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Beliefnet – NYT Article

I was out of the country but heard about the recent article.  I had the honor of working with Steve Waldman and John McIlwraith of the Blue Chip Ventures.  This is a great story about smart people investing in people with the passion to succeed. TALKING BUSINESS; Keeping Faith In a Venture Built on Faith By JOE NOCERA Published: May 5, 2007 ”I found the Chapter 11 period exhilarating,” Steven Waldman was saying the other day. Mr. Waldman, 44, was sitting in his mildly shabby office in Manhattan, smiling from ear to ear. Atop a bookcase next to his desk stood a brand-new Ellie, that oddly shaped trophy that symbolizes a National Magazine Award, which Mr. Waldman’s Web site,, had won Tuesday night in the General Excellence Online category. This small, independent voice of religion and spirituality, which had been a finalist three times before, had beaten out better-known brands including ESPN,, and Slate. Beliefnet calls itself a ”multi-faith” site, meaning it has sections devoted to every religion, from Buddhism to fundamentalist Christian. It also has areas devoted to health, relationships, inspiration and so on. It produces daily e-mail newsletters and offers a place where like-minded people can create communities. One of the most powerful such communities, for instance, was begun by a mother whose child died in his early 20s; she wanted to create a place where other parents who had suffered the same awful pain could find support and comfort. Beliefnet is an editorially rich site, with diverse voices, and a nice mix of high-brow thinking and low-brow entertainment. Advertisers have warmed to it. ”It is hard to be both ecumenical and ambitious and aggressive at the same time,” said Newsweek’s editor, Jon Meacham, who has a strong interest in religion and whose magazine once had a business relationship with beliefnet. ”Steve has succeeded in that.” Indeed he has. Mr. Waldman, a former magazine writer and editor, conceived beliefnet in the late 1990s, and has been its guiding light and editor ever since. In March 2002, he also became its chief executive. And in that latter fact lies the story I want to tell this morning. Born during the dot-com boom, beliefnet is a company that by all rights should have died with all the other failed ventures when the bubble burst. That it is still here — and is now thriving — has a lot to do with the fact that Mr. Waldman isn’t just a good editor. He has turned out to be an awfully good businessman as well. THOUGH I’m not a regular visitor to the site, I’ve been following the beliefnet story for years, largely because the company’s other co-founder, a consultant and a longtime magazine executive named Robert Nylen, is an old friend and colleague of mine. (I’ve also known Mr. Waldman for years, though not nearly as well.) Mr. Waldman had been working at U.S. News & World Report during the brief editorship of James Fallows. He had long had an interest in spirituality and religion and had noticed, both at U.S. News and at Newsweek, where he’d been a writer, that religion covers always did well. (”The old joke was that if you could put the Jesus diet on the cover, you’d have your best newsstand seller,” Mr. Meacham told me.) When Mr. Fallows was axed in 1998 by U.S. News’s owner, Mort Zuckerman, Mr. Waldman decided it was time to pursue his dream: a magazine about religion, which he planned to call Belief. But as he and Mr. Nylen, who was going to be the magazine’s publisher, made the rounds of venture capitalists, they heard the same refrain: ”If you ever decide to turn it into a Web site, give us a call.” Needless to say, they decided to turn it into a Web site. That decision gave them two things. The first was money; from the fall of 1999 to the spring of 2000, they raised $26 million. And, as Mr. Waldman soon realized, it also gave them more editorial flexibility than they would have had with a magazine. ”One of the iron laws of magazines is that you have to have a voice,” Mr. Waldman said. But beliefnet needed many different voices, which was much easier to do online. It could offer interactivity and community. And it could allow people to explore other faiths — or dig deep into their own religion. What that decision didn’t give them was a business model. It was not obvious back then that advertising was going to be the engine that drove Internet profits. So while beliefnet had ad-supported editorial content, it also had a Web hosting service, an e-commerce division and a number of other businesses. None of them generated much revenue, though the company’s backers didn’t seem to care. ”The V.C.s kept saying, ‘There’s a new paradigm,’ ” recalled Elizabeth Sams, beliefnet’s executive editor. The point, everyone believed, was to get big fast, to plant the flag as the dominant site in the category. You know the next part of the story, right? Boom turns to bust, and all the backers who didn’t care about revenue suddenly care about nothing but revenue. They stop handing over checks. Beliefnet goes through several rounds of painful belt-tightening. First go the free lunches and short-lived masseuse, the only two dot-com perks the company ever had. Then the layoffs begin. By March 2002, the company is bankrupt. There were those on the company’s board who wanted beliefnet to file for Chapter 7 bankruptcy — to liquidate, in other words. ”We were a bankrupt dot-com with content, which wasn’t cool, about spirituality, which was thought to be non-monetizeable,” said Mr. Waldman. But he was determined not to give up on his idea. ”It was six months after 9/11. I thought, ‘This is not a time for a multifaith religious Web site to go away.” During a contentious climactic board meeting, he argued that the site had one million unique visitors a month, and some steady advertisers, mainly in the dieting and dating category. The board finally agreed to let him take the company into Chapter 11 instead, where it would be protected from creditors while it reorganized, and would at least have a fighting chance. Here’s what Mr. Waldman did next. He laid off everybody except a core group of five people, including Ms. Sams, and he offered them the following deal. If they would work for minimum wage, he would give them equity in the company to make up for the huge cut in pay they were taking. (Once the company filed for bankruptcy, of course, the original backers lost all their equity.) They all agreed. As Mr. Waldman notes now: ”The people who were left were the ones who really wanted to be there and totally believed in it.” They then sold most of the company’s furniture, and even canceled its contract with its cleaning crew. The beliefnet executives cleaned the bathrooms themselves. Here’s a surprising truth: if Mr. Waldman had succeeded in his original desire to start a magazine, it would surely have gone bust. The fact that beliefnet was a Web site had a lot to do with why it stayed alive. The ”pay for performance” ad model, which largely doesn’t exist offline, meant that it didn’t matter to advertisers that beliefnet was in Chapter 11, or even whether it would stay in business: If they ran an ad and viewers clicked on it, that’s all they cared about. And the site never went dark, not for a day. There was one venture capitalist, John C. McIlwraith of the Blue Chip Venture Company, who also still believed. Though his firm had lost $5 million on beliefnet during the bubble, he put in another $250,000 at a time when the company desperately needed the money. By the time Beliefnet emerged from bankruptcy six months later, cash flow was positive and growing. And Mr. Waldman and his small staff had learned an enormous amount about their business. ”It was in that period that we realized that vitamin ads did well for us, and we realized that health is a big category for us,” he said. So he began doing more health coverage, and soliciting more health-oriented ads. Ms. Sams recalls the period after bankruptcy as a time when ”we had the luxury of limited choices.” What she means is that with money tight, the company had to focus its efforts on what made the most sense; it could no longer throw business models against the wall to see what would work. In the subsequent four years, beliefnet’s revenue has grown by at least 50 percent annually. Last year, it had $12.6 million in revenue. Its advertisers include giants like Pfizer, Eli Lilly and Disney. And in 2005, it could finally breathe a little: Softbank made a $6.5 million investment. (Softbank and Blue Chip Venture together own a little more than 40 percent of the company; Mr. Waldman and the employees own the rest.) Mr. Waldman did not use the money to get fancier offices. He used it to upgrade the company’s technology. Someday, beliefnet will probably be sold to a larger company; as Mr. Waldman concedes, Softbank is going to want to cash in with ”a liquidity event.” He told me he was fine with that, and why wouldn’t he be? If beliefnet were sold tomorrow, my guess is that it would get somewhere in the range of $100 million. At which point, Mr. Waldman will probably give up the title of chief executive and go back to being a full-time editor. Which is a shame, in a way. Mr. Nylen, who remains on the beliefnet board, said one thing that most impressed him about Mr. Waldman was his calm nerve. ”He’s a skinny, frail-looking intellectual who turns out have a steel heart and gut. He’s the best entrepreneur I know.” Ms. Sams described him as ”a very understated leader; he’s not a rah-rah cheerleader.” But, she added, his passion is palpable, and in both good times and bad, he never lost sight of his mission. As I was preparing to leave his office, Mr. Waldman took me down a flight of stairs and into a conference room, where he showed me some hideous orange chairs. ”We had these chairs in the old days,” he said with a wry smile. ”They’re so ugly that when we were selling the furniture nobody would buy them. We kept them and they became an emblem. They remind us to remain humble.” Everyone should have a boss like that.

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