Case Study of a Dotcom, Part 1 One e-business's journey through start-up, fallout and everything in between

On first glance, Eric Grossman'sstory reads much like that of so many of today's youngentrepreneurs. Grossman, a former consultant at Ernst & Youngwho had always dreamed of starting his own business, was simplyhoning his skills in corporate America, looking for the rightidea-and the right moment to present that idea to the world.Sounds familiar, right?

But that's where the story stops sounding banal-andstarts sounding script-worthy. Back in 1999, upon reading anarticle in the Healthcare Forum Journal called "HMOs'R' Us," Grossman found the impetus for hisAtlanta-based company, SimplyHealth.com. Author Philip Lathrop hadoutlined a mythical health-care business, but Grossman knew it wasreal-world stuff.

So in July 1999, Atlanta-based SimplyHealth.com wasincorporated, with the site officially launching in April 2000.Following Lathrop's hypothetical model, the site allowsconsumers and small businesses to research, purchase and managetheir own health insurance needs online. Lathrop, a former partnerat management and technology consulting firm Booz-Allen &Hamilton Inc., became Grossman's mentor as well as one of hisfirst advisory board members, along with Peter Konstvedt of CapGemini Ernst & Young.

Grossman's interest in the health-care field began in 1995,when he convinced the Goizuetta School of Business at EmoryUniversity in Decatur, Georgia, to fund a six-month class in whichGrossman and his classmates developed a mock health-care companycalled Phycare. Though BIZ Experiencesial fever ran deep for Grossman,he knew he didn't have the experience or credibility to formhis own company, hence his five-year stint at Ernst & Young.And though he was on the fast track for partner, after reading"HMOs 'R' Us," he got to work on a business planfor his own company.

"I knew I wanted to establish a business in an immaturemarket that leveraged the Internet and had an annuity stream like atelephone or cable company," says Grossman."Lathrop's article just set me in motion, and I beganbuilding research."

So it is for most start-up BIZ Experiencess-you start with anidea, and one day, after a lot of hard work, that idea becomes acompany. Here, we walk you through that first critical year ofstart-up and learn what it's like not only to start a business,but to run a dotcom during the great fallout of 2000.

August 1999

Using his own experience as a strategic planner, Grossman saysgood-bye to his steady job and seeks $300,000 in funding. The first$200,000 comes from family members and a former boss atE&Y-enough, he believes, to sustain him for a year anddevelop a mock Web site. The remaining $100,000 is elusive.

On advice, Grossman retains an attorney, presuming therelationship would lead to sources of capital. Lesson learned:"At the end of the day, it's you who raises themoney-you can't depend on [anyone else] to do it foryou," says Grossman, now working sans office out of coffeehouses and restaurants. "I was extremely naive, but my timingwas good."

October 1999

Good indeed. Fast forward to October, when Grossman meetsventure capitalist Scott Smith at OK Café, a popular Atlantadiner. Smith, CEO of Atlanta-based VC firm encubate Holdings LLC(formerly AnswerThink Consulting), pledges a cool $1 million overbreakfast. "This one solid commitment allowed me to leveragemore money," says Grossman.

From there, VC investors fall in line: LiveOak Equity PartnersLP, followed by the Atlanta Tech Angels and individual investorsfrom the Atlanta Cardiology Group. By the end of October, fundingtotals $2.1 million, seven times his initial quest for $300,000."The whole game in raising money is buying time to get thingsdone. It's like a poker game," explains Grossman."Once I was promised the initial $1 million [fromencubate]...it gave me contacts, credibility, the ability to hirepeople and very deep pockets."

It's during this period that Michael Leitner, a formerdirector of corporate development for Microsoft, lends his support,agreeing to serve as a member of SimplyHealth's board. "Iwas immediately impressed," says Leitner of the company."While other dotcoms were spending millions on marketing andbranding, Eric was spending his [time] developing technology toprovide better distribution platforms for consumers andpartners."

January 2000

Grossman makes a presentation at the Red Herring Venture MarketSouth Conference, where the 30 top companies in the Southeastgather to tell their stories to an audience of 5,000. "I hadfive minutes to get my point across-let's just say I wasnervous," Grossman laughs. "I didn't expect to [find]any capital at the conference, but it turned out...we met our leadinvestor, SSM Ventures [in Austin, Texas]."

February 2000

Another $2.1 million rolls in from SimplyHealth's primaryinvestors. Grossman is riding tall in the saddle, traveling acrossthe country to seek out investors. SimplyHealth.com receives itsterm sheet (a commitment to fund) from SSM Ventures. "Wereally began having fun," says Grossman. "When you havemoney, you have leverage; when you have leverage, you havemomentum. Both are key to success."

Because of the influx of money, Grossman is able to build theSimplyHealth site straightaway. He then acquires insurance agencyGeorgia Health and Life, instantly obtaining 2,200 clients, 10experienced back-office people, revenue and "feet on thestreet." "Things were going way too well," hesays.

At the risk of seeming akin to a bad soap opera that leavesyou hanging, we're going to cut this story short. But you canread the rest righthere.

Mickey Goodman, a freelance writer in Atlanta, has writtenfor Atlanta Magazine, Style Magazine, SouthernFlair and other publications.