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Surprising stories of high-tech survival
By KRIS HUNDLEY, Times Staff Writer Who's got the best chance of survival? A tech company with big-name customers such as Intel and Sony or one that finished testing its software just months ago?
In the topsy-turvy world of technology companies, the answers may be surprising. Kview Inc., a Tampa software company that seemed to have all the right credentials, connections and customers, surprised many in the local tech community when it suddenly closed operations this year. It left behind stunned investors and angry employees. Meanwhile, 2-year-old TechHealth Inc., which has expanded, contracted, changed business plans and ousted its founders, continues to plod along in a suburban Tampa office park. Dismissed by many in the Tampa Bay area's close-knit tech clique as a "never-make-it," TechHealth is adding customers, bringing in revenue and nearing positive cash flow. Will TechHealth make it to its fifth anniversary, a milestone Kview reached before pulling the plug? It's too early to predict. But as their stories demonstrate, staying alive in a technology business takes more than a flashy product. Kview: All the promise, but none of the successTAMPA -- For a few short years, Keith Gibson reigned at the top of the Tampa Bay tech elite. He'd started a successful software business, snagged impressive Fortune 500 customers and created a young, hip workplace with nearly 200 employees. Gibson, who chose a cartoon frog as the company logo, was officially known as "Big Chief Daddy." Then in January, his 5-year-old Tampa company, Kview Inc., crashed, burned and closed. The work force, by then whittled down to 80, were handed their final pay checks and sent home. A day later, those wages were withdrawn from their checking accounts when Kview failed to cover the payroll. The employees went unpaid. So did everyone from the lawyers to the pest control service to the well-heeled Tampa Bay area investors who thought Gibson was their ticket to early retirement. Four months after its demise, Kview is a case study in how not to close a company. Besides dozens of unhappy creditors, customers and former employees, Kview made many local "angel" investors think twice about putting their money into a tech startup. And in an area with a scarcity of seed money, that's a potent legacy. "In places like Boston and Silicon Valley, angels get burned all the time and that gives them experience and makes them better at picking investments," said Marty Donsky, marketing manager of PricewaterhouseCoopers' Florida technology practice. "But after Kview, there's more wariness among local angels than before. They'll think long before they do it again." Gibson, whose resume included jobs with IBM, KPMG-Peat Marwick and Sykes Enterprises, did not return a phone call seeking comment. An estimated $10-million was poured into Kview over its five-year life span. By the time the company filed for liquidation Jan. 25, it had assets of $1.3-million and liabilities of $1.6-million. "We thought we had a new investor and when we didn't, we had no more money," said Tate Garrett, senior vice president at Tampa's Advantage Capital Partners. "The whole thing vaporized in a particularly bad way." Garrett would know. As Kview's largest secured creditor, owed $1.35-million, Advantage was ahead of everyone else in line for the company's assets. That didn't please some employees, especially after their final paychecks bounced and they learned their health insurance coverage had expired at the end of December. "It was pretty ugly," said Garrett, who said he temporarily hired extra security at his downtown Tampa office. "I felt really bad because most of those people were only making $8 or $10 an hour." Garrett and Fazal Fazlin, the potential investor who changed his mind after doing due diligence, said Kview's business model had brilliant promise but fatal flaws. "My mom always said, 'If it's too good to be true, it is,' " Fazlin said. Gibson's concept was to build custom software for everything from corporate training to product user manuals. The material -- packaged into snappy one- to three-minute videos jammed with information and flashy graphics -- attracted big-name customers including Sony, Intel, Wyeth Drugs and Zurich Financial Services. Kview cranked out the software using an assembly line, with each station handling a piece of the work. That was a critical mistake, said Garrett, one of two investors who sat on Kview's board. "He had one woman who did nothing but read into a mike in a soundproof room," he said. "People could do their functions fast, but there wasn't enough work to keep them busy. And when everybody just sits around, you lose tons of money." It took $450,000 a month to cover Kview's overhead at its offices in Tampa's Channelside district. That was no problem in July, when Kview had $1-million in revenues. But when revenues slipped in August and came to a standstill after Sept. 11, Kview went on life support. Fazlin, who owns SmartShadow, a software company in St. Petersburg, considered throwing Kview a lifeline. In return for an undisclosed investment, Fazlin expected to take control of Kview's software, which he thought would complement his own. But after looking through Kview's financials and hearing from some disgruntled customers, Fazlin changed his mind. "The way they were doing it, the revenue and cost expense could not be brought under control," Fazlin said. "And the expectations of the customer and the company were not in tune." When Fazlin walked away from the deal, Advantage and Stonehenge Capital, the two Tampa venture capital firms that were Kview's biggest investors, decided to pull the plug. The bankruptcy court trustee determined that the company's assets were outweighed by its secured debt to Advantage, which also had put a $2-million equity investment into the company. Kview's assets were turned over to Advantage, which auctioned off everything from the computers to coffeemakers, raising about $34,000. The company's patented software and tools to develop and maintain customers' sites were sold for an undisclosed amount to Fred Doyle. Doyle co-founded Kview with Gibson in 1997 but had left the company two years ago. Doyle refused to comment on his new St. Petersburg company, called PChowto.com. That address on the Web features the frog character and promises "over 40,000 animated, voiced, show and tell tutorials, on more than 150 of your favorite software applications." "I want to keep as low a profile as possible," Doyle said. "None of my customers are local, and a lot of ex-employees are still pretty angry. I guess they just can't move on." Kview spawned two other spinoffs. Digital Phoenix Media Group in Tampa was formed by a group of project managers to complete several of Kview's contracts, including one with IBM. And several former Kview sales people formed Edutainmentmedia.com in Atlanta to serve existing accounts. At Advantage Capital, which has seen three of its 14 portfolio companies go belly up, Garrett still is trying to collect on bills due Kview. "These are big companies," he said of the customers with overdue payments. "But they know Kview doesn't exist anymore, so I'm having a very difficult time collecting." In hindsight, Garrett thinks Kview might have made it if it had raised additional capital a year ago, when business looked good, and cut expenses quickly when things went bad. "As it was, Keith had to make a last-minute appeal for more money," Garrett said. "And our investment committee had to say no." TechHealth: Finding a niche despite a rough startTechHealth Inc. nearly died several times over the past two years. But the Tampa startup looks as if it's finally off life support and has cash flow to grow. The dot-com remnant survived only by jettisoning a money-draining business model, trimming dozens of employees, including the two founders, and tapping original investors for more cash. Profitability is still just out of reach. Tom Sweet, a former vice president at GTE who joined the company at the beginning, promises the privately owned company will be in the black by year-end. "We're almost there," said Sweet, now TechHealth's chief executive. "We had $3-million in revenue last year and expect $15-million this year. But hitting profitability will be a big milestone." TechHealth got its start as AccessRd.com, the brainchild of two Tampa businessmen who wanted to create a virtual community for disabled people on the Internet. Steve MacDonald and Chuck O'Neill, former executives at pharmacy benefits manager PharMerica, raised $5-million in December 1999 with little more than a concept. Then came the hard part. The consumer site sucked up $2-million of the company's funds, won prizes for its format and content, but didn't generate a dime. By the end of the first year, the Web site, along with 33 employees, were gone. But so were deep-pocketed investors who had been eager to throw cash at all things Internet in early 2000. TechHealth went back to its initial investors, including Peter Kiernan, a board member who is a former senior partner at Goldman Sachs and chief executive of Kiernan Ventures in New York City. Sweet, Kiernan and Leonard Kleinrock, another board member who is a professor of computer sciences at UCLA, put almost $3-million into the business. That allowed TechHealth to develop a Web-based patient management system for health insurers. The worker's compensation subsidiary of BlueCross BlueShield of Florida agreed to test the software, which allows case managers to order patients anything from physical therapy to a hospital bed through TechHealth's network. The insurer was so impressed it recently negotiated a three-year contract with the company. "They serve as a single point of contact for our nurse case managers and expedite services," said Terry Gibson, director of network management for the Blues' Integrated Administrators unit. "They've kept us from having to add employees. And they've provided quality services very cost-effectively." Gibson said TechHealth also has carved out a unique niche as middleman. "I'd say they'd pretty much have the market to themselves," he said. That's what Sweet is counting on as he works to expand TechHealth's network of medical professionals and secure more contracts. "We've got about 29,000 medical providers in our network, primarily in Florida, New York and New Jersey," Sweet said. "And we're about 50 percent of where we want to be in Texas and California." About 130 insurers, representing hundreds of thousands of worker's compensation patients, have signed up for TechHealth's services. Insurers pay TechHealth a fee for arranging services, whether it's buying a wheelchair or arranging home health care. The amount of care needed per patient varies dramatically, from a temporarily injured worker who requires a few sessions of therapy to the paraplegic in Orlando who needs $250,000 in round-the-clock care every year. Sweet said his employees, now 75 companywide, with 65 in Tampa, get a lot of satisfaction from handling the niggling details that make life a bit smoother for a patient such as the paraplegic. And sometimes big customers get special attention from TechHealth's celebrity board member, actor Christopher Reeves. "Chris called the girl and her mother one day," Sweet said, referring to the quarter-million-dollar customer. "And she was thrilled to know that somebody's taking an interest and wants to make sure she's getting good quality care." -- Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.
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From the Times Business report
From the AP
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Who's most likely to succeed? A business that drummed up $10-million from investors or one that blew through $5-million, then had to scrape together a $3-million lifeline from its board?
