A brief conversation at a college reunion united two former classmates as partners. Too bad it was so easy

When Jim Heard and Gregg Trueman ran into each other at a Princeton reunion in the spring of 1993, they were delighted to renew their acquaintance. Trueman owned a successful Web-design business that helped companies convert text-heavy pages into inviting interactive sites, and Heard had run a fledgling educational-software-design firm. Heard passionately argued that they couldn't go wrong by working together. With Heard's M.B.A., Trueman's established company, and their combined creativity and energy, they were sure to go far. They parted with plans to meet again soon, after Heard wrapped up some unfinished business.

A series of meetings followed, along with some joint "testing the waters" sales calls. Heard was nothing short of magnificent as a salesman. "I thought he had a wonderful ability to talk like a CEO to CEOs," Trueman recalls of the polished Heard, who has two master's degrees, in English and American studies, from Yale, and an M.B.A. from Wharton, besides his Princeton undergraduate degree.

Within a year of the reunion, the two men had hooked up as equal partners in Trueman's small company and set out to provide Internet services to large corporations. Business took off quickly, with revenues soaring from $550,000 in 1994 to $5 million two years later. But the classmates' collaboration would not end well. Indeed, the history of their company is a tale of what can happen when bright, talented people plunge into a joint venture without really knowing one another or thinking through vital matters of ownership, control, and dispute resolution. It is equally a cautionary tale for anyone starting a business in the dynamic world of the Internet and related information technologies. In the new economy, as Heard and Trueman learned to their regret, it's never been easier to start a company--and it's never been easier to screw one up.

A Wonderful Spirit
On June 8, 1994, Heard joined Trueman's digital-design company, Neographic, which was based in New York City and employed about a dozen people. Heard was 39, Trueman 38. For $100 Heard got 50% of the shares, with Trueman retaining the rest. Revenues at first came entirely from Neographic's small, established customer base. Heard took the title of CEO, and Trueman became president.

Neither Trueman nor Heard anticipated that joint ownership would cause problems; each thought he knew the other well enough--professionally and personally--to trust him with half of the potential fortune. Trueman's attorney looked over the partnership agreement on behalf of both men, but no serious legal, accounting, or other consulting advice played a role in the initial setup. At the time all that formality seemed unnecessary to them.

It was a heady time: a great wave in the computer movement, powered by the emergence of CD-ROMs in 1994 and the Internet in 1995, was sweeping the business world. The partners, already moving aggressively on Internet projects in 1994, were poised to cash in on the boom. Heard snagged customers who wanted their dull Web sites spruced up, and Trueman worked his magic to make the sites sparkle. One selling point was Trueman's twist on the conventional evolution of Web technology. Instead of waiting for innovations to come along and then adapting them to the needs of end users, Trueman thought he could anticipate consumer needs and design technical solutions that would be ready when customers realized what they wanted. For instance, Trueman early on was developing ways to incorporate electronic commerce into Web sites while naysayers were predicting that Web sites would remain unprofitable for years.

Heard and Trueman knew they made a good team, but they also recognized the importance of adding intellectual weight to the company's ranks. So they quickly built up a team of stars to fill programming, marketing, and other needs. To lure the best talent, they offered top employees an unusual degree of power and autonomy to develop and run projects and also promised them company stock. The partners' first executive hire was Brad Justus, an honors graduate of Amherst College and an advertising-executive-turned-computer-whiz. In eight years at a blue-chip advertising agency, Young & Rubicam, Justus had risen from copywriter to senior writer. Operating on his own for several years as a marketing consultant, he signed up corporate clients like Chase Manhattan and Random House. Then the bright promise of the then-emerging interactive computer technology captivated him, and he veered away from advertising, reinventing himself as a CD-ROM programmer. Justus would be one of a handful of employees given responsibility and creative freedom, an important consideration in getting talented people to work for a small company like Neographic.

Another hire lured to Neographic was Mitch Golden, then 35, an amiable physicist with degrees from Princeton and the University of California at Berkeley. He had watched from the sidelines as a teenager when the personal-computer industry exploded in the late 1970s. He had even joined with two friends in the mid-1980s to produce Eat New York, an interactive floppy-disk guide to New York restaurants. Golden's focus, however, was on an academic career, and he had landed at Harvard as a nontenured professor, a specialist in particle physics. All the while he was honing his Internet skills. (He had E-mail capability as far back as 1976 and created an early Web site, one for the Harvard physics department.) But when a federal project he was working on was scrapped, in 1993, Golden shifted his interest to the high-tech business world. "I remember feeling, 'Do it!' " Golden recalls. He came to New York to become Neographic's director of technology and head programmer.

A third hire, Pall Walton, then 39, had a master's in creative writing and credentials as a seasoned manager and digital designer and animator. He had made something of a name for himself as a freelance production manager of broadcast commercials--one radio spot he did for the Bose radio is still in use. Walton freelanced for Neographic in mid-1995 and then came on staff in August as head of production for a breakthrough deal with AT&T that was just getting under way.

"We were immediately successful," Heard recalls. Golden agrees, relating how Heard, Trueman, and Justus pulled off the AT&T coup: "Today three guys can't just walk into AT&T and say, 'We want to do your Web site.' But in 1995 you could." The telephone company had skipped over much larger agencies and asked the tiny firm to represent it in the new medium of interactive services. The Neographic team was ambitious: it had prepared a slide show--presented to AT&T's senior ranks--that showed how to draw the public to the Internet by giving AT&T's Internet service provider, WorldNet, a user-friendly, jazzy interface. Thus Neographic recast a small, floundering internal AT&T project as an innovative operation of unlimited potential, and today WorldNet is one of the world's largest Internet service providers. Snagging this prize, work worth $1.2 million in revenues the first year, elevated Neographic to a dramatically higher plane.

The prospect of an AT&T alliance had spurred Heard and Trueman to hire the technically sophisticated Golden in the first place. With the contract in hand, they signed on Walton and began to look at their future in a wholly different light. "It really launched us into ascendancy as a big firm," says Justus.

As Neographic grew, so did its space needs. It moved in the spring of 1995 from shared Manhattan offices to its own quarters on 19th Street between Fifth and Sixth Avenues, in the heart of the city's Silicon Alley. "There was a wonderful spirit," says Trueman. "The firm was doubling every quarter," says Heard. "Things were moving incredibly rapidly, and we were highly profitable." Besides AT&T, other big customers included Reuters and Dow Jones.

As the Internet companies Netscape and Yahoo! took off in 1996, Neographic's crew thought, "Why not us?" Trueman busied himself with project development and customer relationships while Heard was out recruiting customers and hatching proprietary schemes, such as an on-line stock brokerage, that could take the company to the next level. His brainstorm--fairly novel at the time, now commonplace--was to create an arm of the company that would execute trades for a discounted fee. "If you had 10,000 customers, you would break even," says Heard. "If you had 11,000 customers, you were making money hand over fist."

Heard's vision was as imaginative as it was grand. He wanted Neographic to succeed not by dominating a niche but by running numerous projects of radically different stripes, projects managed by what Heard describes as semiautonomous teams compensated according to performance.

The open-ended model, if not the strategy, was clear enough: Neographic could become the next Microsoft.

Friction Between the Partners
Despite Neographic's burgeoning customer list, the kind of success Heard envisioned did not require immediate expansion. It required, he believed, a great team with lots of autonomy. "This is a business where you can operate a world-scale commerce venture with 12 people," he says. "And the less oversight they have by someone who has some part-time authority over them, the better they will operate."

For a while, that model served the company well. Before long, however, there was friction between Heard and Trueman. As Trueman, a lanky aesthete with an interest in 19th-century literature and a passion for playing competitive team sports, became more closely acquainted with Heard, he found himself reevaluating his partner. Heard certainly fit the stereotype of an eccentric genius, sometimes inspirational, sometimes scary. "He is just this roaring lion," says Trueman, who, at six feet four inches, towered over Heard physically but not in presence. "He could be incredibly sweet and compassionate, and then he could be a raging maniac."

For his part, Heard was becoming increasingly frustrated by what he perceived to be the growing cliquishness in the production teams, whose primary relationships were with hands-on executives like Walton, Justus, and Golden, but whose distance from the partners, he felt, undermined his management control. He began to think about bringing in outside financial people who could set and enforce standards. Like many moneymaking upstarts in the early days of the Internet, the company was basically a seat-of-the-pants operation with little structure or cost accountability. Both partners recognized those deficiencies as problems. The company had a more worrisome flaw, however, in having equal partners whose visions for their company were diverging.

Yet Heard and Trueman still saw eye to eye on some key aspects of the business. Besides an urgent need for a controller, the partners agreed, Neographic required growth capital. Also, Trueman secretly hoped that outside investors might rein in his temperamental partner. So he was especially relieved when, in July 1996, Heard himself volunteered a candidate for financial big brother. The choice was a longtime family friend, Ken Gibbs, who had been a high school classmate of Heard's wife. The two families had grown close over the years. Together they owned a summer house on Cape Cod. Gibbs, a smart ("cocky" in Trueman's estimation) investment banker involved largely with municipal finance, had worked on some huge projects, including the new Denver airport. His rÉsumÉ was impeccable: he had held positions at First Boston and Lazard FrÈres before joining First Albany as a senior vice-president and director of municipal finance. A small, well-regarded investment bank headquartered in the New York State capital, First Albany was well known for its work in municipal bonds.

Trueman, Heard, and First Albany agreed that the investment bankers would try to raise money in a private placement while acting as Neographic's financial adviser--a dual role that is not uncommon in the industry. It was agreed, says Heard, that if First Albany brought in $1 million, it would get 5% of the company, plus an equal partnership in the on-line brokerage that Neographic was developing. For starters, First Albany lent Neographic $100,000 to fuel its growth. Lawyers were consulted here and there, but neither Trueman nor Heard sought advice from qualified outsiders before the bankers came on board. And neither partner seemed to realize what a critical--and ultimately, fateful--omission that would be.

Heard Cut Off
Before looking for new financing, First Albany urged the writing of a business plan as a top priority. Heard, as the company's evangelist, seemed the ideal author. In a companywide contest in October 1996, Heard's choice for a new company name--the Buoyant Co.--prevailed: he wanted something, as he put it, "life loving" and "energetic," that suggested the outfit was "not a priesthood of technologists."

Soon, however, it became apparent that the basic building blocks of a business plan--including a shared sense of mission and fundamental agreement on the company's worth--were glaringly absent. Heard had expected that Gibbs would endorse his dream of diversification and proprietary-project development. Instead, Gibbs and First Albany, according to Heard, began to see the company's future in the way that Trueman and many of Buoyant's key executives, including Golden, Justus, and Walton, did. They defined its mission, Heard recalls, as providing steady, predictable Web services to their customers. (Trueman disputes this view.)

First Albany began wrestling with a valuation of the company--a key step in preparation for raising capital. Heard thought the company was potentially worth $100 million, but he considered $40 million an acceptable floor. First Albany priced the company at $10 million.

Heard was livid. "I have an M.B.A. from Wharton," he says, "and if there's anything you learn at Wharton, it's how to value a company." Heard, who says that First Albany neither presented Buoyant with a single outside investor nor provided justification for its value projections, began to feel that First Albany was looking to undervalue the company with an eye to purchasing chunks for itself--at a bargain price. Frustrated by First Albany's valuation and by his own disagreement with his colleagues over Buoyant's direction, Heard never completed a business plan. First Albany denies intending to lowball the valuation and says it did not succeed in finding outside investors because Heard failed to finish a business plan.

As time marched on and internal tensions mounted, Heard began to feel cut off from the decision making in his own company. To alleviate a space shortage, he had moved in September 1996 to a satellite office 13 blocks away from the Buoyant headquarters, unwittingly compounding his isolation. When First Albany offered to invest $1 million, some of which would help to launch Buoyant's Internet brokerage, Heard felt peripheral to the discussions with the bankers. Gibbs insists that Heard "ultimately became uncomfortable with the idea in the form that it was. But there was a part of the company that wanted to continue [working on the joint venture], and we were trying to figure out if that was really possible." Heard emphatically denies having lost faith in the project. "I was simply locked out," he says.

Other executives, including Justus, Golden, and Walton, were growing increasingly frustrated with the dysfunctional setup. A Rubicon was crossed, Heard says, when a Buoyant executive working on the brokerage project asked him for help in refining a proposal for it. Heard went in on a Saturday to do so, only to find himself later excluded from the final deliberations about the on-line brokerage's business plan. First Albany, he says, "refused to show me the business plan for the project that I had initiated."

Signs of Mutiny
By late fall the partners were barely speaking to each other, the bankers were alienated from Heard, and the whole operation was paralyzed by antagonism. It was all hands against Cap'n Heard, he realized, when Gibbs related some unflattering remarks that had been made by staffers. "Frankly," Heard says Gibbs told him, "I've been told that you have to be managed out of the way." As the extent of the turmoil became apparent to Heard, he grew frantic. Around Thanksgiving, there was a meeting at First Albany's offices to review financial controls and practices at Buoyant. In Heard's view it had a maddening purpose: adopting new rules to prevent him from spending money without approval from a management committee.

When Gibbs and the Buoyant executives at the meeting approved a crackdown, Heard flew into a rage. The next day, Heard told Gibbs and First Albany they were fired--effective immediately. Gibbs shot back that he would have to consult Buoyant's executive committee. What executive committee? Heard demanded to know. He informed Gibbs that the company's charter did not provide for one. Despite Heard's protests, the committee--a longtime, informal, working group of company executives, including Trueman, Golden, and Justus, met with Gibbs. (Walton was part of the committee but wasn't at the meeting.)

Even Trueman felt threatened by the rumblings below deck. The discord seemed to Heard and him to be a full-fledged staff mutiny led by Justus, Golden, and Walton. Justus, the company's executive vice-president, was ambassador to several of its largest customers. Golden, the chief of technology, supervised Buoyant's crucial programming work. Walton headed up production. They had close links to workers and key customers. They also had compensation packages tied in part to the company's success.

"Seemingly, they were aligned with me to get Heard out," recalls Trueman, "but what really came out was that they were their own party--they didn't need me, and they didn't want him....They said, 'We control the clients, we control the key relationships, we control the workers, we have the real power in this company.' " The three men told Trueman that they were supported by 50 to 60 other staffers. (The company had grown steadily as work for such large corporate customers as Dow Jones, Mercedes-Benz, and Simon & Schuster poured in.) Trueman didn't want to test the claim. With Heard's support, he reasoned, he might have fired the three executives; but without a united front with Heard, he believed his choices were limited. For one thing, Justus, Golden, and Walton were not just executives--they were on the verge of becoming pivotal stockholders by virtue of the varying amounts of company stock promised to them as an employment inducement. Also, Walton was the executive who worked most closely with people on the floor, and he was extremely well liked. Trueman feared that if he had a showdown with the mutinous executives, most of the staff might jump ship. Without a workforce, there would be no company at all. Justus, Golden, and Walton, recounts Trueman, told him that " 'we will go on together as a company, but you will have a limited role.' I accepted their offer, tried to negotiate a little bit, but they had no intention of staying." Trueman, finally, threw in his lot with the managers, but he says he did so reluctantly. The three executives remained on board.

Justus, Walton, and Golden, as well as First Albany, declined to provide a detailed account of their roles in the maelstrom, citing past litigation among the participants. But they insist any action they took was in the interests of the company. "We were the guys who were caught in the middle," explains Justus. "What do you do when a company can't make decisions?" "I loved working at Buoyant," says Golden.

Getting Really Ugly
Ultimately, Heard acknowledged to himself, he could not save his company. "When things got really ugly, my first instinct was to preserve the value of the firm and get out of there," he recalls. He told himself, "Take some cash, go on, you can go someplace else."

In negotiations that lasted for two months, beginning in early December 1996, Heard and Trueman hammered out a number of agreements specifying how one or the other would buy his partner out. Nothing came of them. In fact, Trueman's mistrust of Heard had deepened when he'd discovered that Heard had been in personal bankruptcy during the formative stages of their partnership.

Trueman felt that Heard had withheld that critical piece of biographical information from him at a time when he had an overriding right to know it. Heard insists that his bankruptcy, triggered by a former client's long-delinquent bill, was irrelevant to his partnership with Heard. Whether that was right or wrong, Trueman grew only more disaffected with Heard.

On December 2, 1996, Trueman and Justus signed a letter declaring their satisfaction with First Albany and formally rescinding Heard's termination of the bank. And the stinger: "We are committed to promptly removing him [Heard] as an employee of the company...." At the bottom of the letter, they indicated that they were sending a copy to Heard and his lawyer. Yet Heard says neither he nor his lawyer received it, and he claims that he was deliberately kept in the dark. Justus and Trueman say they can't explain what happened.

Any brief good cheer that the holidays brought evaporated after New Year's Day. On January 2, 1997, from his perch 13 blocks uptown, Heard, deadlocked with Trueman and isolated from the staff, fired off a number of letters to employees, seemingly a last-ditch effort both to reassert control and to release his anger. In one letter Heard ordered Justus not to discuss Buoyant with investors or investment bankers and not to go to customer meetings unaccompanied by Heard. Justus was to clear all outside correspondence with both partners and cease doing any business until he had provided Heard with a complete report on his activities. Heard also told Justus to E-mail to both partners a daily log of his activities. Heard's lawyer followed up with a letter threatening to sue Trueman, Gibbs, and Justus. The company's value, the letter charged, had plummeted "from at least $40 million to approximately $4 million, suffered a decline in annual growth from 300% to minus 50%, and [had] no apparent prospect of recovery."

As the infighting threatened the company's business relationships and hurt cash flow, Trueman went to court to request that Heard be barred from conducting the company's affairs. The court ruled that neither partner could make any decisions without the other, producing the final and fatal deadlock. During a spurt of open warfare, as Heard recounts the events in court documents, his E-mail access was cut off and his telephone messages were hidden or suppressed. Golden acknowledges that Heard's E-mail password was temporarily changed to prevent him from sending inflammatory messages to employees. Meanwhile, Heard admits that he visited the offices after hours and broke the locks on company filing cabinets--where he found some of the correspondence between his colleagues and First Albany that he says he hadn't seen before.

One charge swirling around Heard concerned his mental state at the time. Heard explains, "I do not know what they said to employees, but employees were given the impression that somehow I had gone off the deep end." In fact, according to former Buoyant employees, Heard's volatile personality was the subject of frequent discussion in the office.

Even in the atmosphere of mistrust and foreboding, the suddenness of the company's demise was stunning. On a cold February morning Heard walked into the office and announced there was no money to meet payroll. Besides being out their pay, several staffers found themselves without the promised equity they'd been anticipating. Stock was never issued, though the papers had been drawn up and were awaiting signatures. "At the moment that Buoyant when under, I owned an eighth of the company," says Golden.

The staff scattered to other employers. Walton, Justus, Golden, and 10 colleagues decamped to a Manhattan new-media rival, Spiral Media, run by a friend of Justus's. Spiral was tiny compared with Buoyant. After the migration it grew rapidly by adding several former Buoyant clients, including Reuters and Viacom, as customers and by considerably expanding the business it had with AT&T. "That place is Buoyant, as near as I can tell," says Trueman, noting that the nucleus of the creative team moved over to Spiral.

But Heard wasn't going down without a last stand. Six months after the employees walked out the door, he filed a lawsuit in federal court against his former executives and Spiral Media, alleging that the executives participated in an "illegal effort to seize control" of Buoyant and, having failed, that they took customers and intellectual property elsewhere. The settlement involved a complex, Solomonic distribution of the company's software and other assets. Heard settled for a token $22,000. First Albany forgave its $100,000 loan in return for some intellectual property and the right to hire some of Buoyant's staff.

The Buoyant experience did not live up to the promise of the company's euphoric name. But it does prompt reflection on what might have been. "There was a tremendous amount of talent there," says First Albany's Gibbs. "Jim is a very bright, forward-thinking guy. They were in a field that when we first got involved looked very hot. And you know, it is very sad that ultimately they couldn't come to a common vision and that they had to go their separate ways and on such bitter terms."

For Trueman his separate way is launching a new strategic on-line development group, Netmethod. And for Heard it is trying to revive Buoyant with a new crew, including replacing himself as CEO while he launches a new on-line retail company, Present Co. In his new venture Trueman has a partner; Heard does not. This time neither Trueman nor Heard is embarking on a 50-50 partnership--not with anyone.

Russ Baker is a freelance writer based in New York City.