AOLTimeWarner
When shareholders of AOL
Time Warner switched on
their computers the morn-
ingof January 30, 2003, they
heard the familiar “you’ve got
mail” chirp, and thenext soundwas groan-
ing — lots of it. That day, the media con-
glomerate reported a loss of $98.7 billion,
theworst annual corporate performance in
history.
Accounting wonks may quibble that the
red-ink recordwasonlyapaper loss, caused
by revaluing shares of America Online,
which had bought TimeWarner two years
earlier. But according to Charles Geisst, a
Manhattan College finance professor and
a Wall Street historian, the debacle still
carries a powerful lesson. AOL shares had
been falling sharply for months before the
approximately $103.5 billionTimeWarner
buyout was consummated, Geisst notes.
Andmany onWall Street knew that a new
accounting rule that was then in theworks
would require the revaluation.
Together, the twonegative developments
would have justified the companies’ lead-
ers’ callingoff thedeal,Geisst says. Instead,
their persistence in pursuing history’s big-
gest merger resulted in another record
— and one for which they may be longer
remembered.Thefinancial historian’s take-
home from AOL Time Warner’s dismal
year: “Bullishness in the face of common
sense isn’t going towork.”
ExxonMobil
On the flip side, consider the
all-timebiggest annual profit of
$36.17 billion that ExxonMobil
racked up in 2005. That’s eye-
catching, certainly. So is the
$371billion in revenuesExxon-
craze, emphasizing that all the Benchmark
partners were exceptionally tall individuals
and describing the macho characteristics
of the executives they recruited to run their
portfolio companies. There was onemajor
exception: the former toy-company execu-
tive lured to take eBay to the top,Margaret
C. “Meg”Whitman.
WebvanGroup
Since a woman led the com-
pany that generated the top
investmentreturnever, it’sfit-
tingthatagold-platedteamof
guyspresidedover thebiggest
start-up flop. With the goal
of making a mint by selling groceries over
the Internet, Webvan Group raised nearly
$1 billion and hired as its CEO the former
head of one of theworld’s biggestmanage-
ment-consulting companies. Youmay have
alreadyguessed that theyearwas1999.Two
years later,without turninganickel ofprof-
it, the best-funded start-up in history filed
for bankruptcy. Its chain of multimillion-
dollar distribution centers and its other as-
setswereauctionedoff to thehighestbidder
or otherwise sold.
Webvan’s woes, according to Peter S.
Cohan, a venture capitalist and manage-
ment consultant based in Marlborough,
Massachusetts, beganwith the fact that the
foundersdidn’tknowwhat theyweredoing.
Grocers suffer profit margins so small that
theywouldbemereroundingerrors insome
fields, Cohanexplains. YetWebvanplunged
inas ifgold lay thicklystrewn in theaislesof
America’s supermarkets. “It was arrogance
to the 10th power,” he says. “They thought
theywere smarter than everybody.”
UniversityofMarylandentrepreneurship
professor David A. Kirsch says that online
groceriesarenowmakingacomeback—al-
beit on a much smaller scale. “The lesson
ofWebvan is not that people don’t want to
order their groceries over the Internet,” he
says. “The lesson would be to look before
you leap. Test your model, and try it on a
smaller scale.”
Bill Gates/Microsoft
Corporation
It’s fine for companies to do
well, but what countsmore to
mostofus ishowmuchmoney
we personally have. And no
one has done better at that
than William H. Gates III,
You thinkyouhad theworstdayeverat the
office.Ormaybeyou thinkyouhad thebest
day.Eitherway,braceyourself.As theseall-
timebusiness records show, plentyof room
remains toblowupormessupbigger than
you probably ever imagined — whatever
your objectivemight be.
Mobil took in that same year—more than
the gross domestic product of Indonesia, a
nationof245millionpeopleand itselfama-
jor energy producer. But perhaps themost
striking thing about ExxonMobil’s record
haul was that, fearing a backlash of criti-
cismandapotentialwindfallprofits tax, the
company downplayed the good news. The
energy giant even took out advertisements
declaring that other industries had higher
profitmargins.
Nowindfall taxmaterialized,butthethen
chairman and CEO, Lee R. Raymond, was
moderately lambasted for snagging more
than $400 million in compensation dur-
ing what turned out to be his final year at
the company. “It’s entrepreneurial returns
formanagerial conduct,” fumed one corpo-
rate governance expert. The bottom line of
this episode is:Despite everythingbusiness
seems to stand for, it ispossible tomake too
muchmoney.
eBay
Toomuchmoneywas aman-
ageable issue for the guys of
Benchmark Capital, a Sili-
con Valley investment firm
that, according to
eBoys
, a
2000bookbyRandall Stross,
earned a mind-boggling re-
turnof close to 100,000percent onone in-
vestment — in just two years. For putting
$6.7million into a fledgling online auction
companynamedeBay in1997,Benchmark’s
partners got a chunkof ownership thatwas
worthmore than $400millionwhen eBay
went public in 1998. By spring of 1999, it
was valuedatmore than$5billion.
Forget the lesson here, though — this
saga has a juicy punch line. Stross’s paean
mademuch of the testosterone-charged at-
mosphere of the late-1990s tech-investing
60 AMERICANWAY
MAY 15 2007
