A lot of people forget that telecom was a major mover during the dot com boom years. I was in the industry and it was the Wild West with deregulation and new technology being borne every day to try and corner the high speed internet markets.

I worked at several floundering telecom companies out of college and it was all rainbows and unicorns, "We're going to change the world!" VC money was coming in like crazy, but I saw red flags everywhere.

Best example was at the last telecom I worked at. They had managed to get a specific contract with Qwest that gave them enterprise level rates on PBX lines for small companies. Basically the state had given sweetheart rates to the huge corporate players in my home state of MN. 3M, Honeywell, Mayo Clinic and others were paying next to nothing for their lines, but because of the volume, Qwest was still making a ton of money every month. One of the founders was an attorney and told Qwest there was a clause that stated they needed to give that rate to everybody, not just these huge corporations. They actually had public hearings and everybody was asleep at the wheel. The FCC allowed this company a five year contract for the same rates, the only catch was each entity who got the rates had to have a minimum of 10 lines. Then, after five years, the contract would expire and the loophole would be closed.

When I was hired, the CEO told me they wanted to have the highest paid sales staff. He laid out the salary and commission structure and red flags went up (see below). After I was hired, I found out the CEO bought season tickets for all the major sports teams in town (that included the Twins, the Timberwolves, The Wild and the Vikings), two of the teams (Vikings and Wild), he got a suite. The office we were in was already way too big. We had a staff of about a dozen, and it was big enough for a company of about triple that size. No matter, he spent a ton of money to completely remodel the whole office in his vision. They had around $3 million privately invested and he blew through that with his excessive spending and staff payroll in about 4 months.

It was then shit got really interesting (more on that in a bit)

Here was the salary+commission structure:

Salary was $45K/year

Commission structure looked like this:

You were paid per line with a commission structure that ramped up as the number of lines increased.

The math went like this:

- (Less than 20 lines was paid out at $60/line)

- 20 line minimum: $1,000

- 35 lines: $2,000

- 40 lines: $3,000

- 50+ lines: $4,000

Let's say you landed three clients in the same building and you got a 40 line deal. This means you got your base salary for the month which was around $3,700 plus you got commission on every level of your deal so you added another $5K on top of your salary. Once I started working there, I found out the company was only clearing $25/per line, per month in revenue. It doesn't take a genius to see that and start to panic.

If you sold a 40 line deal and the company was paying out $5K in commission, but was only making $25/line in revenue, it would literally take 16 years just to break even. I started asking around, since this wasn't making much sense. I started talking with the engineers, some of who were given stock options in the company. Most wouldn't talk to me, but I got in good with one and he said this whole thing was a scam. The idea was to grow the business rapidly, shed all the VC money and then once it was bought by a larger telecom company, everybody would cash out and start another company. Rinse and repeat as necessary. I suddenly realized I was in a very bad position, but it was already too late.

Once the CEO had torched through most of the money, a war started between the investors. There were six private investors. Apparently they had a meeting to discuss the dire straights of the company. Three of the investors wanted to put in more money and keep it going until the company could grow enough where they could still sell it for a healthy profit. The other three wanted out. One half sued the other half. The other half counter sued. Two days later, I came to the office and a security guard greeted me and told me I wasn't going to work. The doors were locked by way of court order and the company was effectively shut down pending legal cases.

Less than a week later, the bottom fell out of the economy and the dot boom was suddenly the dot com bust

The lessons I learned (if even from the outside) from that experience really helped when I started several of my own companies. I have yet to take VC money. I've been able to bootstrap all of my companies on my own, with minimal investment. I run as close to bare steel as possible. No offices, no hardware, bare minimum for my overhead expenses. Try and do as much with as little as you need. Pick a niche market and address a specific problem and then own that niche. Try to stay away from larger players in already well established markets. And for fucks sake, never, ever, ever pay your employees a kings ransom to work for you.

Sorry for the long ramble, but I love telling this story. It has so many lessons in it for founders and other people in the startup world.