United We Stand

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Mark R. Goldston, the chief executive for United Online Inc., is a big-time sports fan. His Warner Center office wall is adorned with autographed photos of Mickey Mantle, Ernie Banks, Hank Aaron and Michael Jordan and football helmets of Joe Montana and Joe Namath. If there were an Internet Hall of Fame, the 51-year-old executive would be a shoo-in. He has quarterbacked the No. 2 dialup Internet service provider in the United States to annual sales of $525 million last year, with earnings of $47 million. He’s had to call a number of audibles in the five years since he created United Online from the unification of the NetZero and Juno services, including the dot-com bust of 2000, lawsuits, mergers and the threat of delisting from the Nasdaq market. The firm today is cash-rich and debt-free with a total equity of $322 million. He brought little Internet savvy but tons of marketing and management knowledge to United Online. He had been president of the Einstein/Noah Bagel Corp. and the L.A. Gear shoe company. He also did stints at Clairol, Revlon, Reebok and Faberge, where at 31 he was one of youngest corporate presidents ever. He seems most proud when talking about his wife of 24 years, NancyJane, and their twin sons, Adam and Ryan, who are walk-on basketball players at USC.

Question: Besides all the sports stuff on the wall, you have a bunch of patents. What are those for?

Answer: Well, in addition to being a marketer, I’m an inventor. When I was in the sneaker business (at L.A. Gear), I came up with lighted shoes, inflatable pump sneakers, adjustable heel springs, energy return systems cushioning, all of that. Thirteen in all.



Q: Still making money on them?



A:

Unfortunately, the rules were that you have to assign any inventions to your company because, obviously, you would be conflicted if you were getting royalties on your own invention. I would have billions of dollars in royalties if I weren’t an employee. Instead, what I have right now are 14 patents.



Q: What’s the other patent, the one that’s not shoes?



A:

I just got my first Internet patent, which I applied for four years ago. We got a patent on the ability and technology to show you an ad based on the category or the type of product online right now. So, if you looked at an ad for Ford Motor Co., I could then run over to you an ad for a General Motors car when you’re at the Ford site. It’s basically predicting what you’ll be interested in.



Q: How did you become interested in United Online?



A:

I got a call from a friend of mine who said that Calpers had invested some money with a local venture capital fund called IdeaLab Capital Partners. I didn’t know anything about them, but they said, “Would you go out and meet with these guys? We want to know more about this Internet thing that seems to be percolating and we’re kind of invested in it.” I went out to meet with these guys at the end of the lunch, they said there was a company that they didn’t invent, but they had invested in, called NetZero.



Q: What did you think of the company?



A:

It really wasn’t a company. It was about 25 people. This was in 1998. And eight years ago on the Internet is like an eternity. Anyway, they had technology they had invented that would run a persistent ad above the browser that would give you your connection to the Internet, and if you tried to close your ad, you’d lose your connection to the Internet. So I go out to Westlake Village to see it, and I come into this room with about 25 people and some equipment. I thought I was in the R & D lab. They showed me the technology and said, “That really looks cool. Do you have any revenues yet?” “No.” Have you sold any advertising yet?” “No, and we really need to go out and raise some money because we’re going to run out of money very shortly.”



Q: Did you have any idea it would turn into the firm it is today?



A:

Some people thought it was a midlife crisis. Everybody except my wife, who said, ‘”You should definitely try this.” So I shut down my turnaround business, called all my clients and said, “Look, I’m going to go ahead and do this” and they all said, “You are out of your mind.” I drive to work the first day and I have a desk in a converted broom closet and we went and raised $34 million within four weeks of when I joined, which at that point was the largest private capital round ever raised in Southern California.



Q: Where did you get it?



A:

Ironically, we went to Compaq computers and Compaq put in $15 million. At the time, I knew that venture capitalists weren’t going to want to get diluted, so they matched. And then a bunch of us and other investors put in some money and we were able to raise $34 million in four weeks.



Q: Selling Compaq was quite a coup, right?



A:

The deal was we would let them invest in our company if they would put us on every Compaq Presario Computer. Little NetZero with 25 people in a room in Westlake Village it almost sounds like a joke. It’s like a Little Leaguer saying “I’ll let you sponsor my Little League team, if you’ll let me pitch for the Yankees.”



Q: Pinstripes suited you?



A:

They let us pitch and we didn’t do badly. We got $34 million. This was in May 1999. We went from the A round of financing to an IPO led by Goldman Sachs in 11 months. To my knowledge, that had never been done.



Q: You did the IPO in September of 1999?



A:

I joined in March and by Sept. 24, 1999, we were ringing the bell at the Nasdaq, which is unbelievable from a single room. That was NetZero and everything was hunky dory. We were rockin’ and rollin’. And then the nuclear winter hit.



Q: You mean the dot-com bubble bursting?



A:

The Internet crashed and burned in March and April of 2000. So we sold 10 percent of the company to Qualcomm for $144 million in cash, which for us was like a private placement and like a secondary offering. We still had $140 million of our IPO money left, giving us $284 million in cash during the nuclear winter. At the end of the day, it turned out to be a godsend, because we were able to power our way through this Internet darkness, watching our stock and everyone else’s plummet. We were eviscerated.



Q: How did you turn NetZero into United Online?



A:

Everyone said that we were two skunks trying to breed a mink. Turned out they were right. The Wall Street Journal actually wrote an article saying that, and somebody else said we were like that Monty Python skit, where the knight keeps getting limbs hacked off and all the time he’s saying. “Don’t worry, it’s just a flesh wound.” Since that day, we’ve morphed the company about four times. We’re nothing if not resourceful.



Q: What’s behind that resilience?



A:

We firmly believe in our strategies, but we know enough to write them in pencil because we are in a very dynamic industry that is constantly changing. We’re a hugely profitable company. Between NetZero and Classmates, we’ve got two of the top 100 brands in America. We’ve got a great team of people.



Q: How many employees are there?



A:

About 1,100 hundred worldwide, about 500 here. We have exceptionally low turnover. It’s a great place to work. My theory is to hire the best people, compensate them well and keep them in an environment where they feel stimulated and happy and they will be loyal. And they have been. Most of our top executives have been with me from the beginning.



Q: What was your career turning point?



A:

It was probably when I became president of Faberge at 31 years old. It taught me to have respect for the guys I competed against on the Internet. When I got into the Internet business, there were a bunch of CEOs that were 30 years old. These were tiny little companies. And I said to myself, “Don’t dismiss these folks as competitors because of the age of these guys running them.” It was also a turning point because it had always been my brass ring to try to be the president of a big consumer product company. I had wanted to do it by the time I was 45.



Q: What has been your biggest career challenge?



A:

Probably coming into an industry I knew zero about. That was at a time when there was no manual for operating an Internet company because no one else had any experience, either. Pretty much like the 49ers that were panning for gold. They came out West and didn’t know if they were drilling for dirt or gold. My biggest challenge was recalibrating myself as I moved from a large enterprise business into a raw startup that had to generate new capital every month just to stay in business.



Q: What was the most radical difference at United from your past with Clairol and Revlon?



A:

Those companies existed before I got there. This was a company that we were building brick by brick. We didn’t really have a company. We didn’t have any revenue. So we basically had to hire a team of people and come up with a business model that would be salient, generate revenue and reduce our burn. And while we were doing all that, we had to convince investors, private investors, that they should invest their capital in a four-year payback into our company. That’s very different from going to work for Revlon when it’s troubled. It’s still a powerhouse. People thought I was nuts for doing this, giving up a tremendous business to go work for a very small amount of money.



Q: You took some heat early on, right?



A:

People were saying, “You’re giving away Internet access? It sounds ridiculous. It sounds like pro bono work.” I find it ironic that as much money as we make today, our original free businesses are very profitable. I had to endure a lot of personal criticism. You really start to find out who your friends and your supporters are. My wife, NancyJane, was great. From the beginning, she said “People are going to be throwing stones.”



Q: You grew up in Chicago?



A:

And Atlanta. I lived in Skokie, Ill. My sophomore year in high school we moved to Atlanta. Remember Community Discount in Chicago? My dad was the president of Community Discount, so my dad was one of the guys that started all that.



Q: Did it influence you?



A:

One of the reasons I went into consumer packaged-goods marketing was that my father was one of the major retailers of consumer packaged goods product. So I knew that I didn’t want to be on the side that was selling it at the store level. I wanted to be the guy creating the product. It has a huge influence on my life. My dad died right when I got out of graduate school when I was 22.



Q: It must have been tough uprooting at that age?



A:

When we moved to Atlanta, it was right next to “Pistol” Pete Maravich. He was a rookie then. So I rationalized it was OK to move to Atlanta because they had (baseball star) Hank Aaron and (basketball star) Maravich. I used to play basketball at the YMCA with Pistol Pete and I used to caddy for him, actually.



Q: What’s your typical day like?



A:

Hectic. I have several meetings during the course of the day. I give myself time to firefight because we own five different companies and lots of things come up. I would say that very few of my days are the same. This is a very high-powered, fast-paced business. I never know what I’m going to read about when I wake up with my competitors.



Q: What person do you admire the most?



A:

Probably growing up, my Dad was a huge role model. But I would say that when I was growing up, my most admired person was Mickey Mantle. Then as I got older I learned more about the life he led, I’m not sure that would have been the same. But when I was a little boy I would say that my most admired person was Mickey Mantle and John Kennedy.



Q: What about (Chicago Cubs star) Ernie Banks, up there on the wall?



A:

I can relate to Ernie. I was one of the original 1969 Bleacher Bums. I was there. That was me. I still have my yellow hard hat. “The Cubs Will Shine in ’69. The Cubs Will Be Heavenly in 1970. Let’s Play Two in ’72.” There used to be a preview show in Chicago before the season and they always had Ernie. And we would always say, “This is gonna be our year.” That’s why we have character. I’m 51 years old and the Cubs have never won in my lifetime.



Q: And they probably won’t.



A:

But it builds character.



Q: What kind of money does someone in your position make?



A:

What do you mean by that? Someone says ‘What’s your job worth?’ What’s it worth when you start it off with 24 people and you have no revenue and you have no capital. And now you have a company that’s worth close to a billion dollars and your company had $135 million in EBITDA. What’s that worth? You do your job. You post your result. The market, if you’re a public company, values you every day. It’s no secret. If you think the market doesn’t value your company correctly, then you look at your product.



Mark R. Goldston


Title:

Chairman, President and Chief Executive

Company: United Online Inc.


Born:

1955, Skokie, Ill.


Education:

B.A. from Ohio State University, M.B.A. from Northwestern


Career Turning Point:

Being named chief executive of Faberge at 31


Most Admired People:

Mickey Mantle,

John F. Kennedy


Personal:

Married, with twin college student sons

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