw materials for its private label food products from 11 facilities in South Texas. For every transaction made on the site, INC2inc gets a .1 percent fee. It may not sound like much, but consider this: Last year. H-E-B bought about $6 billion worth of products to sell. And one percent of a lot of money is a lot of money. If online purchasing proves to be more efficient, many distributors will move to me web. Right now it’s all riding on that one word: If.



The Lawyer



The dot.com’s office is just past Central Expressway on Commerce Street, right at the mouth of Deep Ellum. “You can’t miss it” are the words used to describe its location. I keep driving past the address 1 have, thinking mal the strip of vacant office space with caved-in brick wails and dirty windows couldn’t possibly be right. This surely isn”t the address of one of the city’s hottest and richest online companies. Not In this town. But since I’m already 10 minutes laic for the interview, 1 decide to park and venture into the only suite with lights on.

I have an interview with Joe Worsham, a Highland Park native, SMU Law grad, and fourth generation Dallas attorney with stints ai the city’s best firms under his belt. The first face I see when 1 enter belongs to a youngish guy in a cubicle haphazardly placed by the front door. I’m thinking: intern. “1 have an appointment With Mr. Worsham, Can you get him for me?”

“Oh. hi there. I’m Joe.”

Ouch. Never make assumptions in dot.com world.

Worsham takes me around the tiny office. We end up in a solitary confinement type of room-it’s actually the vault for the insurance company that used to be in the suite-where he begins his tale of Internet fortune. Alter graduating from law school in 1993, Worsharn went to work as an associate at B race-well & Patterson, But. the rigidity of a large firm environment made it difficult for him to explore independent business opportunities. Nor was it unusual for him to work until 4 a.m. and all weekend. So three years later, at the age of 27, he left this big bucks, big case legal hierarchy and went to a start-up firm called Holman. Robertson and Eldridge. After four years. Worsharn became a shareholder and was offered a partnership. But something was bothering him.

“I benefited by what 1 brought in and I was ahead of the game.” he says. “It was a very good living-very lucrative. Bui I knew 1 could develop my own destiny if 1 left.”

The seed was planted. In the summer of 1998. he started representing an online graphies design firm. Big Theory, and watched its business boom. The company repeatedly approached him to join as in-house counsel, but he was conflicted about taking the gamble, considering his thriving law practice, two kids, and stay-at-home wife. So like a few before him and many after him, Joe Worsham had to make a choice. If he made the move, his salary would be cut in half, His wife didn’t want him to do it, revealing thai they would soon be parents of a third child. They had just bought a new home in University Park, and every cent of what Worsham already made barely supported the overhead. But he look the plunge. Six months ago, al the age of 31, he joined the Internet company full time.

Things began to happen faster than anybody anticipated. Just two months later, New York-based Xceed made a complete asset purchase of Big Theory. The payoff was “well worth the risk,” according to Worsham. He adds, “If I never go back to practicing law. it was well worth the move.” Do we delect another Internet millionaire?

“The financial freedom that I have now. I never would have achieved practicing law,” Worsham says. “I’m just lucky thai my first move paid off.” Why did he do it? “All I knew was that I wanted a measure of control over my life, and it bothered me that I could see exactly where I was going to be in 10 years practicing law,” he explains.

Worsham’s ride isn’t over yet. “If I were going to be an attorney for the rest of my life, this would be a dream job: general in-house counsel at a publicly traded company. But that doesn’t fit my entrepreneurial model.”



The Bankers



After 10 years in corporate finance al Bunk ol’ America, Sharon Ellis was earning a good living- more than $200,000, plus slock options. And the bank was all she knew. Ellis came straight out of Arizona’s Thunderbird School of International Management to work for what was then known as North Carolina National Bank.

Ellis’ colleague. Brent Mellow, a managing director at Banc of America Securities, had also made a career in banking-at NationsBank and First-Republic Bank-after earning an MBA from SMU’s Cox School of Business. He was earning close to seven ligures, plus incentives and stock options. What would make this pair walk away from that kind of money and stability?

“You read about 25-year-olds in the Watt Street Journal every day who made $50 million online and think, ’I’m smart, why can’t I create some of that wealth for myself?’” The two were already accustomed to 60- to 100-hour workweeks. “J was creating up to $10 billion in financ-ing for other companies already.” Mellow says. “And although 1 was well compensated, I figured if I was going to work that hard and rarely see my family, it should be for myself.”

His partner agrees.

“I was doing very, ver)’ well, and there was a lot of heartburn in leaving that kind of money and security-it could have been my career,” Ellis says. “We’re uncompensated today at the dot.com, but I knew I would regret it for the rest of my life if I didn’t try it. When my husband and I contemplated the downside to starting this company, all we could think of was my having to get another job with another employer if it didn’t work out. In such a hot job market, that’s hardly a downside.”

Ellis and Mellow left the bank, and in July 1999, furnitureguide.com was bom. Ellis says the idea came about from her and her husband’s personal experience as a busy, two-income couple. When they bought a new home in Preston Hollow, they were both too distracted with work and school to hunt around for furniture. When they looked online, they were disappointed with what they found. “We still have a couple of unfurnished rooms and gaping holes in the house that are screaming for furniture,” she adds. So Ellis and her partner founded a web site that features manufacturers’ catalogs and offers a searchable collection of furniture online.

They put most of their own money into the venture, then, to get the ball rolling, hit up their parents. friends, and former bank clients to raise $430.000. Mellow said he hopes to use the “best practices” from former clients that were once start-ups, such as Dell and Southwest Airlines. He realizes that he’s taking a gamble, and the outcome might be less than ideal.

“We took money from our family and friends; we walked away from money and reputation. We hired people away from good jobs; we have 12 people depending on us for paychecks. That really puts the pressure on,” Mellow says.

May is turning out to be a busy month for Mellow: he’s turning 35, he and his wife are expecting their second child, and his company is trying to raise venture capital.

“There is a lifestyle adjustment you have to make when you lose a big income like mine,” Mellow says. “My wife thought I was crazy at first,” he jokes, “but then I told her it was about furniture. She asked if we could get good deals. I told her maybe, and then she was OK.”



The Retailer



George Washington’s head on a surfer’s body? Who would have guessed? But that’s precisely how Philip Diehl. director of the U.S. Mint, turned the once-stodgy arm of the Treasury Department into a cutting-edge e-tailer. And that’s precisely why Irving-based Zale Corporation wanted him.

If dot.coms need to mint money to survive, Zale.com has definitely hit the jackpot. The 48-year-old Dallas native catapulted the Mint into a realm of mega-profits that would make any Fortune 500 company proud. Its estimated $4.3 billion in revenues will generate $2.7 billion in profits this year-a six-fold increase from three years ago. Its $26.5 million in online sales in the fourth quarter represented a 114 percent increase from the third quarter, (In one day last October, the site achieved sales exceeding $1 million by 10:30 a.m. Diehl said he was shooting for his “first $1 million hour” after that.)

Under Diehl”s six-year tenure, the Mint has marketed as “products” everything from collectable state coins to coin jewelry, and it has become one of the nation’s most successful e-tailers (see www.USMint.gov). Its $40 million nationwide ad campaign was launched in March to generate even more traffic to the web site. Early this year, Diehl brokered a deal with Wal-Mart that enabled customers to get the new Golden Dollar coin at Wal-Mart stores and Sam’s Clubs nationwide. The Mint’s jewelry items featured in its annual fall catalog sold out by November 1, only one month after being posted online. That’s all Zale had to hear.

The giant jewelry retailer had some luck on its side since Diehl is a Highland Park grad with deep ties to Dallas. But he seems an unlikely e-tailer. Diehl was vice president of regulatory affairs for Dallas-based International Télécharge Inc. and director of telephone regulation for the Texas Public Utility Commission before his move to Washington, D.C., nine years ago. That may he the kind of background it takes to get hired as a government bureaucrat; transforming himself into an e-tailer was purely Diehl’s doing.

“This is a homecoming for me,” Diehl says. His sons, ages 16 and 13, and his wife are packing their bags to move to Dallas. They’ll join him after the semester ends in June.

And he’s optimistic about what he can bring to the online retailer. “One of the nice things about heing48 years old is having patience and a broader perspective,” he says. “That is crucial if you’re going to make the fast-paced online world fit inside an established corporate culture.”

Diehl’s salary at Zale may he higher than the $ 127,000 he makes at the Mint, but there’s no doubt he’ll earn it. The company’s foray into e-business has been expensive and, so far, unsuccessful. Zale’s 3-year-old web site gets “no reportable traffic,” according to ranking service Media Metrix Inc. That means there’s no place to go but up-or out of business altogether.

HOW TO PACKAGE YOURSELF FOR A DOT.COM



You ’re interested in jumping to an Internet company, but you ’re not a techie. The good news is you don ’l have to be. Here s how to get an Internet company interested in you.



Be aware of the dot.com industry. Do your research. Read everything (and, believe us, there’s plenty to read), including the last few issues of Industry Standard, Fast Company, and Fortune (our three best picks for magazines covering the industry). Get to know the current state of play, the latest hot buttons, and the most recent financial models (they change monthly). Learn the industry argot.



Be very aggressive. Sell yourself. The Internet is so new that you are just as qualified as anybody else for the job-there is no such thing as doing it “the right way” online. There are no steadfast rules, regulations, policies, or training. So figure out how the skills you possess translate to an online company. and push them hard.



Be flexible. Take any job you can get. Titles don’t matter; results do. Yesterday’s receptionist is tomorrow’s vice president of marketing.



Be ready to work. Nine-to-five does not exist in the Internet vocabulary, and most dot.com companies expect (at least) 16-hour days from their employees. If you want to get involved in a start-up, now is not the time to get engaged, plan a family reunion, build a house, or even think about dating. If you want the payoff, you need to be willing to make the commitment.



THE PERILS OF E-BUSINESS



Before you go to work for a dotcom, there are a few terms you ’11 want to know.



Bum Rate. This is the monthly negative cash flow, or the rate at which the company hums through its initial financing. Say the company raised $2 million of venture capital in its first round and is spending at the rate of $150,000 a month. Thai means it will be out of business in 13 months, unless it gets:



Second-Round Financing, If the company has used its 13 months of existence to prove the viability of the business model (“Yes, people will buy paper airplanes over the Internet!”), the second round should be easy. If il needs second-round money to continue testing or if there’s been a change in the original model, the financing may blow up and the business may be over. Even with second-round money, there’s no guarantee about the:



Initial Public Offering. A healthy skepticism is entering the public markets, especially for companies whose entire model is based on gaining market share. The market wants to see profitability models (OK. maybe it will settle for seeing the word used once in the prospectus). Without the IPO, all of those stock options that convinced you to take lower pay for harder work are now-worthless.

WHAT YOU GOULD BE MAKING AT A DALLAS INTERNET COMPANY



Top executives’ pay is all over the board. For those below the lop officers, salary rates are consistent with, or a little below, old-line company payrolls.



Development of backend/legacy systems: $65,000-$90,000

Development of software: $65,000

Development of web interface systems: $65.000-$90,000

Business davelopmant: $80,000-$110,000

Content development: $50,000

System administration: $50,000-$70,000

Design/layout/HTML programming: $50.000-$80,000

Customer service: $25,000-$30,000

Technical retraiter: $40,000-$50,000