Print

Email story

Comment

Email editor

Return of the serial entrepreneur

By SCOTT BARANCIK
Published April 30, 2006

Scott Gostyla says he was about 8 when his parents abandoned him to New York's foster care system. His second-lousiest year ever was 2005.

Gostyla, best known as the visionary hypester behind St. Petersburg startup Hydrogen Media, lost the right to drive his $65,000 black Mercedes last year because of an arrest on drunken-driving charges, fought a divorce and custody battle only Jerry Springer could love, traded the family's 4,000-square-foot house for a modest flat and gained and lost a fiancee.

He filed for Chapter 7 bankruptcy liquidation, and his October petition revealed a remarkably imbalanced ledger for a businessman Ernst & Young once rated among Florida's best. The 39-year-old Clearwater resident claimed monthly expenses of $6,469 but no income to pay them. His assets of $1,529 weren't much help because he owed creditors $8.5-million. The stunner was an $8-million bank loan to Hydrogen that Gostyla had guaranteed and that had come due when the company folded in 2002.

It's the rags-to-riches-to-rags story of a former car salesman whose unbridled optimism and tireless puffery were perfectly suited to the dot-com revolution of the late 1990s. Gostyla took just four years to build a 200-person Internet consultancy cheeky enough to erect a recruiting billboard across the street from a public competitor's headquarters but serious enough, despite its sleepy St. Petersburg address, for several brokerages to rank it among the country's most promising.

Though Gostyla remains friendly with a number of Hydrogen alums, not everyone is shedding tears over his slide. Some former staffers and backers wager that his taste in Ferraris, Rolexes and the luxury lifestyle caught up with him. Several say his rosy buyout predictions cost investors money. There are signs that at least one aggrieved party - the venture capital group, led by several Outback Steakhouse founders, that ultimately paid off Hydrogen's $8-million debt - may be planning to pin Gostyla with the bill when he strikes it rich again.

It may not be a long wait. Gostyla, a serial entrepreneur who knows how to reinvent himself, showed up for lunch at a Village Inn in Clearwater this month with a new, bulked-up physique and an innovative communications service to tout. "It's huge! People love it," he said enthusiastically.

"He can sell shoes to a footless man," former Hydrogen operations chief Bill Snowdon said.

Inventing a life

From age 8 to 18, Gostyla lived in group homes for boys. His formal education ended with a diploma from Goshen High School. He soon left New York to be near his grandmother in Clearwater.

Gostyla enjoyed inventing. During a brief period living in his car, he heated it by connecting a hair dryer to the battery. He designed a flotation device after getting stranded on a personal watercraft. Several years ago he manufactured novelty neon glasses and a programmable digital name tag in China, until someone stole the design.

He began his foray into computers by buying a hardware company in 1992. By 1996, hardware's thinning profit margins led him to start an Internet service provider called Weblink Communications. The company turned to Web design and renamed itself Hydrogen Media.

Hydrogen built a local reputation, beating out 200 bidders to design the Tampa Bay Devil Rays' first Web site, putting up recruiting billboards on area highways and scoring a meeting with the founders of Outback Steakhouse.

The Outback executives had a singular goal for Hydrogen: to go public. The basic strateg y was to look big by opening sales offices in showcase U.S. cities (Hydrogen had five), develop buzz (Hydrogen paid six figures for the naming rights to a racing boat) and steal competitors' staff (Hydrogen's cool-as-Silicon-Valley headquarters had a full-time concierge, game area and pets-allowed policy). The money flowed.

Hydrogen bombs

The IPO plan was still reasonably intact when the St. Petersburg Times interviewed Gostyla, who had recently remarried, for a company profile in April 2000. His prediction that Hydrogen would attract hundreds of millions of dollars in a public stock offering - one-third of it Gostyla's - seemed only slightly more implausible than it would have in mid March, when the Nasdaq stock exchange began an 18-month dive after years of speculative growth.

Gostyla and his company faltered.

Top shareholders who until then had dutifully replenished Hydrogen's money, confident that the cost of adding staff would be outweighed by the bump in market value, began to balk. With valuations imploding, funding a loss didn't make much sense any more.

A safer plan was to adopt a more traditional budget model in which profits mattered, and then dig in for the long haul. But Gostyla resisted slashing labor and other costs right away, arguing a spectacular buyout was around the corner. Hydrogen's investors grew uncomfortable.

"When you couldn't produce the buyers, you couldn't produce a letter of intent, and your solution to everything was to get more money, your credibility was challenged," said former chief operating officer Kevin Hourigan, a longtime pal who was best man at Gostyla's second wedding in 1999.

Indeed, as little as a week before his ouster in October 2000, Gostyla told the Times that despite the fact that Nasdaq had lost more than one-third of its value, Hydrogen recently received nearly a dozen buyout inquiries.

Gostyla defends his stance, recalling a New York investor who flew by helicopter to discuss a possible $30-million acquisition that fall. But Joe Kadow, a Hydrogen director and Outback representative who attended the meeting, says the man suggested a much smaller deal that merely would have retired Hydrogen's debts.

But what truly shocked Hydrogen's backers was the discovery that Gostyla had secretly been selling some of his shares to friends and fellow executives.

Those involved in the sales disagree on its genesis. Operations chief Hourigan, who paid Gostyla $70,000 and knows at least four others who bought in, says Gostyla quietly approached him with a charitable pretense: Since the board was too greedy to distribute more shares to Hourigan and other deserving staffers, he would sell Hourigan some of his stock at a steep discount, and thus help him profit from a imminent cash buyout of $125-million.

Though Gostyla confirms the deals took place, he denies pursuing the buyers, characterizing any offer as imminent or quoting a specific dollar figure. He said another buyer shook off the loss and went on to invest a substantial sum in Gostyla's next venture.

Nevertheless, top shareholders didn't like the idea of Gostyla telling them to invest cash in the company while quietly selling his stock.

"I'm not going to blame the Internet crash on Scott Gostyla, but I don't think he provided an appropriate level of candor to the board," said Kadow, who is Outback's general counsel and had bought some Hydrogen shares from his bosses. "Frankly, I'm embarrassed that I ever was involved with him."

What went wrong

No one interviewed for this report blames Gostyla for Hydrogen's demise.

Hourigan, who was appointed Gostyla's replacement as CEO, said n o one had come up with a Plan B in case market conditions changed.

Kadow agreed.

"This was the coming of the Internet boom times, and at the time, the business ideas seemed to make sense," he said. "Bottom line: We made a bad investment. Guilty."

Gostyla insists he could have saved some or all of Hydrogen's jobs and maybe even salvaged a buyout if the board had listened to him. He says the company should have bolted the Web business and focused on designing remotely hosted software solutions, including a product it was developing called H2 Office.

"Did I make some bad decisions? Sure," Gostyla says. "But we didn't lose $150-million like all the other Internet dot-coms. . . . We built a very powerful brand on a very limited budget, and we competed with them on a daily basis."

Even after he was dethroned, Hydrogen's problems remained Gostyla's. In 2002, the company's landlord successfully sued him over unpaid rent, which he had partially guaranteed. About the same time, the Outback investors decided to pay off the $8-million bank debt out of their pockets, foreclose on Hydrogen and plow its few remaining assets into a new tech company, Bayshore Solutions, with a set of achievable goals and with Hourigan at the helm.

Gostyla continued to innovate elsewhere, including co-authoring a do-it-yourself e-business kit for small companies. His personal life, however, suffered. In 2004, he filed for divorce from his second wife and began dating a woman he met at work who became his fiancee.

Gostyla, his second wife and his fiancee traded domestic violence claims, and police were called to intervene several times. A financially strapped Gostyla had to borrow money from his fiancee to pay child support.

Late in 2004, a police officer arrested Gostyla on drunken-driving charges at a Clearwater gas station. Though he appealed the six-month suspension of his license - Gostyla claimed his fiancee was driving while sitting on his lap - the penalty was upheld.

His finances worsened. Gostyla says he didn't want to file for bankruptcy protection again but his lawyers strongly recommended it. Most important, they worried the investors who had paid off Hydrogen's $8-million loan might come after him one day. He filed Chapter 7 in October, several days before tougher federal bankruptcy rules took effect.

Up next The $8-million anvil remains poised above Gostyla's head.

In a related bankruptcy suit filed in February, Kadow and another creditor urged the court not to discharge Gostyla's debts. They allege his divorce file contains important financial disclosures he failed to make in his bankruptcy case.

"It's a stalemate," Gostyla says.

Other things are looking up, he says. He is no longer engaged. The divorce from his second wife officially closed on Valentine's Day, and he says the two are getting along well.

As for finances, Gostyla continues to lower his living expenses. He says the company behind his new hush-hush project recently began paying him advances on future bonuses, and occasional consulting projects continue to pop up. Friends and family are always offering loans.

"Everybody knows I'm going to hit it again," he says. "I have a lot of people in town who believe in me."

Hourigan, who talks to Gostyla occasionally and says he bears him no ill will, may not be such a soft touch. He thinks Gostyla's right to be irrationally exuberant ends where an investor's wallet begins.

But his confidence in Gostyla's salesmanship is undiminished.

"He's a very creative, risk-taking entrepreneur," Hourigan says. "If he could support himself with people who had skill sets outside that - money management and due diligence - your next story about Scott could likely be about Tampa Bay's next billionaire."

Times editorial assistant Barbara Moch contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.

SERIAL ENTREPRENEUR

NAME: Scott Gostyla

AGE: 39

HOME: Clearwater

EDUCATION: Goshen (N.Y.) High School

FINANCIAL STATUS: Filed for Chapter 7 bankruptcy

CURRENT VENTURE: Automated customer-management software

CLAIM TO FAME: Nearly took Hydrogen Media Inc. public

CLAIM TO SHAME: Ousted as president and CEO of the St. Petersburg company in 2000

KEY AWARD: Ernst & Young Florida entrepreneur of the year, e-software and services category, 2000

EARLY PROJECTS: Neon eyeglasses, name badge with programmable digital message, rescue device for personal watercraft

QUOTE: "Quitting is not really an option for an entrepreneur"

ANOTHER QUOTE: "Right now is probably not the right time to be driving a Mercedes"

Source: Scott Gostyla, Times research

[Last modified April 29, 2006, 16:58:01]