Riding Out a Dot-com Downturn
George Molho is hurtling down U.S. 59 South in his black Land Rover SUV, the one he drives because he "likes to be up high." He is a large doughy man with a moon face, dark hair combed forward and dark eyes to match. Just last week he turned 30.
The beginnings of a bad cold are starting to set in, but that's not preventing George from talking. If there is anything George can do well -- and George figures he can do lots of things well -- it's talking. As he drives, he says things like:
"There are some people who are meant to blaze a trail and some who are meant to settle. I'm not meant to settle."
"I enjoy fighting the impossible fight. That's when I'm at my peak: when there's no way to win and death is imminent."
George is talking a lot about the impossible fight these days, and the odds for victory for the company he helped found: Acesync.com. Even as dot-coms tank around him and the phrase "the new economy" begins to sound as faddish as "my pet rock," George insists the odds for Ace are very good.
George and some of his buddies from as far back as junior high founded Ace in November 1999. Their business plan calls for them to provide schools with a product line of tests and tutorials that students and teachers can use on-line -- in the classroom and at home. George is the president of the small company, and he and the brain trust at Ace say they're unique because their software was developed with the guidance of teachers and superintendents from the Houston area, making Ace's product something teachers will want to use.
But what does not make Ace unique is that like so many dot-coms before, it is struggling to stay alive. There is no funding. There are no investors left. Nobody is getting paid. The bit of money remaining to pay the rent on their office space will last for just a handful of months.
Even though George knows this and admits it to be true, as he drives he has nothing but positive things to say about Ace. About most everything. He talks in exclamation points, as if the steering wheel in front of him were really a pulpit and the sermon for the day -- for any day -- is that George Molho never gives up.
"Look at marathon runners," George is fond of saying. "What's the difference between the one who wins and the ones who don't? They all train the same. The one who wins has heart! The one who wins wants it!"
It is the day after the Fourth of July, and George is one of the few Ace staffers in the office. Ace is on the fifth floor of an office building at the corner of Richmond and Montrose, across the street from a Diamond Shamrock and several floors above a bank. The rent is $4,000 a month. Most of the furniture is standard IKEA fare, and many of the desks were purchased used. It is clean, spacious, color-coordinated and nice, but not too nice. Unlike the legendary dot-com start-ups of the mid- to late '90s, there are no foosball tables or vending machines stocked with free food.
"We did everything the right way," George says. "We used our money wisely, or we wouldn't be here now."
George is talking about the $1.3 million in initial capital Ace gathered from friends, personal savings and investors. The money is gone now, but that isn't stopping George from trumpeting how much he believes in the future of Ace. He says he and his partners are "on the side of the angels," because they want to help kids. They just can't fail.
The genesis of what was to become Ace got its start in the early '90s when George and his old high school friend Tim Heckler would sit out on their balcony along Memorial Drive overlooking the park. Smoking cigarettes, they'd brainstorm about businesses they could go into together as George took notes.
In 1995 Tim went on to co-found Hypercon, which grew into one of the city's largest Internet service providers. George was working for his uncle's chain of health clinics, and he left to work for Tim in the Web development department until Hypercon was sold in mid-1999. A few months later Tim, George and a few other folks from Hypercon decided it would be the perfect moment to birth Ace.
It was a heady time. George, Tim and the four other founders -- Ali Davoudi, Keith Yezer, Kathy Pounds and Sean Stoner -- would gather in Sean's apartment in the Rice Lofts downtown. They drew up detailed business plans. It was the dot-com glory days, and start-ups everywhere were rolling in venture capital money like pigs in you-know-what. The NASDAQ peaked just as Ace started pulling in its first round of funding. Fresh-faced kids just out of college were suddenly worth millions, at least on paper.
It felt like a good time to be starting a dot-com.
The group would stay up until three or four in the morning making plans. Wives and girlfriends would call and wonder why they heard music playing in the background. They said they needed it to think. Seeing as how many of them had known each other as young kids -- had ridden bikes to each other's houses and played Dungeons & Dragons together -- the mood was upbeat. Hopeful.
"It was a fun time," remembers Keith, another former high school friend.
They all brought something to the table, says George. Sean and Tim knew how to draw the road map, the mechanics of the product. Keith, who would go on to serve as finance officer, could merge creativity and numbers well. Kathy was "the Rock of Gibraltar," says George. Ali could be the pit bull when need be, and George considered himself "the heart and the soul and the face."
"We each have a body part and we complete each other," he says.
"Like Voltron," says Ali.
Even before the Ace task force began to develop their product, they spent plenty of time with 35 superintendents and 130 teachers from several school districts in the Houston area. They got Jack Christie, former chair of the State Board of Education, to sit on their board. And instead of approaching them all as traditional salespeople with a product already in hand, the Ace employees asked the teachers and superintendents to tell them what kind of educational software they wanted and didn't have.
"I was surprised at how knowledgeable they were, and how they approached the problem," recalls Hank Wheeler, who was introduced to George by a mutual friend. Wheeler, a consultant to the Texas Association of School Boards and the retired superintendent of Spring Branch ISD, helped put Ace in touch with some of the leading superintendents in the state for a two-day meeting at the Doubletree Hotel downtown.
"Superintendents are usually a very hard sell," says Wheeler. "But [Ace] gave them the opportunity to express ideas and ask any questions they wanted to. They were very impressed, and these are salty veterans."
Ace even developed a partnership with the nonprofit organization Technology for All, to make their product available at all TFA sites so that students who did not have home computers could still work with the system.
Then the Ace employees moved into their office space. They didn't pay themselves. They figured that would come later.
It's been over a year since they settled into that office, and no one's seen a paycheck yet.
As George talks about the company, he slips easily into telling stories about his own life. It seems difficult for him to separate Ace from George. That could be partly because George enjoys talking about himself. It could also be that George has been gearing up for the impossible fight his whole life.
As a small child growing up on the southwest side of the city, George was educated in persistence by his grandmother and grandfather, Soula and Charles Molho. Both were native Greeks who had survived Auschwitz and told George story after story of survival against the worst odds. Before being shipped to the camps where she would meet her husband, Soula and her family hid British soldiers in their basement as a part of their involvement in Greece's resistance to Hitler's regime. When the Gestapo discovered them, 17-year-old Soula and the rest of her family were beaten. She was given boiled eggs to keep in her hands and a gun was held to her head. If she dropped the eggs, she was told, she would be shot.
"She never dropped the eggs," George says reverently.
As a young boy, George was odd, says his mother, Beatrice. He liked Mozart and Big Wheels equally. Beatrice says she would sometimes get the feeling she was talking to a boy who knew more than she did, or at least who thought he did.
When George turned seven, he began to talk about a vacation he was going to take with his father. George's parents had divorced, but it seemed an amicable separation. Beatrice thought her son was making up stories, as most children do. She knew nothing of a planned trip. Not long after his seventh birthday, George's father, a Greek citizen who was living in Houston, came to pick up his son after school. They drove to the airport and boarded a plane out of the United States.
George's father said it would be just a short trip to London and that when they got there, if George didn't like it they could come home. George said all right. But a few weeks in London turned into a few weeks in Amsterdam, then France. Finally George and his father settled in his father's native country of Greece, in a small mountain town near the Bulgarian border. George's family in America was frantic. The months stretched into a year, then a year and a half. George's father got angry when George would speak in English and talk of wanting to return to his mother. By the fourth month, George's father began to beat him with a belt every night and tried to get him to say he didn't love his mother. But he never gave in, George says. Not once.
George tried to remember his grandmother's stories and how much they had meant to him. "I felt like Superman," he says. "The more I could take, the stronger I was."
When they discovered his whereabouts, George's relatives traveled to Greece. Under Greek law his father had sole custody of George, but some strong-arming by his relatives convinced his father to give him back.
Today his father still lives in Greece, and George has no contact with him.
When he returned to America, George was first a boy -- and then a man -- on a mission. He began to believe success was his birthright.
George attended St. Thomas Episcopal, where he read Plato and would stage one-man protests when he thought a teacher or student was mistreated. As he got older, he thought he might want to be an actor. At the time, Channel 2 had a local kids television show called the Two Country Kids Show. For three years George would come home from school every day and call the producers, asking to be given a shot. Finally the station relented, and George got a spot on the show. He was the star of a movie review segment not surprisingly called "In My Opinion."
After high school, George shunned traditional college and decided to pursue his acting dream by attending the American Academy of Dramatic Arts in Pasadena, California. There, instructors wanted him to take lessons in dance as well as acting. This did not sit well with George.
"I told them, 'If you want a dancer, get Liza Minnelli. I'm gonna be an actor,' " he says.
But it was there that George hit a stumbling block. It seemed that as hard as he tried -- and he tried very hard -- he was just a lousy actor. Not that he would admit that to himself. He figured he was probably fantastic. The instructors said he was egotistical.
"I said, 'I have talent, I have charisma and presence,' " George recalls. "And they said, 'You don't have shit, son.' "
George kept trying, but he eventually decided to return home to Houston. He doesn't think it was a total loss. He concedes he may not have talent, but he knows the charisma and presence are still there. Acting might even be in his future again someday. Politics too.
Back in Houston he worked for his uncle's clinic chain, Houston Pro Medical Management, as government liaison and vice president. He moved in with Tim and helped think up Ace. Shortly after going to work for Tim at Hypercon, George married his longtime girlfriend, a personal trainer, and moved to a home in Bellaire. Then he got geared up for Ace. Success seemed to be going as planned.
In the reception area of Ace, there is lots of reading material on the coffee table: art books, technology magazines and a copy of Star Wars Episode One: The Visual Dictionary. A handful of hard candies sits in a dish by the couch.
"We don't know how old those are," warns Ali as he motions to the candies. "We bought them when we had money."
"When we had money." It's a phrase the Ace founders say often.
They hadn't been in their new offices long when the dot-com nightmare began nationwide. Employees lost jobs, investors pulled out, and people started visiting sites like fuckedcompany.com to place imaginary bets on which dot-com would die next. But Ace didn't consider itself to be at all like the legendary dot-com disasters such as Webvan.com or kozmo.com. Those companies had based their hopes on the flimsiest of business plans. They had lost billions of dollars. Ace had a solid plan and hardly any money at all. They were in the educational field. They just happened to be on-line. But times got hard. And Ace certainly wasn't -- and isn't -- alone.
"It's definitely a tough time to be a dot-com anywhere in the nation," agrees Gray Hancock, senior development manager for the Houston Technology Center, a self- proclaimed "business accelerator and resource center" dedicated to promoting and supporting young companies in Houston's technology sectors. According to Hancock, because Houston was never as dependent on the dot-com sector as cities like San Francisco and Austin, the death of many dot-coms in the past nine months didn't hurt as much as it could have. But the general economic downturn nationwide certainly has not made it an easy time to be part of a start-up, he says.
"The venture capitalists have stepped back and are looking at more established companies with an established management team and revenue," says Hancock. In addition, Ace has the added obstacle of working with on-line education.
"On-line education has been a hot topic for a while, but it's been a tough boat to row," says Hancock, citing the difficulties of small companies negotiating with the oftentimes thick bureaucracy of the public school system. "Venture capitalists got burned out on it."
But Ace is still here. At least for now. Most of the founders, including George, and their five employees are living off savings and side projects. Kathy has to work full-time at another job to make ends meet. They show up to the office, work hard, come in on weekends. They talk about October, when the software that Tim has been sweating over will be complete. They think those teachers and superintendents they impressed months ago will want to buy it. They are glad to be friends, because they say that's what makes it bearable. They crack jokes. Ali, the biggest joker, says misery loves company.
"And we're all miserable," he says.
George says they're going to make it. He doesn't doubt it. He offers up analogies about prizefighters and marathon runners and so on. Sometimes he asks his grandmother Soula to read her coffee grounds, an old Greek tradition of telling the future. Tim says Soula told him that he would make a lot of money, then not make a lot of money, then make a lot of money again. Tim hopes she's right.
George and Ali still meet with potential investors. Ali says every time they ride the elevator down after a meeting, George says, "They loved us!" and Ali has to explain that they probably were just being polite. George has been trying to make a connection with the CEO of Cisco Systems, but he can only get through to the director of government affairs. George says he told her he just wants ten minutes with the man. He says he told her, "Let's cut through the crap I'll fly up there, he'll meet with me, he'll love me, we'll save the world." He's still waiting to hear back.
He called up Ned Hill of Sternhill Partners, a Houston-based venture capital firm. Ned told him, politely, that Sternhill didn't work with companies like Ace. George proceeded to e-mail him 12 times after that, until Ned finally agreed to have breakfast with George and look over Ace's demo. But he still said he didn't think Sternhill could help.
"There seemed to be a passion," says Ned, recalling the meeting. "And there's a lot to be said for passion."
When they first started the company, George likes to say, the boys from Ace dined at Solero and Cabo downtown. But today, on this rainy Friday afternoon, they have just finished eating a lunch they had delivered from Lucky Burger down the street. Although it is almost the weekend, a day when most workers across the city squirm in their cubicles with giddiness, a glumness to match the weather pervades the office.
Ali is in pain. He thinks he has a herniated disk. For the past few weeks he's been showing up to the office hardly able to move his neck. He's leaving early today for an MRI he has finally managed to schedule.
"Doctors are just like mechanics," he complains. It seems that whenever Ali needs either one right away, they always want to see him four weeks from now.
Tim fears he has picked up George's cold and is lying on the IKEA couch in the television room. George has a five-o'clock shadow and still sounds congested. In the corner Sean is on the phone saying, "If it is a company, a start-up like this one is, with no cash flow they will not guarantee the loan."
Keith pokes away at his keyboard.
"It's a one-foot-in-front-of-the-other day," he says.
Even while the others are quiet, George seems constantly primed for something, anything that will allow him to get up and move or talk a little more or deliver a line of advice he has deemed important. At one point he wanders over to Keith and pokes him in the arm with a pen, pleading almost childishly for a cigarette. Keith resists, but then George recalls that he left one in his car. He runs out for it.
Earlier in the day, in the conference room covered in flowcharts and papers, George delivered one of his standard monologues on persistence and success. He moved his beefy arms with excitement as he spoke.
"Anyone can smile on a sunny day, but show me where you are when the tempests rage," he said. "Why did the other dot-coms go down? It was the sunny day. But now is the time when the cream rises. The tempest is here, but the caliber of the crew is going to see it through."
As George talked, it seemed fitting that the shades of the conference room windows were drawn. There was no way for him to look out and see the dark clouds hanging in the sky.
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