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More About

• Deborah McDaniel
• Steve Bieler
• Mark Donovan
• Venture Capital
• Private Equity

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JOINING A DOT-COM was an act of faith in July, when technical writer Deborah McDaniel was job hunting. She wrote off the clueless startup full of rental equipment and no discernable business plan. And she couldn't believe the arrogance of the interactive television venture (soon to go public) whose employees claimed exemption from needing a revenue stream because they were funded by Paul Allen.

She accepted an offer from Stamps.com, a company that planned not only to dominate the market for bar-coded postage but to broker most parcel-shipping business, as well. By that time, Stamps.com had already suffered a long decline in its stock price, plummeting from a high of $98 to $6.

The change in fortune didn't deter McDaniel, who saw it as a correction from an outlandish overvalue. Stamps.com's posh offices overlooking Bellevue took the entire fifth floor and impressed her. No cubicles—everyone had doors, good chairs, and nice computers on their desks. The technology was interesting. She was swayed by a 50 percent raise over her current salary, with thousands of stock options she could acquire through loyal service.

The brutal truth that the winds had shifted for dot-coms didn't seem to have penetrated Sterling Plaza where the digi-grunts continued to put in their feverish working days. The stock plunge looked more like a buying opportunity. "I knew some people who were investing as heavily as they possibly could," McDaniel says, noting their desire to buy even more through the company purchase plan than the SEC would allow. "You could always get a discount, and some people were socking every dime they could into it."

Such was the endurance of the dot-com dream: the belief that everyone will want to live their entire life online, to purchase books, music, parsnips, Prozac, Barbie, and dog collars from little pictures on a computer screen. The inherent advantages of e-commerce seemed so certain that dot-com business plans invariably promised not just to carve out a profitable niche but to dominate their market segment. Dot-coms ruled the Nasdaq because they were expected to rule the world.

But the slide came rapidly at Stamps.com, as elsewhere. At the start of October, the chief financial officer left, then, a week later, the founding CEO was hurriedly replaced. Office gossip had it that the new boss, former Postmaster General Marvin Runyon, had previously earned the nickname "Carvin' Marvin" for his job-cutting prowess. Ten days later, the ashen face of the hiring manager signaled the purpose of a mandatory all-hands meeting. Stamps.com axed 40 percent of its workforce. By the time McDaniel returned from the conference room to her desk, her computer was off the network. She had been there only 100 days.

Layoffs weren't new to McDaniel. Her retraining for a high-tech job had been spurred by her layoff after 11 years as an associate buyer at REI. She took it in stride, but it wasn't so easy for many others. "People who were younger were freaking out—this was their first big job," she observed. She describes it as watching innocence broken in people who had been fending off headhunters and expected to jump nimbly from job to job. They had just finished an intense product effort and couldn't reconcile this as their reward. "They looked like someone had just taken away their birthday."

Worse, the savings they had sunk into the company they believed in continued to drop with the rest of the market—Stamps.com shares currently hover around $3. Its chief rival, E-Stamp, just announced the shutdown of its own postage business.

MCDANIEL TOOK a calculated risk, which she cautiously limited. The downdraft blew harder on Mark Donovan. After completing his PhD in political science at the University of Washington, he ran the UWired program for a few years. He watched an old friend from grad school, Tom Willard, make quite a pile as a tech executive for iCat and USWeb/CKS. Now Willard was preparing to launch his own B2B play, and Donovan decided in February to join the 10-employee startup, as a technical fielder and pinch hitter. "Worst case," he expected, "we go out of business in a year."

The new company, webStrategic, was to offer Web-based products and services to help coordinate business partnerships. Most of its potential customers, of course, were other Internet companies, where the complex frenzy of brand-building relationships often substitutes for profits.

The company offices were on the hardscrabble, unfinished fifth floor of the Maritime building on Western Avenue, which still houses many ambitious dot-coms. With expansion in mind, the firm leased a large space and subleased to another Web startup called ThinkView. Bhu Srinivasan, ThinkView's blustery 24-year-old founder, displayed his Infospace wad by the Jaguar he parked out front. As the leaseholder, Willard received the property manager's complaints and had to ask Bhu to stop playing soccer in the office.

"There was still a kind of manic sense that there was a lot of easy money from venture capital," Donovan explains. WebStrategic executives spent months dancing with VC firms and honing their story, while Donovan worked without pay. Daily, he worked a full morning, broke for a midafternoon workout, then returned to put in another eight hours. It was vital to move fast. "There was a sense too that the bubble was about to burst. We had this very aggressive plan to get fully launched before that happened. We missed it by about a week."