Slapped Down by September 11

Net startup Slam Dunk lost two employees in New York. Now, CEO Bob Miller will need all his hard-earned savvy -- and more -- to succeed

By Ben Elgin

No matter how battle-tested, Bob Miller couldn't have braced his company for its worst nightmare. On September 11, the chief executive of Internet startup Slam Dunk Networks was slated to moderate a 10:30 a.m. panel at a high-tech conference on the 106th floor of the World Trade Center's North Tower. But instead of grabbing breakfast at Windows on the World, or mingling with the show's early arrivals, Miller headed three blocks away for breakfast with a couple of colleagues.

They were sipping coffee when the first plane hit just a few floors below the conference, sealing off the North Tower's uppermost floors from escape and sending a flurry of office paper fluttering by Miller's restaurant window blocks away. Two of Slam Dunk's 110 employees, Melissa Harrington Hughes and Scott O'Brien, were trapped inside the burning building and are now among the missing and presumed dead.

It has been one of the most heart-wrenching management challenges in the 58-year-old Miller's career. After spending a week trying to help find his missing employees, Miller returned to Slam Dunk's Redwood City (Calif.) headquarters to bring the shell-shocked staff together. Though over 2,000 miles away from Ground Zero, the small, two-and-a-half-year-old startup had just lost two of its family.


  A solemn Miller brought in grief counselors and encouraged employees to air out their anguish. Yet, he also nudged the company forward. The fledgling Slam Dunk Networks, which provides a secure network for sensitive online business transactions, is still in its infancy and cannot survive a prolonged downturn. "We're doing all we can to understand and manage the grieving process, and give the company something positive to work toward," says Miller.

It's one challenge that Miller never anticipated when he set out to launch Slam Dunk into one of the rare Internet success stories. After spending 15 years at IBM and putting in stints as chief operating officer of computer maker Data General and CEO of chipmaker MIPS Computer, Miller was soaking in the Internet business possibilities for much of the late 1990s.

The idea for Slam Dunk began to form in early 1998, and it was reinforced as Miller was sitting on the advisory board of Tripath, a small electronic-parts maker that wanted to become a supplier to Cisco. To do so, Cisco told Tripath it would have to get onto the hardware giant's private network, including a secure connection. Miller figured this could cost the company over $1 million in hardware and software.


  There had to be a cheaper, easier way to do this, he thought. "The typical company can connect [electronically] to only 10% to 15% of its partners," says Miller. "This got me thinking about doing this over the Internet. You could set up trading partners in hours or days, rather than months."

In early 1999, Miller pitched his idea over breakfast to pal John Mathon, founder of e-business software maker TIBCO Software. After chewing over the logistics, the duo decided to try building a bulletproof system that delivers crucial transactions over the Internet for companies like banks, brokerages, and online marketplaces.

Instead of shelling out tens of thousands of dollars to lease a private line from a telecom to conduct these transactions, Slam Dunk would use the Internet to send the transactions, with its own proprietary technology to secure and deliver the data. For instance, a computer maker could order 1,000 new cases from a supplier over this system. Slam Dunk then layers on its own services, giving real-time fulfillment updates to the computer maker, as well as keeping records of and verifying the transactions.


  The end result, claims Miller & Co.: Slam Dunk can send speedier mission-critical data for businesses, at a fraction of the cost of privately constructed networks. The company estimates that customers spend from 8 cents to 32 cents to send a kilobyte of data over leased lines, vs. a penny for Slam Dunk's Internet-based system. Better yet, Slam Dunk's system supports a more fluid business landscape, where suppliers and partners can come and go without worrying about hefty set-up fees to get connected.

So confident was Miller in the company's chances for success, the old Bucknell University jock dubbed the company Slam Dunk. "American Express is a global company. It makes sense to use the Internet to replace things like costly leased lines," says Doug Lavin, vice-president of American Express' portfolio management group, which has invested in Slam Dunk and is testing its technologies for internal use.

Most of startup's early success should be credited to Miller first, the business model second. Over the last 30 years, the Long Island (N.Y.) native stockpiled a meaty Rolodex. In fact, he helped hatch the fledgling careers of future tech stars such as Edward Zander, now president of Sun Microsystems; Stratton Sclavos, CEO of Verisign; John Hennessey, president of Stanford University; and Ellen Hancock, former CEO of Exodus Communications.


  So, when Miller got the bug to launch his new high-tech startup in early 1999, he tapped his network of contacts throughout techdom. Within two years, Slam Dunk had pulled in funding of $75 million, as well as key partnerships with American Express, Cisco Systems, SAP, and Verisign, among others. The reason? Miller's reputation as both a technologist and no-nonsense businessman has won him many admirers over the years.

"Bob understood that introducing new technology takes as much evangelism as engineering," says Verisign's Sclavos, who cut his teeth as a marketing manager under Miller at MIPS in the late 1980s. "We get 100 or 200 [partnership] requests like this a month, but when Bob calls, you have to drop everything and check it out."

No question, Miller knows how to foster loyalty. A dozen years ago, he took his wife on a month-long, lavish cruise around the coasts of China. Thoroughly pleased with the crew's performance, Miller found out the next time the ship would dock in the Bay Area. When it did nearly a year later, he sent a couple of stretch limousines to whisk up startled crew members and deliver them to a surprise party at his sprawling home in Woodside, Calif. "It was typical Bob," says Joe DiNucci, an executive under Miller at MIPS Computer during the early 1990s. "He attracts people because of his focus on people."


  Even so, Slam Dunk has been anything but. Startups, by nature, have a difficult time convincing established companies to let them handle major computing tasks. After all, big businesses are wary of betting their most sensitive electronic transactions on an unproven company or technology. "The viability of the [startup] is a huge risk for customers that will become dependant on the service," says Tim Lind, a senior analyst with researcher Tower Group, who nonetheless says Slam Dunk is going after a real point of pain in transaction processing.

Moreover, the Internet bubble popped just as Slam Dunk was getting on its feet. And the ensuing turmoil has thrown a monkey wrench into Slam Dunk's target markets. For instance, the company originally viewed the explosion of business-to-business online marketplaces as a promising client base. After all, these disparate companies would need to be connected quickly and cheaply for these exchanges to work. But with dollars for Internet projects increasingly tight, many of these marketplaces fizzled before seeing daylight.

In turn, Slam Dunk has shifted its focus toward financial institutions, which are constantly sending sensitive information electronically between myriad customers and partners. "It makes sense. They're going where the most transactions are," says Shanda Bahles, a general partner with Slam-Dunk investor El Dorado Ventures.

Even with the human tragedy at Slam Dunk, Miller is as confident as ever in his company's outlook. "[Today's] market isn't the perfect storm," says Miller. "I've seen it where things are much worse." And even if things do get much worse, Miller may be just the guy to navigate the difficult terrain.

Elgin covers the Internet from San Mateo, Calif.

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