WE'D BEEN SUMMONED to the office on Sunday for an emergency meeting: Our third-quarter numbers were going to fall short of analysts' expectations. Way short. We were a classic story stock, and up until then our story had been gold, from our boy-wonder founder and CEO to our proprietary technology to the multibillion-dollar markets we were targeting. We had Fortune 100 partners and Nobel laureates on our board. Investors had responded by making the company one of the most highly capitalized start-ups the Nasdaq had ever seen. Yet a story stock is like a hit TV series, and we had to keep delivering exciting new episodes. We were developing a reputation for putting out news releases whenever Boy Wonder farted. The Street's expectations had begun to feel unsustainably high.
Clearly, the solution to that pesky little problem had now arrived. I was part of the communications group, and for the last week we'd been scrambling to put together a plan for announcing the first bad news in the company's five-year history. I was preoccupied with the tactical blunders we'd already made. Having decided to signal investors by announcing the bad news during a conference call with the key analysts who tracked our company, our desperate CFO had postponed the call from Wednesday to Thursday to Friday, and finally to Sunday night, which had an ominous cloak-of-darkness quality. And I was nervous about the press release, too. Boy Wonder was insisting we put out a one-paragraph statement of the numbers, with no CEO quote or statement of support from one of our eight-hundred-pound partners; no context, no perspective. Just the numbers and some boilerplate. The thing looked like an obit.
As usual, however, Boy Wonder had a plan: We would seize this moment to reinforce our excellent progress into full commercial operations. We would announce that the company was going to focus its resources and attention on its three most promising applications. We'd been accused of spreading ourselves too thin, chasing after opportunities in every potential market, and surely our investors would respond to this new focus and resolve.
The conference call went off without a hitch, and afterward we all felt the peculiar euphoria that often accompanies a decisive act. The general counsel and I made a bet on where the stock would close the next day. We'd finished up at 42 and change on Friday. He guessed 35. I guessed 30. "Ouch," he said.
We arrived the next morning to discover that trading on our shares had opened at 26. Phones were ringing off the hook: the Times, the Journal, CNN, analysts, investors. We closed that day at 21, down 50 percent. Half a billion dollars in market capitalization-vaporized. We were the day's big loser on the Nasdaq, our performance so pitiful that even our competitors were shaken. Our tactical blunders hadn't helped, but what had really killed us was our "good" news. Investors were mortified that we were backing away from big markets. They didn't care if it made sense. What they wanted more than anything was to continue to fantasize about our limitless market potential, and they interpreted our newfound focus as an act of panic, if not betrayal. Within a year, the company was bankrupt.
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