AN ARTICLE AND GRAPHIC IN MONDAY'S WASHINGTON BUSINESS SECTION MISSTATED TELIGENT INC. CHIEF EXECUTIVE ALEX J. MANDL'S POSITION AT AT&T CORP. AND THE CIRCUMSTANCES SURROUNDING HIS DEPARTURE FROM THAT COMPANY. HE WAS PRESIDENT AND CHIEF OPERATING OFFICER AT AT&T WHEN HE LEFT IN AUGUST 1996 TO BECOME TELIGENT CHAIRMAN AND CEO. AT THE TIME OF MANDL'S DEPARTURE, AT&T CHAIRMAN ROBERT ALLEN SAID MANDL WAS STILL IN THE RUNNING TO SUCCEED HIM AS HEAD OF AT&T. (Published 08/04/1999)
When Louis Pugliese interviewed with the founders of three-month-old Blackboard Inc. in the basement of a Dupont Circle brownstone, he didn't think the result would be a career change.
The veteran online learning executive recalls arriving in a dark gray suit at Blackboard's makeshift offices, thinking: "This is crazy. This is definitely going to be a quick conversation."
But after he spent half an hour with Matthew Pittinsky and Michael Chasen, Blackboard's 27-year-old founders, the idea of a radical change seemed less crazy to the 40-year-old Pugliese. Within months of that initial meeting in September 1997, Pugliese left his high-paying job as an education executive at Denver-based TeleCommunications Inc. to become chief executive of Blackboard, whose future was anything but guaranteed.
Seemingly risky career moves such as Pugliese's are occurring more and more frequently across the technology industry. Hundreds of seasoned managers are leaving their corporate jets and limousines to join start-up tech firms seeking adult supervision.
And the demand, headhunters say, is exceeding the supply: The battle scars from these veterans' years of corporate experience have become a desired start-up commodity.
Last month, Joseph Galli, the 41-year-old longtime president of Black & Decker Corp.'s power tools and accessories unit, who rescued the company from financial trouble in the late 1980s, was named president and chief executive of Seattle-based Amazon.com Inc. Three months ago, Jim Craig, 42, left his position as senior financial director of Omnipoint Communications Services LLC, a $172 million wireless company in Bethesda, to be chief financial officer of Pathnet Inc., a telecommunications start-up in Georgetown.
The marriage of experience and entrepreneurship can at times be rocky. Stories of power struggles between start-up founders and their hired "gray-hairs" abound. Yet industry veterans continue to make that leap for one main reason: the idea of being boss.
Pugliese, who had worked in large corporations for 15 years, had become fed up with the red tape. He said he felt the bureaucratic environment inhibited creativity. His oak-paneled office and the other corporate perks had lost their appeal. He was searching for a little spark in his work.
A little bit of luck and research brought Pugliese to Blackboard founders Pittinsky and Chasen. The person behind the match was Mario Morino, the de facto mayor of the region's burgeoning technology sector. Through Morino's Netpreneur program, an informal network of entrepreneurs and investors, Pittinsky and Chasen found out about Pugliese's expertise in online learning programs as well as his interest in young companies.
And Pugliese learned of Blackboard through referrals from investors. Still, he came to the meeting with much skepticism and few expectations.
But the enthusiasm of the young co-founders converted Pugliese almost instantly. "I remember thinking, `I just met Bill Gates. Here are two very intuitive entrepreneurs,' " Pugliese said. All they needed was a little adult supervision.
Blackboard was in its infancy. The idea to start a company that would help universities put classes online came to the college buddies while they were working at KPMG Peat Marwick LLP as consultants to universities on Internet technology.
Pittinsky, who originally had studied to be a social studies teacher, realized the potential in the online learning business. He and Chasen struck out on their own in 1997. KPMG has since become a partner with Blackboard, working together to offer business planning services to help universities with academic computing.
When Pugliese first "toured" the two-bedroom basement headquarters, Blackboard had only 20 employees, five customers and less than $1 million in revenue. "It was a little scary at first," he said.
Pugliese served initially as a consultant, providing Chasen and Pittinsky with advice and contacts. Soon enough, the founders added an extra desk in their office for Pugliese. By last December, they had asked him to "stop coming back and leaving, to stay and be our CEO," recalled Pittinsky.
So Pugliese did. And to do so, he gave up his private office with bay windows and an oak desk and moved into a 15-by-15-foot office that he shares with Chasen and Pittinsky.
The name plaque by the office doorway -- "Matt Pittinsky, Michael Chasen, Louis Pugliese" -- is a daily reminder of how life has changed.
There are other reminders: Gone is the gray suit he wore to the interview. Today he's more likely to sport a polo shirt and khaki pants. "When I go to the closet, I have to think about how I can fit in [in the company] before I decide what to wear," Pugliese joked. "My first reaction when I got to Blackboard was, we need a dress code."
The long hours have taken a toll on his relationship with his family. His 12-year-old son and 16-year-old daughter talk to him most frequently on his cell phone.
Even so, "I walk in every morning with a grin on my face now," Pugliese said.
In some ways, Pugliese's primary job is being the "adult supervisor" to the company's 90 employees, who typically are in their late twenties. The company has a rec room with a video game booth ("Spy Hunter"), a miniature basketball net and a foosball table. The walls are adorned with college flags and campus posters.
Pugliese has injected structure into the young company, with monthly staff briefings and employee orientations for newcomers. Pugliese is planning a "boot camp" for the fall to familiarize employees with how different divisions in the company work. In return, the youth and enthusiasm of the start-up have re-energized Pugliese in ways his corporate jobs couldn't.
Still, there are sacrifices. For one, start-up companies have tighter budgets, which often means big pay cuts for these seasoned businessmen. "Not all traditional CEO-type people can be Internet economy CEOs," Pugliese said.
Richard A. Jalkut, 55, chief executive of Pathnet, joked about his 40 percent pay cut, but explained that the ability to create equity value for the company and himself was an opportunity he didn't have as president of former Baby Bell Nynex Corp. Jalkut left Nynex after its merger with Bell Atlantic Corp. in August 1997.
On average, depending on the size of the start-up, chief executives are offered at least $150,000 as a starting salary, with some salaries running as high as half a million dollars.
Pugliese declined to disclose the specifics of his pay at Blackboard or TCI.
Today, start-ups are trying to outbid one another to offer these veterans a deal they can't turn down, said Kevin McNerney, a Washington-based recruiter for the executive search firm Heidrick & Struggles International Inc. If a start-up CEO can successfully take his company public, the payoff can be huge. Stock options, which can exceed 10 percent of the company's value, can boost a CEO's salary into the eight-digit range, McNerney said.
Chicago-based Heidrick & Struggles handles roughly 75 executive searches at any given time. The recruitment process is rigorous, averaging about 100 days, with weeks of background research and in-person interviews with candidates, to arrive at a short-list of potential hires.
Because of the high demand, some experienced managers receive as many as 50 offers before taking a job at a start-up firm. Pugliese had three before joining Blackboard.
And Richard Hozik, 48, got calls from more than 40 headhunters before he finally left his job as chief financial officer at telecommunications consulting firm LCC International Inc. to join Georgetown-based VarsityBooks.com as chief financial officer last year. Part of it, Hozik said, was the opportunity coming at just the right time.
For Teligent Inc. of Vienna, that narrow window of opportunity opened when Alex J. Mandl, 55, former president of AT&T, was passed over for the job of chairman in 1996. Teligent courted Mandl with a $1 million salary and a $20 million upfront bonus, and successfully lured him to be its chief executive and "first employee."
"Being president of AT&T and being the first employee are two different things," Mandl said last month. "You're sitting at a borrowed desk with a phone and a piece of paper, asking yourself, `So what do I do next?' "
Above experience and expertise, start-ups are most concerned with the candidate's "cultural fit" -- the ability to work well with people in the office. After all, these baby-boomer veterans have to meld with people of Generation X.
Perhaps the more difficult adjustment, veterans say, is learning how to deal with the immense pressure of running a virtually one-man show. Sometimes, "when you get excited about an idea and you turn to give it to someone, you realize there's no one to give it to," said Jalkut, who used to manage 62,000 employees at Nynex. Conversely, Pathnet has roughly 100 employees, including the five-person senior management team.
The battle scars, which these veterans wear almost as a badge of honor, seem the only comfort they have in their quest to survive in the competitive tech start-up world.
But doing the job, Jalkut said, isn't really the hardest part. Making the decision to take the job is.
Not all firms want seasoned managers to run the company. Some don't trust hired guns to build their business. "They don't have the religious commitment to the company that I do," said Michael Saylor, who founded Vienna-based MicroStrategy Inc. 10 years ago, when he was 24.
Others simply needed a fund-raising "gray-hair" to boost the image of their companies. EOriginal, a Baltimore-based electronic commerce software start-up, recently appointed longtime private investor and former CBS chief executive Michael Jordan, 62, chairman of its board of directors.
"There's a lot of good ideas out there that are dead because there are no good personal relations," said eOriginal chief executive Douglas H. Trotter. "Half of the business is pure hard work and half of it is who you know."
Venture capitalist Gene Reichers, who specializes in technology investments for Arlington's Friedman, Billings, Ramsey Group Inc., receives from 80 to 100 business plans a week. His firm invests in roughly seven to 10 firms a year.
"All of us want to feel like we're joining winning teams. There's still risk involved, but if you can hire a great number of executives, you have a better chance of being successful," Reichers said. And grabbing that first veteran, recruiters say, is the key because it gives other veterans the confidence to jump ship.
In the past two months, Blackboard has hired Anne Keough Keehn from PeopleSoft Inc. as vice president of sales, and Neal Nored, formerly of International Business Machines Corp., as vice president of product development.
But not every tech start-up's recruitment story is rosy.
In fact, at Pathnet, founder David Schaeffer resigned in February as chairman of the board, a decision he called "unfortunate." While Jalkut and others say the resignation was a result of professional differences in opinion, Schaeffer, 43, felt the loss of his company was due to his naivete.
"I believed that hiring a marquee management team would enhance the company and raise capital," Schaeffer said last month. "But it was my greed and my desire to create a big company that led me to believe that they'd be competent managers."
For now, Blackboard has been lucky.
"I had no problem understanding what I'm not good at, and I hired Lou [Pugliese] to extend myself," Pittinsky said.
Since hiring Pugliese, Blackboard has added six high-level managers.
At an employee orientation session last week, Pugliese told the story of his first day as CEO of Blackboard in December.
"I walked in and my desk, shelves and drawers were all in a Staples box," he told four newcomers. "I had to build my own desk."
Who's Who of Start-Up `Grown-Ups'
Senior vice president and chief financial officer VarsityBooks.com
Senior vice president, treasurer and vhief financial officer
LCC International, Inc.
"Lines are much more blurry here. There's no one job description. We have no time to worry about that."
President and chief executive officer Pathnet Inc.
President of Nynex Corp.
"In real estate, what matters is location, location, location. In start-up companies, it's management, management, management."
Chief executive officer Teligent Inc.
Chairman and chief executive officer
"If limos and corporate jets are important to you, then you probably shouldn't leave those large companies. Chances are you won't be happy" working for a start-up.
Title: Chief executive, Blackboard Inc.
Martial status: Married, with a 12-year old son and a 16-year-old daughter
Lives: O'Kille, Va.
Description of his work environment: "I've sort of never grown up. I don't feel old at all among these people."
Touching moment: "When I was deciding to take this job, I took my daughter for a ride one day and told her, Daddy's taking a job that has a lot of opportunities, but maybe risky. And I was actually really surprised. She told me, "It's okay. Whatever you do, I'm always behind you." I got a little teary hearing that from my daughter."