This Bytes

Bryan Heitman might have had a hunch his homespun business would make him a millionaire before he was old enough to drink legally. But there’s no way he could have predicted the lessons he’d learn:

Lesson 1: The more customers you try to please, the fewer customers you’ll have.

Lesson 2: The more customers you have, the less likely you’ll turn a profit.

Lesson 3: The more money you lose, the greater your odds of staying in business.

Alas, such logic is lost on a sixteen-year-old.
When Heitman became an entrepreneur in 1997, he was a quiet sophomore at St. Joseph Central High School who battled boredom by logging thousands of hours on his computer. Since his middle school days, the Internet craze had been building to a full frenzy. On the West Coast, kids not much older than he were launching Web sites like Yahoo and Excite.com and becoming millionaires.

As he advanced through puberty, Heitman blossomed into a full-blown computer guru. Working late into the evenings in the basement of his parents’ house, he wrote programs that would allow people with basic computer skills to launch and maintain their own Web sites. Soon he had a sweeping business vision: He’d rent chunks of cyberspace and host clients’ sites for them. He dubbed his infant empire CommuniTech.Net. It was small, but it beat pulling in $4.25 an hour to bag groceries at his father’s supermarket.

He’d heard through relatives that a distant cousin, Gabriel Murphy, was looking for ways to tap into the wide-open high-tech marketplace, too.

Murphy had spent most of his high school years in the Kansas City Northland before moving to St. Joseph for his senior year. When Heitman started his business, Murphy (who’d gotten married the year before) was a sophomore at Cornell University in Ithaca, New York, studying business management and marketing.

Gabe Murphy was the yin to Bryan Heitman’s yang — a fast talker with a firm handshake. “He was going a hundred miles an hour all the time,” says Lenny Hihath, a childhood friend who went to school in St. Joseph with Murphy’s future wife. “You could tell he was going places. He was always so excited about life.” (Murphy’s and Heitman’s lawyers would not allow their clients to speak with the Pitch for this article.)

Murphy pursued goals relentlessly. “No matter how much I tried to blow him off,” his wife, Stephanie, told the Kansas City Business Journal in 2001, “he just never quit asking me out, so we eventually went out, and the rest is history.” (Murphy ultimately proposed to Stephanie on Ricki Lake’s talk show.)

“People tell him no, and that’s even more reason for him to try,” Stephanie says.

But after reading Heitman’s earliest e-mailed business pitches, Murphy passed on the idea. He couldn’t see the potential in hosting Web sites for individuals and small businesses at competitively low prices.

Heitman kept at it. He programmed his site so that it would send him an e-mail every time a new client signed up. He began forwarding the notices to Murphy, and when they started to arrive at the rate of three or four a day, the young Ivy Leaguer realized his mistake.

Without telling his wife, Murphy decided in the fall of 1997 to skip a couple of months’ rent and bills so he could scrape together $1,800 to invest in the company. By the following autumn, he and Heitman were charging their clients a nominal fee — less than $10 a month. Most of their big national competitors — such as Verio and Affinity — were charging $50. Soon they had so many customers that Murphy decided to take a leave from school the first semester of his senior year.

By then, in the fall of 1998, the operation had moved from the Heitmans’ basement to an 18-foot-by-15-foot office in a complex in St. Joseph near Interstate 29. It was barely big enough for a four-desk cubicle. Rent was $225 a month. Heitman spent his mornings at school, his afternoons and evenings at the office. “I remember during our senior year seeing him at the pay phone all the time, getting updates from Gabe,” says Jason Squires, Heitman’s high school computer buddy.

By the end of 1998, CommuniTech had several employees, 3,000 customers and $400,000 in annual revenue. And by May 1999, when Heitman and Murphy had graduated from high school and college, respectively, they were drawing salaries of $30,000 and supervising a staff of twelve. The operation had gotten big enough to move to Kansas City’s burgeoning Crossroads District, a hip neighborhood of revamped warehouses just south of the downtown loop.

Within another two years, the company had taken over five floors of the Main Mark Building (the one with the giant “Byte Me!” banner on the side), wiring the suddenly hot property with miles and miles of high-tech infrastructure. As annual revenues grew into the millions, CommuniTech sparked a mini economic boom in the heart of the city, with other young businesses springing up around it. In 2001, the company of sandal-wearing twentysomethings had generated so much buzz that Kansas City’s Chamber of Commerce named it Small Business of the Year.

But by the spring of 2003 — just last month, in fact — the company was dead, a victim both of its remarkable success and the naïveté of its founders. When they sold out to a man known to some as “Rat Face,” they had little idea that in today’s marketplace, profit is for losers.

On a cool November evening in 2000, Kansas City felt like the center of the New World. Searchlights arced through the dark skies as tuxedo-clad dignitaries milled about the Main Mark Building, sipping martinis from glasses etched with CommuniTech’s Saturn-shaped logo. The company had just opened its $1.2 million, 5,000-square-foot data center — an entire floor filled with black computer servers. It was time to celebrate.

The data center was big enough to qualify as an entire galaxy in cyberspace, with sufficient hard-drive space on its servers to host millions of Web pages. It already was home to more than 25,000 sites, each occupying virtual real estate for rents ranging from $29.95 to $30,000 a month. Some belonged to high-profile clients, such as the Kansas City Royals, the New Orleans Saints, the Beastie Boys, Counting Crows, and Rage Against the Machine. Others were far-flung and exotic, such as the one for an advertising agency in Sri Lanka and another for Hezbollah, the Lebanese resistance movement for years designated by the United States as a foreign terrorist organization (something sources say Heitman and company were unaware of until after 9/11, when they booted the customer offline).

The gala had a James Bond theme, with entrée assured only after a decoder had read each guest’s encrypted card. Inside, the partygoers could sidle up to craps and blackjack tables. A rock band was playing in the conference room; there was an open bar and lots of food.

The atmosphere was quintessential dot-com. In a little over a year, CommuniTech had become one of the most enviable places to work in Kansas City.

Heitman and Murphy had packed the break room with a pool table, an electronic dartboard, foosball tables, a Sony PlayStation, Super Nintendo, a pile of game cartridges and a big-screen TV. Their eleventh-floor conference room boasted a wall-sized projection screen linked to a megachannel satellite system. On Sundays they’d order pizza and watch football games with their employees.

Sometimes, in the early morning hours, the staff would start going a little crazy. Once, they bought a mess of pumpkins at the grocery store and lobbed them out the windows, watching them splatter on the pavement below. Another time, they rigged a super slingshot and launched water balloons clear over the top of Bazookas strip club, a three-story building a half-block away, and they occasionally aimed laser pointers at the sidewalk to scare the guys heading in and out of the place. They shot paint balls out into the night. They dangled dollar bills on fishing lines to torment derelicts who hung out on the block.

“Everybody was 20 to 25,” says Murphy’s boyhood friend Lenny Hihath, who moved to Kansas City and took a sales job with the company in 2000. “We were just running around and getting things done. It was fun.”

Amid this atmosphere, Heitman’s and Murphy’s employees thought nothing of working 72 hours straight — and not for much money. Most of them started with salaries in the $30,000 range, well below the $50,000 to $100,000 incomes common in the Internet business at the time.

But they could see how quickly CommuniTech was growing. The company ended 2000 with $6.8 million in revenues and showed a $1.8 million profit. It seemed there was nowhere to go but up. “I came home a couple of times really excited, thinking, Man, this is really gonna explode,” Hihath says. “We’re gonna be huge.”

“It was just assumed that Gabe was going to take care of us,” says Jason Squires, Heitman’s friend from high school who became one of the company’s first full-time employees. “If there was a big sale, Gabe would be sure to let us know how much our hard work would pay off. We always thought there would be a big payoff.”

For a while, it looked as if the payoff had indeed arrived. In early 2000, months before the gala night, Heitman and Murphy began receiving offers for the company, with price tags ranging from $24 million to $42 million.

But by the spring of 2000, the dot-com bubble — which had pushed the NASDAQ from 751 five years earlier to over 5,000 that March and seen shares in companies like DoubleClick gain 400 percent — was already poised to burst. A couple of months later, telecom stock prices were falling, and the market for Web hosting fell flatter by the week. In July 2000, Heitman and Murphy came close to closing on a deal to sell CommuniTech to Affinity, one of the industry’s leaders. But by August, Affinity was unable to raise the money.

Heitman and Murphy were fighting to keep their company alive. A year later, in the spring of 2001, the Kansas City Chamber of Commerce finally took notice of CommuniTech’s stellar rise and awarded the youngsters its top prize for small businesses in the metro area: the Mr. K Award, named for Ewing F. Kauffman, the late pharmaceutical industry magnate and former owner of the Royals. It was, Heitman and Murphy told the Business Journal, the most memorable experience in their short-lived careers.

The two partners were learning that it wasn’t enough just to offer a good product that brought in more money than they spent. The only way to survive in the developing Web-hosting market, experts still agree, is to keep growing as fast as possible. That’s because investors tend to believe that the market will ultimately support only two or three massive companies.

By the spring of 2001, the guys at CommuniTech found they were falling behind in the race to become an industry leader. The previously buoyant staff began to feel the strain. “Everybody started getting burned out,” says Chad McCan, the company’s former manager of systems engineering. “The previous four years, everything was always moving. By then it had gotten stale.”

So in March 2001, CommuniTech retained the services of an investment banker — Daniels & Associates of Denver — to help it acquire new companies. They obtained a $10 million line of credit and lined up several venture capitalists who were ready to invest once CommuniTech bought enough companies to build its revenues to more than $50 million a year.

But in the withering economic climate, their lenders grew leery of the Internet market, and the line of credit went away. So did the investors.

Through the rest of 2001, they watched bigger competitors get still larger by snatching up smaller businesses.

One of those large competitors was Interland, an Atlanta-based company on a quest to become the world leader in Web hosting for small- and medium-sized businesses. After a series of acquisitions and mergers, Interland was able to woo smaller companies with lots of stock — and $200 million in cash.

It was difficult for the kids at CommuniTech to compete with a colossus like Interland. But the Kansas City team was still in the running to buy smaller companies, too, sources tell the Pitch.

“They had tremendous potential ahead,” says Ty Carter, president of Johnson County investment banking firm the Prospect Group, which had helped CommuniTech when suitors were considering investing $40 million in the company. “Not only in Kansas City. CommuniTech was a great story throughout the Midwest and U.S. I think CommuniTech could have been a very strong buyer. They could have been a leader.”

“If we would have continued down that path, we would have been successful,” says Matt Kim, a vice president at Daniels & Associates. “Honestly, we didn’t give the process of purchasing companies enough time.”

When 2002 rolled around, the young, balloon-hurling staff members at CommuniTech thought their bosses were still on the hunt to buy up other companies. But in early February 2002, despite Kim’s assurances that CommuniTech would be able to raise enough capital to do so, Heitman and Murphy decided to bail out of the risky market. They gathered the staff and announced that they’d sold to Interland for a little more than $10 million in Interland stock.

“It was a shock,” says Ryan Elledge, who was director of human resources.

Some of CommuniTech’s new bosses sported crow’s feet around their eyes and patches of bare skin on their crowns. “They were all older — thirties, forties, fifties,” Hihath says of the Atlanta executives who roamed the Main Mark halls in suits. “We were in khakis and dress shirts, and maybe some sandals and tennis shoes.”

But the corporate invaders brought good news at first: Many of the 48 CommuniTech workers received immediate raises.

“The first few months, it was awesome,” McCan says. “They acted like they really cared about what we thought. We felt our input was very well accepted.”

“They talked a great game,” Elledge recalls. “Everything we were doing, they just loved. They said they wanted us to join forces. They made it sound like it would be a great relationship. They said they weren’t acquiring us for our clients — they were acquiring us for our people and expertise.”

“That’s how we explained it to them,” says Allen Shulman, Interland’s chief financial officer and general counsel. “That’s what we planned to do at that point.”

The kids trusted their new boss, a high-tech-economy maverick named Joel Kocher, whom they saw as a dynamic leader. “My first impression was, he reminded me a lot of Gabe,” Elledge says. “He was high-strung, full of ideas. He seemed like a workaholic.”

But if they’d visited Junco.com, they would have found a different story.

The site was created by Michael Junco, a former employee of HostPro, the company that Micronpc.com, under Kocher, had acquired in 1999. Clicking on a link called “The Kocher Man,” they would have been treated to an animation of the balding Kocher singing to the tune of “The Candy Man”: Who can take a stock price, run it in the ground?/The Kocher Man can!

By following another link, they could have played an interactive game in which Kocher is beaten to a pulp with a “death combo” of jabs, kicks and right crosses.

Heitman and Murphy also could have read numerous newspaper and trade-journal articles revealing that, in just a few short years, Kocher had built a national reputation for restlessly bailing out on companies and business plans, leaving thousands of employees in the lurch.

In their haste to stay competitive, the guys at CommuniTech apparently hadn’t done their due diligence.

Joel Kocher first made his name as president of sales and marketing at Dell Computer Corporation. During his tenure — 1987-94 — the company’s annual revenues exploded from $100 million to $3.5 billion.

In 1994, he went looking for his own company to run, something he could propel toward total market domination.

He first landed near the top of Artisoft Inc., an Arizona computer-networking company. Kocher predicted in the industry press that he would turn it into the “Apple Computer of the networking business.” He faced a steep climb; during his first month on the job, PC Week compared Artisoft’s revenues to “a few drops of rain in the Sonoran Desert.” To make matters worse, the company’s main competitor was industry powerhouse Microsoft. By the end of 1996, when Kocher jumped ship, Artisoft was losing money and laying off workers.

He appeared next as president and chief executive officer at Power Computing, a manufacturer of Macintosh clones. Based in Austin, the company was founded by Korean immigrant and self-made millionaire Stephen Kahng, who had such a reputation for cheapness that employees once offered to raffle off his Mercedes, which had nearly 250,000 miles on it, as a booby prize. According to other stories, he was so miserly that he refused even to buy business cards for his workers.

Kocher stormed into the new position like Rambo and set a goal of expanding the company beyond just the Mac market. Power Computing, he predicted, would go head-to-head against his old employer Dell to become the top producer of PCs in the world.

To instill a fighting spirit, he required his grunts to wear fatigues on dress-down Fridays. At pep rallies, he would humiliate the staff by lambasting them for letting down customers, according to a 1997 Austin American-Statesman article chronicling the company’s downfall. At times he threw dog biscuits at workers, according to news reports. Once, in a church, he “married” Kahng (who was dressed in drag) to the accompaniment of rock music. The gesture was a symbol of the company’s commitment to its customers, he said at the time.

But Kocher couldn’t get the company past Macintosh. With revenues sinking, board members at Apple fired the CEO who had opened the market to Mac-clone makers like Power Computing. Then they severely limited use of the Mac’s operating system, effectively killing Power Computer’s toehold in the marketplace as the top producer of Mac clones.

After the board’s actions, Kocher took the stage at the 1997 Macworld Expo in Boston and, in an appearance that has become legendary, vilified Apple founder Steve Jobs. Closing off competitors, he warned, would be “the kiss of death” for Apple. A few weeks later, citing differences with his own board of directors, Kocher quit Power Computing, which Apple then acquired before going on to reinvent itself with the iMac, the iPod and, most recently, its online music-sales system.

In 1998 Kocher parachuted into Boise, Idaho, where he was named CEO at Micron Electronics. At the time, the company was ranked tenth among the world’s most profitable computer makers, according to PC Week. Kocher vowed to crack the top five within two years.

“Back when we were just starting out at Dell, we were David and everybody else seemed to be Goliath,” Kocher said that year in a speech at a convention for business writers. “Now, at Micron Electronics, I’m back to being David again.”

Under his leadership, the company dropped a million dollars on a TV commercial featuring the voluptuous Jeri Ryan, who was famous for sashaying around in a skintight silver suit on Star Trek Voyager. But the sex didn’t sell, and within a year Kocher was on to a new business strategy. Wearing a black-leather jacket, he revved up a Harley and rumbled into the Idaho Center arena on October 18, 1999, where close to 2,700 employees awaited his stunning announcement: Micron Electronics would henceforth be known as Micronpc.com.

“It’s the revolution, baby!” he shouted to the crowd, according to a report in the Idaho Statesman. “This is the opportunity we have been waiting for to change the world!”

It was the zenith of the dot-com craze. Across the country, venture capitalists were funding scores of businesses that, in the end, had no chance of being profitable. Amid the frenzy, Kocher envisioned a world in which people no longer owned personal computers. Instead, they would have inexpensive computer stations linked to the Internet, where they could rent access to software.

“The PC is dead!” he declared.

Kocher launched a huge marketing campaign, employing Terry Gilliam of Monty Python fame to direct commercials touting this revolutionary wave of computing (which has yet to arrive). Meanwhile, he continued to build Micron’s Internet assets, purchasing various companies — the biggest of which was Interland, acquired in March 2001 for $130 million. He laid off 340 Micron workers, sold off the last of Micron Electronics’ computer-making interests, kept the name Interland and, after the merger was finally approved by the Securities and Exchange Commission in August 2001, moved his desk to Atlanta.

“I will go to my grave saying that if Micron stayed in the PC business, it would be bankrupt today,” Kocher recently told the trade journal VARBusiness. “I assure you that there’s a little voice in my head saying, ‘You’ve got something to prove.'”

Apparently, however, Kocher’s little voice was leading him to delusion. Eight months after he sold off the computer-manufacturing side of the company, Micron once again turned a profit.

Interland, on the other hand, has yet to move out of the red.

Within months of being bought out by Interland, the climate at CommuniTech went from awesome to awful, sources tell the Pitch.

“I started to dread coming in to work,” Hihath says. “They’d have conference calls all the time. Interland, all they do is conference calls. It’s horrible. They’d waste four to eight people’s time for an hour to talk about having a meeting in two weeks about having another meeting in two months.”

Heitman stayed on staff to help run the Kansas City office. Murphy moved to Atlanta to fill an executive role. Among other tasks, Murphy was charged with finding ways to integrate CommuniTech’s more efficient technological systems with Interland’s, according to Interland Chief Financial Officer Allen Shulman. But he kept butting heads with the brass in Atlanta.

“They were very top-heavy,” McCan says. “A lot of the top executives had issues with young people coming in and telling them how to run a business.”

Shulman says such conflicts are to be expected. “When you’re the boss of a company made up of friends of yours who are your contemporaries, the same age, who didn’t have much before they started working for your company, it’s easier,” he says. “Getting people to do what you want them to do at a big company is a different task. It’s not a surprise to me that Gabe had some difficulties.”

Kocher and his top executives switched Murphy from task to task. But by October 2002, eight months after the sale, Murphy and Interland had parted ways.

In the meantime, the folks in Kansas City were never sure what to expect next. CommuniTech’s role in the Interland empire seemed to be in a constant state of flux.

“We always had a saying in Kansas City: ‘The winds change in Atlanta at the drop of a hat,'” McCan says. “Every single day there was some new plan.”

“We’d call them ‘the winds of Joel,'” says Elledge, who grew to despise Kocher, whom he describes as a “short, little guy.” He learned that some people in Atlanta felt the same way. They told him they thought their boss had “short man’s syndrome.” Others called him an elf. “My nickname for him was Rat Face,” Elledge says. “He seemed like a rat.”

In September 2002, Interland bought Innerhost, a Web-hosting company based in Miami that, thanks to a windfall from a well-timed venture-capital investment, had been able to build a far better data center than the one in Kansas City. Interland already planned to consolidate its efforts in two data centers (a task Murphy had been working on), so it was — at least technically and financially — an easy decision to close down Kansas City and move everything to Atlanta and Florida, Shulman says.

In early January, less than a year after buying CommuniTech, Kocher announced he would be closing down the Kansas City offices for good.

Heitman and Murphy were devastated. Murphy published his e-mail address in the Business Journal and promised to help his old colleagues find new jobs.

“It’s hard to feel sorry for him,” says Eric Linberg, the president of Xeroscape, a former client of CommuniTech that operates out of the Main Mark Building. “The guy walked away with millions of dollars.”

But in reality, Murphy and Heitman had trouble cashing in their Interland stock. In exchange for their company, they had received 5.2 million Interland shares. (Heitman ultimately wound up with 1 million, Murphy with the remainder.)

Now the two men are suing Interland for $26.7 million.

Filed in Jackson County Court on February 4, Heitman and Murphy’s suit is a 38-page complaint that uses the word evil four times. It alleges that Interland officials committed fraud. Interland had bought approximately 58 million shares of its own stock from an Idaho charitable foundation for just $1.25 a share. Kocher and several other Interland board members also bought shares at the lower price. On the same day, Interland inked the deal to buy CommuniTech with shares valued at $2. In their suit, Heitman and Murphy allege that they were not told about these sales. If they’d known about the sale of stock at the lower price, they might have been able to negotiate for more shares in trade for their company.

Interland, in turn, sued Murphy in a Georgia court, alleging that Murphy had stolen customers and employees and had libeled the company in the press.

In their suit, Heitman and Murphy also allege that Interland purposely prevented them from cashing in their shares until the price plummeted to well below a dollar. (Interland did buy $2.5 million worth of stock from Murphy at one point when its value was $3.20 a share. Heitman and Murphy decided to sue for $26.7 million because they figure that’s how much they would have made if they’d sold their company for $10 million worth of Interland shares valued at $1.25 — the price of the 58 million shares Interland bought the same day as the CommuniTech sale — and then sold the shares at $3.70, the highest price at which Interland stock has traded in the past year.)

Shulman says the delay occurred because Congress had enacted new legislation, in the wake of the Enron scandal, which placed tougher disclosure requirements on all publicly traded companies. The law went into effect just days before Interland’s annual report came out. Because of this timing, Shulman explains, Interland became the first company subjected to the new laws. Shulman claims that officials at the Securities and Exchange Commission were stymied by the new regulations and that this delayed the stock’s registration by fourteen months.

SEC officials have declined comment. However, documents filed with the agency show that the registration was delayed at least in part because Interland repeatedly provided insufficient answers to the SEC’s requests for information. In the meantime, scores of other companies have had no trouble registering stock.

“I certainly haven’t seen any examples where there’s been such a long delay,” says Matt Kim, the investment banker who helped with the CommuniTech sale. He calls Interland’s excuse “suspect.”

Sources close to Heitman and Murphy tell the Pitch that the two haven’t been able to sell the majority of their shares because of Interland’s lawsuit against them. They aren’t in a hurry to do so, however. The stock is now trading at a little more than a dollar. When Heitman’s and Murphy’s shares were finally registered on April 24, they were worth a measly 72 cents each.

On May 31, the last of CommuniTech’s workers clocked in their final workday at the Main Mark Building offices. They left behind some office furniture, the foosball tables, the pool table, the video-game consoles, the big-screen TVs. The 5,000-square-foot data center is now full of empty, floor-to-ceiling server racks.

Earlier this year, officials at Interland shipped the company’s servers — each packed with millions of dollars’ worth of active Web sites — off to Atlanta on chartered jets in the middle of the night.

This is not the best way to move cyberspace real estate, according to Linberg of Xeroscape and other tech experts who spoke with the Pitch. “You can’t do that,” he says. “A lot of customers were down for long periods of time — like days.”

The best way to move data, he explains, is to copy files onto remote servers using the Internet. Once the data are transferred, the hardware can then be moved with no harm to customers. In a best-case scenario, when servers are moved with all the Web sites still on them, paying customers are out of commission for the hours of transition. When the servers arrive at their destination, it’s not simply a matter of plugging them in and turning them on. The reintegration process can be maddening. It can take a long time.

Interland didn’t fully disclose these transfer plans to its customers, sources say. These customers suddenly found themselves losing money because their sites weren’t functioning. Some of them gathered on Yahoo message boards to bitch. They called Interland “InterLosers,” “Intersuck” and “Interfuck” in postings titled “I HATE THIS DUMB COMPANY” and “I’m royally pissed now!”

Then they started jumping ship.

“It’s official,” Robert J. Accettura wrote on May 1. “I gave up with Interland. I think I personally tried my best to work it out. I tried communicating with them as best as I could … [but I] still feel like they are lying to my face.”

“When we moved [the servers] over from Kansas City, not everything went the way it should have,” CFO Shulman admits. “And a lot of those customers, we let them down.”

But that’s just part of being competitive in the Web-hosting marketplace, he says. To survive, companies must be willing to disappoint a few customers if it helps the bottom line.

“The mentality is, ‘I want to please this customer,'” he explains, describing the folly of CommuniTech’s heady, seven-figure-profit days. “‘And I will do anything to satisfy that customer’ — without doing the rigors of analysis.

“I can see where someone could draw the conclusion that this is a heartless company,” he adds. “But no company will expend more resources than can be paid back over the long term.”

In the long run, he notes, the “do anything for your customers” mindset threatens to overextend companies like CommuniTech and prevent them from becoming one of the two or three behemoths that industry analysts are betting will dominate the market. “You have to figure out a way to deliver services that are commensurate with what the customer needs and is willing to pay,” he says.

So, having gobbled up one of Kansas City’s most exciting young businesses, Interland lumbers on — buying more profitable companies and folding them into its unprofitable one. (In its most recent quarterly report, the company showed losses of $22 million.)

This is a good thing for Interland. In the Web-hosting market, the real winners are losing money.

“In this business, it’s easier to make a profit when you’re small and harder to make a profit when you’re big,” Shulman acknowledges.

“You have to spend money to make money,” he explains. The goal, he says, is to become something like the Coca-Cola or Wal-Mart of Web hosting. To do that, Interland has to spend millions acquiring companies like CommuniTech. Then it has to spend millions more integrating those companies into its operations to create a system by which a maximum number of customers can receive the highest-quality services for the lowest possible price, he says.

Now Heitman and Murphy are treading completely different entrepreneurial paths — ones that jibe with the common sense they’d employed when they first took a stab at the business world years ago. Heitman is a home businessman again, running a one-man computer consulting operation out of his house in the Northland. Murphy now presides over Aberration Ventures, a local venture capital firm he started, in an office in a tower on Metcalf and College Boulevard in Overland Park.

His business model is simple enough for a teenager to understand:

1. He gives promising companies money.

2. The companies please their customers, grow and turn a profit.

3. He profits, too.