The Problem

In early 2007, Panos Bethanis gathered a group of current and former colleagues to discuss a crazy idea. Two years earlier, he had sold his online local business directory company, DirectoryM, to a pair of venture capital firms. Now, he wanted to buy it back. Though Bethanis still had a seat on the board and owned a 3 percent stake, he had been removed as CEO and was forced to watch from the sidelines as the company struggled. He thought he could do better. In the meantime, he had started a new Web company that combined business directories with related news and feature stories. Bethanis's strategy was to merge the two companies, but DirectoryM's $6 million price tag was a stretch. He was able to raise $1.5 million, but to close the deal, Bethanis was forced to take on $4.5 million in outstanding liabilities.

What the Experts Said

Bill Gossman, CEO of Revenue Science in Bellevue, Washington, doubted that DirectoryM could ever be more than a small player with questionable long-term value. Mark Comiso, co-founder of Compelling Capital Solutions in Sunnyvale, California, thought the $1.5 million could have been better used to expand Bethanis's second business but added that the combined business had since "set the standard for relevant content matched with advertising." Eric Siegel, founder of Bryn Mawr, Pennsylvania-based Siegel Management, felt that Bethanis's team should have launched an entirely new company to avoid debt and diluted stakes in the company.

What's Happened Since

On December 31, 2008, less than two years after Bethanis and his employees went deep in the hole to buy DirectoryM back, the company officially became debt free. It wasn't always easy: The company's 11 most senior employees, including Bethanis, went without pay for several months in 2008. But after the financial crisis hit last September, Bethanis took advantage of the panic among his creditors by negotiating down what was left of the debt -- about $1.5 million -- by two-thirds. DirectoryM now boasts partnerships with 500 content partners, which helped it reach its 2008 revenue goal of $4 million and open five international offices. The company has also added 75 employees, including 42 overseas.

What's Next

Bethanis says a long-term goal is to transform the webpages DirectoryM creates "into communities and steal away some of the users from social networking websites." More immediately, Bethanis expects DirectoryM to hit $12 million in revenue in 2009, with 35 percent net profit margins.