SAGA OF A CYBER DEBACLEHow an American in Tokyo raised millions for his company--and lost it in a flash
It is, in all respects, an improbable tale. The year: 1989. The place: Tokyo. In the midst of a financial bubble, a 23-year-old American--a smooth-talking telemarketer named Brad Bartz--arrives on vacation. Believing that he, too, can become a millionaire and share in Japan's heady prosperity, he stays on. He teaches English, marries a Japanese woman, and later scrapes by as an importer of American goods.
Fast-forward to 1995. Bartz is doing deals with big-name companies and running an Internet startup, fueled by almost $4 million in venture capital. By 1996, he has been featured in The Wall Street Journal, started numerous spin-off ventures--and run through all the money in less time than it takes most entrepreneurs to write a business plan.
How, you ask, can things move at such a breathless pace? The stars might never align in such a pattern again. Bartz's rapid rise and dramatic fall was helped along by Japan's frenzied economy--but also by the Internet mania that gripped investors, the mystique surrounding Western knowhow in Japan, and a good measure of hubris. And then, too, there was an awful lot of cash and very little oversight. ''Insanity,'' Bartz admits. ''You make a lot of mistakes when you're young and dumb.'' His E-mail handle, ''Cowboy,'' says a lot.
When Bartz decided to pursue his fortune in Japan, he knew he was short on experience. So he teamed up with another expatriate, Jay Smith, then a 26-year-old Harvard MBA who had done some management consulting.
In 1990, the duo started Trade Balance Inc., a New Jersey-based company exporting a mishmash of products to Japan--everything from patio furniture to Washington State wine to software. Bartz, his wife Tomoko, and Smith ran the business out of Bartz's cheap rented house in Chiba, an hour from Tokyo. In 1993, Bartz got his first inspiration. While struggling to sell customers Metamorph, a search-engine program, he noticed that information-starved expatriate American execs were far more interested in the English-language reports in his demo. So Bartz crafted deals with about 20 information providers to put English-language news and information about Japan on an online bulletin board. Later, to create a customer base, Bartz offered members of the American Chamber of Commerce free bulletin-board and E-mail service. Then Bartz set to work persuading major businesses to advertise online. Coca-Cola Japan, for example, paid an initial $10,000 to showcase its logo, according to Bartz.
Along the way, Bartz made many a cold call--with some measure of success. Masaru Morai, then president, now chairman, of Compaq Japan, says he was impressed enough to give Bartz an old server and some used computers. ''I tried to help because he was aggressive enough to try to start a business,'' says Morai. ''Although, perhaps, sometimes he is a bit too aggressive.'' Out of gratitude, Bartz gave Compaq free advertising.
One deal led to another. Through Morai, Bartz met the president of NTT PC Communications, a subsidiary of Nippon Telegraph & Telephone, Japan's largest telecom company, which wanted to put bid specifications for its projects online--in English. ''We were not quick enough to implement smaller marketing ideas for the English-speaking community,'' says Takayuki Uehara, an executive manager at NTT PC. In January, 1995, NTT PC worked out a deal that gave Bartz space on its server so he could operate as one of Japan's first full-fledged Internet service providers (ISPs). In return, Bartz agreed to give NTT PC a share of subscription revenues. ''We had about a dollar in our pocket when we signed,'' Bartz recalls.
BEER BUDDIES. Bartz often bartered away his company's services, even getting 300 cases of beer from Budweiser for setting up a Web site. Of course, that didn't do much for cash flow. But finances didn't stay shaky for long. At a Tokyo party in April, 1995, Bartz met Campbell Gunn, a Scottish venture capitalist running a Japanese investment fund for privately held Tiedemann Investment Group. Tiedemann is a New York-based firm whose general partner, Carl Tiedemann, 67, is a former president of Donaldson Lufkin & Jenrette. With a clink of beer bottles, Gunn, a bit of a cowboy himself, vowed he would invest Tiedemann's funds in Bartz's online service. Much to Bartz's surprise, Gunn later made good on his promise. Within a few months, Gunn had committed the Japan fund to investing 327 million yen, about $3.8 million at the time, in Bartz's business in exchange for a 22% stake in the company. Thus, Internet Access Center (IAC) was born--and the real madness began.
''It was like champagne,'' recalls Bartz, who moved to fancier digs and leased an imported car. The partners spun a thousand tangential ventures, launching a Web-site-design business, a Web-site-design training program, an Internet cafe, and Japan Press Network, a technology and automotive news service. ''We were just throwing stuff at the wall to see what would stick,'' Bartz admits. To staff their multiple ventures, Bartz says, IAC hired 55 people in six months, with managers' annual salaries starting at a hefty 7 million yen (about $82,000 at the time). Bartz threw big parties, helped along by the bartered Bud.
But beneath the flash, problems were brewing. For one, Bartz routinely hired the young and inexperienced, including close friends and relatives. ''We started with people none of whom had any real full-time business-management experience,'' Smith says. ''It was just terrible.''
Perhaps their most foolish move was IAC's March, 1996, purchase of Tokyo Journal, an unprofitable 16-year-old English-language magazine. Simon Mansfield, Bartz's pal and right-hand man, who negotiated the deal, so alienated employees that most quit en masse, including the editor-in-chief. Bartz installed his cousin, a journalist, in his place and tried to get by with IAC's existing sales staff and editorial employees from Japan Press Network. But reporters balked at the extra work, and the sales team ignored deadlines and sent production costs soaring.
To keep things going, the partners relentlessly pursued new deals and capital. Among others, they talked to American Insurance Group, which examined IAC's books but didn't bite.
''Because we were focusing on investors, we let the wheel go,'' concedes Bartz. Sadly, his backers apparently didn't rein him in either. ''IAC typified the crest of the Internet's popularity in Japan, when people invested millions without holding the investees accountable,'' says rival Net-service provider Terrie Lloyd, publisher of Computing Japan. Gunn, who left Tiedemann at the end of 1995 and joined another investment firm, remains on IAC's board. He concedes ''it was probably a mistake'' to fund IAC rather than a rival ISP. ''I should take Brad out behind a shed and kick him,'' he adds.
By June, 1996, Bartz had plowed through all the seed capital, and the workplace was rife with infighting. Even the neophyte managers sensed something was wrong. Desperate, Bartz went prospecting for new investors in Los Angeles. Having no success there, Smith flew to New York, where he persuaded Tiedemann to part with $600,000 more on the grounds that funds were needed because of the purchase of Tokyo Journal. Also, IAC expected momentum from a deal with IBM to bundle IAC software with 300,000 computers, agreeing to pay about $300,000 for that nonexclusive privilege, Bartz says. Tiedemann officials in New York declined to comment publicly on any aspect of the two IAC investments.
By October, 1996, the $600,000 was gone, too. Bills mounted, and the partners scrambled to restructure. Today, little remains of the old IAC. Gone are the Web-training program, bulletin-board services, and Internet cafe. Japan Press Network continues in name only, and the ISP limps along. Budweiser took its Web business elsewhere, but Bartz claims to still have about 10 Web clients. More than half of IAC's staff has quit or been fired. Tokyo Journal closed on July 19.
As Bartz and Smith try to regroup and raise new capital, critics doubt they've learned their lesson. The partners swear they won't make the same mistakes again, adding: ''We certainly will make different mistakes.'' The question is, will investors give them a chance?
By Tanya Clark in Tokyo and Edith Hill Updike in New York
Updated Aug. 21, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.