Case Study of a Dotcom, Part 1
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On first glance, Eric Grossman's story reads much like that of so many of today's young entrepreneurs. Grossman, a former consultant at Ernst & Young who had always dreamed of starting his own business, was simply honing his skills in corporate America, looking for the right idea-and the right moment to present that idea to the world. Sounds familiar, right?
But that's where the story stops sounding banal-and starts sounding script-worthy. Back in 1999, upon reading an article in the Healthcare Forum Journal called "HMOs 'R' Us," Grossman found the impetus for his Atlanta-based company, SimplyHealth.com. Author Philip Lathrop had outlined a mythical health-care business, but Grossman knew it was real-world stuff.
So in July 1999, Atlanta-based SimplyHealth.com was incorporated, with the site officially launching in April 2000. Following Lathrop's hypothetical model, the site allows consumers and small businesses to research, purchase and manage their own health insurance needs online. Lathrop, a former partner at management and technology consulting firm Booz-Allen & Hamilton Inc., became Grossman's mentor as well as one of his first advisory board members, along with Peter Konstvedt of Cap Gemini Ernst & Young.
Grossman's interest in the health-care field began in 1995, when he convinced the Goizuetta School of Business at Emory University in Decatur, Georgia, to fund a six-month class in which Grossman and his classmates developed a mock health-care company called Phycare. Though entrepreneurial fever ran deep for Grossman, he knew he didn't have the experience or credibility to form his own company, hence his five-year stint at Ernst & Young. And though he was on the fast track for partner, after reading "HMOs 'R' Us," he got to work on a business plan for his own company.
"I knew I wanted to establish a business in an immature market that leveraged the Internet and had an annuity stream like a telephone or cable company," says Grossman. "Lathrop's article just set me in motion, and I began building research."
So it is for most start-up entrepreneurs-you start with an idea, and one day, after a lot of hard work, that idea becomes a company. Here, we walk you through that first critical year of start-up and learn what it's like not only to start a business, but to run a dotcom during the great fallout of 2000.
Using his own experience as a strategic planner, Grossman says good-bye to his steady job and seeks $300,000 in funding. The first $200,000 comes from family members and a former boss at E&Y-enough, he believes, to sustain him for a year and develop a mock Web site. The remaining $100,000 is elusive.
On advice, Grossman retains an attorney, presuming the relationship would lead to sources of capital. Lesson learned: "At the end of the day, it's you who raises the money-you can't depend on [anyone else] to do it for you," says Grossman, now working sans office out of coffee houses and restaurants. "I was extremely naive, but my timing was good."
Good indeed. Fast forward to October, when Grossman meets venture capitalist Scott Smith at OK CafÃ©, a popular Atlanta diner. Smith, CEO of Atlanta-based VC firm encubate Holdings LLC (formerly AnswerThink Consulting), pledges a cool $1 million over breakfast. "This one solid commitment allowed me to leverage more money," says Grossman.
From there, VC investors fall in line: LiveOak Equity Partners LP, followed by the Atlanta Tech Angels and individual investors from the Atlanta Cardiology Group. By the end of October, funding totals $2.1 million, seven times his initial quest for $300,000. "The whole game in raising money is buying time to get things done. It's like a poker game," explains Grossman. "Once I was promised the initial $1 million [from encubate]...it gave me contacts, credibility, the ability to hire people and very deep pockets."
It's during this period that Michael Leitner, a former director of corporate development for Microsoft, lends his support, agreeing to serve as a member of SimplyHealth's board. "I was immediately impressed," says Leitner of the company. "While other dotcoms were spending millions on marketing and branding, Eric was spending his [time] developing technology to provide better distribution platforms for consumers and partners."
Grossman makes a presentation at the Red Herring Venture Market South Conference, where the 30 top companies in the Southeast gather to tell their stories to an audience of 5,000. "I had five minutes to get my point across-let's just say I was nervous," Grossman laughs. "I didn't expect to [find] any capital at the conference, but it turned out...we met our lead investor, SSM Ventures [in Austin, Texas]."
Another $2.1 million rolls in from SimplyHealth's primary investors. Grossman is riding tall in the saddle, traveling across the country to seek out investors. SimplyHealth.com receives its term sheet (a commitment to fund) from SSM Ventures. "We really began having fun," says Grossman. "When you have money, you have leverage; when you have leverage, you have momentum. Both are key to success."
Because of the influx of money, Grossman is able to build the SimplyHealth site straightaway. He then acquires insurance agency Georgia Health and Life, instantly obtaining 2,200 clients, 10 experienced back-office people, revenue and "feet on the street." "Things were going way too well," he says.
At the risk of seeming akin to a bad soap opera that leaves you hanging, we're going to cut this story short. But you can read the rest right here.
Mickey Goodman, a freelance writer in Atlanta, has written
for Atlanta Magazine, Style Magazine, Southern
Flair and other publications.