Built to Flip - Where Do You Come Down?

Still, nothing lasts forever, and one attribute of sustainability is knowing when your time has come. A key factor in IBM's recent comeback, for example, was the decision by its board to bring in a new team of managers from outside the industry. At some point -- maybe in a year or two, after we reach 1 million users -- I'll probably need to be elbowed aside.

So I'll be flipped -- yet again. And that's entirely appropriate: The world is more volatile than ever, and organizations that remain static will die. Flipping is a measure of economic vitality.

Is Built to Flip here to stay? Is flipping sustainable? I think so. Twenty years ago, I sold my house in Woodside, California for $205,000 because I thought that the real-estate market at that time was unsustainable. Today, that house is worth $2.5 million.

I'm a believer.

Contact Gary Sutton by email (gary@backup.com).

Janina Pawlowski, 39, founded E-Loan Inc. in 1996, along with her friend and business partner, Chris Larsen. Today, Pawlowski is the online lender's chairwoman. Joe Kennedy, 40, a former vice president of sales, service, and marketing at Saturn, arrived at E-Loan in February 1999. He is now the company's president and COO. (Larsen is the company's CEO.)

Pawlowski and Larsen had already built a brick-and-mortar mortgage business in Palo Alto, California when they decided to do business on the Net. Their model -- offering loans on the Web, quickly and cheaply -- caught on right away. But within two years, they faced a dire need for cash, and soon they also faced a tempting opportunity: They could sell their company to Intuit and walk away wealthy.

They chose not to sell. Instead, they secured last-minute minority investments from Yahoo!, Sequoia Capital, and Softbank. Last June, E-Loan went public, and today its market value is about $1 billion -- more than seven times as much as Intuit offered to pay for it in 1998. As with most e-commerce ventures, E-Loan's future is uncertain: In the third quarter of 1999, it lost $13 million. But there are signs of sustainability: E-Loan employs about 350 people, its revenues grew last year by 200%, and this year it expects revenues to double.

Janina Pawlowski

The money came looking for us. I'm pleased that it did, but we weren't really thinking about that when we started out. Here's what we were thinking about: The mortgage business is obviously flawed, so let's use technology to fix it. Let's remove as many steps as possible between the consumer and the capital markets. Let's improve the customer experience for people who need to borrow money. We wanted to build something sustainable, something big, something that would change an industry that wasn't working very well.

That was in 1998. For two years, we were making no money, and we were going into debt. By 1998, we were running out of cash. Chris had been chasing investors, but the best valuation that he could get for us was in the $40 million-to-$60 million range. I kept saying, "That's ridiculous. We can do better than that." But despite Chris's efforts, we couldn't do better than that -- until Intuit came in with an offer to buy us outright for $130 million.

Intuit's offer was more than double the valuations that we had been getting, and that appealed to Chris. But it meant selling a business that we had built to last. It also meant giving up a dream: I thought that if we did all types of debt really well, and did them worldwide, then E-Loan would become a much stronger company than Countrywide, for example, or Norwest. I really believed that.

We had never looked at E-Loan and said, "Here's a space where we can make some real money real fast." There are people who do think that way -- entrepreneurs who have formulas for starting companies and then selling them, one after another. I can't imagine being like that. I've never been that deliberate, and I've never thought that much about money.

But then I thought, "I'm killing my business partner and best friend." At this point, we were exhausted. We were in a conference room at E-Loan, and Chris was saying, "We need this so badly. It's a good thing. Plus, you're going to have $20-plus million." And I was sitting there, thinking, "That is a lot of money." Chris knows me, and he kept saying, "You should be careful that you're not always looking for more, or else you'll never be happy." So, finally, I agreed.

But the next morning, when I woke up, I realized that I just couldn't do it. Chris said, "I'm done. I got us a $130 million valuation. Either you get us the same thing within 24 hours, or we take this offer." He was playing very tough with me. So I said, "Okay. I'll raise the money that we need." That's when I called people at Yahoo! and got a meeting with them. Yahoo! invested at a slightly lower valuation than what Intuit had offered, but we didn't have to give up the company. We could keep building it into what we knew that it could become.