Wednesday, May 2, 2001

Lukacovic's challenge Maverick Seznam founder abandons salary in effort to lead charge back to Internet profitability By Lisa Gonderinger A Doonesbury comic strip is tacked to the wall just inside the door of Seznam's Prague 5 headquarters. In it, the owners of a dot-com talk about how they've already run out of money, how they don't know where they're going to get more and how that's OK for now, because all the employees are working for stock options anyway. "Do you know what stock options are?" the character Mike asks his daughter and business partner, Alex. "Sure," she says, as he winks. "They're lottery tickets, right?" The cartoon is at the center of a chaotic patchwork of Czech and English newspaper clippings that chronicle recent casualties of the bursting dot-com bubble. For Seznam founder Ivo Lukacovic, the bulletin board has many purposes. It helps him focus on the bottom line and reminds employees that mere survival is an accomplishment. But most of all, it gives him a chance to gloat. "We are laughing at all these stories," Lukacovic said. "These companies are spending, spending, spending. Our employees know that we started this company with 50,000 Kc [$1,300], that we do not spend money we don't have." Lukacovic's laughter isn't as carefree these days. Seznam, the first Czech Internet portal and a market leader, is now struggling to stay profitable. The 40-employee firm has been able to cover costs with revenues since Lukacovic started it while still a student in 1996. Of those days, he says, "I didn't know what a business plan or an invoice was." As recently as 1999, Seznam was posting an annual profit of 2.2 million Kc. But recent investments in television ads and new technology pushed the company into the red, a place Lukacovic doesn't like to be. So the 27-year-old has pledged to give up his salary and management bonuses until Seznam returns to profitability. He hopes to resume taking a paycheck by year's end. Savvy PR? The gesture, Lukacovic said, is intended to send a message to employees that they're all in the same boat and that he feels responsible for the company. It's also a challenge. "Everyone knows how to spend money," he said. "But figuring out how to earn money, then the fun begins." As inspiration, he cites former Chrysler guru Lee Iacocca, who took a nominal annual salary of $1 while helping to turn around the U.S. automaker. Some question Lukacovic's nobility. "It's just a PR play, nothing else," laughs Pavel Sodomka, a founding partner and business strategy director at rival Web portal Atlas.cz. On a more serious note, he says he wishes Lukacovic wasn't drawing so much attention to Seznam's woes. "The Czech Internet world is not in as much trouble as the Americans or the world market, and this makes it seem like it is," he said. Still, Atlas poked fun. It created a "Save Ivo Lukacovic Fund" on its site, complete with a fake bank-account number for concerned techies who wanted to donate. Lukacovic, who is often referred to as the Czech Bill Gates, won't say how much he's giving up, but claims he earns "an average Czech manager's salary." While two other successful Internet portals have taken root here, Atlas and NetCentrum, the boyish Lukacovic often stands out as a symbol of the country's fledgling entrepreneurial spirit -- a little slice of Gen-X, dot-com, Silicon Valley in old-world Prague. Sodomka guesses that Lukacovic stands out because he runs his company alone. Atlas and NetCentrum have several founding partners. Lukacovic is also outspoken. When most of the local high-tech community lamented the loss of one of their own, Globopolis, earlier this year, Lukacovic recalled warning its American expat founders. "I asked them, 'But where will your profits come from?' And they looked at me like I was an idiot for suggesting such things," he said at the time. "I'm not surprised." In a recent interview, when asked about Lycos Europe, which owns a 30 percent stake in Seznam, he told The Prague Post, "I know there will be a day when Lycos Europe will be sold to some telecommunications company for just a small, small amount. Or I expect to buy my share back in bankruptcy court." When asked why: "If you ask someone when they will earn money, and they start talking about things like synergistic effects and strategy, such bullshit, you know they will never make a profit." Of Spray Ventures, a struggling Swedish holding company that originally owned the 30 percent Seznam share and had grand visions of a Europe-wide high-tech network, he says: "One loser company, Spray, decided to be sold to another loser company, Lycos." Ivo Lukacovic Age: 27 Education: Computer science at Czech Technical University; dropped out at 23 to start Seznam. On the startup: "I was designing Web sites for myself and my friends, and I was very proud of them and wanted to register them someplace. I realized there was no place to do this. So I made one." On returning to profitability: "Stop focusing only on the number of users and focus on finding new streams of revenue. Make sure your 'new economy' business is securely tied to the old economy." Though Lukacovic won't discuss details, its no secret that Seznam has made him rich. In addition to the 30 percent stake he sold, he owns, as a personal asset, a division Seznam launched in Slovakia and later wanted to unload. But Seznam's earnings, he insists, are just icing on the cake. When he started, "I didn't know what an exit plan was, I didn't know that a company could be sold." He taught himself the business by studying biographies and stories about successful international businesspeople. "I created Seznam to be an entrepreneur, to run the company," he said. Both Spray and Lycos repeatedly offered to buy his 70 percent stake, he said, offering him "tens of millions of dollars in cash." "I was kind of dreaming and said, OK, I can buy a big jet, I can buy this and this, a big yacht," he said. "But then the company would be owned by someone else, and its new owner could fire me, they could change the brand, they could change the vision, and I would lose my mission of life. "So I said, boys, I'm very sorry, but I'll keep my 70 percent stake." Lukacovic said that he may sell his "baby," his "toy," one day, although it's not a goal. He admits the challenge of expanding Seznam may eventually level off. "It might become just a money-making machine, an elephant, and in this state, I might lose my motivation," he said. For now, however, Lukacovic feels responsible for supporting his management team. He spends his days browsing the Internet, studying the competition, having lunch with local industry people "and trying to convince them to work in my company." Five-day weeks are rare and vacations common. In early May, he leaves for a three-week backpacking trip to China. "If you run a company, your job should be three things: ask questions, make decisions and hire good people," he said. The significance of Lukacovic's success, at least in part, is that he accomplished it in a small, obscure country without a long entrepreneurial tradition. He recalls signing the original deal with Spray, then traveling to the company's offices "and realizing he had made a terrible mistake, but a deal is a deal." Before any cash changed hands, Internet stocks around the world plunged. Spray abandoned plans for an initial public offering, and "they thought, 'Why should we pay some stupid little company in Eastern Europe?'" Lukacovic said. He threatened already-troubled Spray with an arbitration proceeding; they eventually backed off and paid him. "In Western Europe," he smiles, "they don't think that you in Eastern Europe will be very clever." Lisa Gonderinger's e-mail address is lgonderinger@praguepost.cz More business stories Scrounging for change? Try dialing Coca-Cola leads mobile technology charge Gandalf gives up in Prague Italian airline cancels route less than two years after launching Major banks making turn into black Government bailouts, increasing foreign investment credited Movers & Shakers KPMG gets new auditing partner Spaces & Places Spaceship Stara Celnice E-world Fighting cybercrime Czech, U.S. officials coordinate to battle hackers Browsing for the right browser? Kal's Korner