There and Back Again

From AT&T Wireless to Peapod to WorldStream, Bill Malloy has seen his share of industry successes and failures. What he takes to his next big gig, VC firm Ignition, are lessons in timing and truth.

Had things taken their usual course, Bill Malloy probably would be teeing up a golf ball a lot more often, or perhaps sitting on various boards of directors. Malloy should be enjoying the fruits of more than a decade with McCaw Cellular Communications/AT&T Wireless Services, not to mention abbreviated stints as head of Peapod and WorldStream Communications. But he isn't following that particular script, in part because he was lured back into the game.

And the game has changed. With two executive strikes against him, Malloy is now on the other side of the equation as a venture capitalist for Bellevue, Wash.-based Ignition Partners.

Not one to wile away time in a rocking chair, Malloy has always followed the philosophy that when presented with a career option, one should “go with the story.“ Just as important is taking the lessons learned from past missteps.

Tanned, rested and ready, Malloy has re-emerged in the company of friends (fellow VCs at Ignition include former AT&T Wireless CEO Steve Hooper, along with a slew of former Microsoft executives). And he is a changed man now that he's on the other side of the cash trough, doling out money to promising start-ups.

Old habits die hard, and most of Malloy's focus will remain on wireless, where he learned his most important lessons — including the importance of timing. Malloy was instrumental in developing AT&T Wireless' Digital One Rate, the pricing plan that sparked a huge surge of new users — and that ironically was a public relations embarrassment for AT&T because the company wasn't prepared for the subscriber deluge.

Digital One Rate was born of the dilemma that McCaw and many others were having in the nascent stages of wireless: How could you neutralize roaming charges that were forcing carriers to give up too much revenue from their highest-valued customers? But instead of launching the plan under the Cellular One brand or right after the company was acquired by AT&T, Malloy and team waited until C. Michael Armstrong took over, knowing new CEOs like to make a quick first impression with a bold strike.

“You really learn how to keep your powder dry on an idea,“ Malloy said. “It's not so much about the idea, but the timing. “If we launched it as a Cellular One, it wouldn't have had the impact.“

One Rate helped AT&T become the first coast-to-coast player. But holding tight to those reins and taking on a technological leadership role proved tough, and it didn't take long for the company to make its first big misstep: Project Angel.

AT&T management latched onto Project Angel, a fixed wireless format originally conceived at McCaw, as a way to bypass local carriers. The problem developed when operational groups tried implementing that vision while simultaneously keeping up with the demand created by One Rate and doing all the other blocking and tackling required of a growing wireless company.

Angel's infrastructure first launched in Chicago but quickly fell out of favor with the operations group. It moved to Dallas and eventually ended up in Alaska, where it was used for limited, but appropriate, applications.

The lesson? “Focus wins. It's that simple,“ Malloy said.

In October 1999, near the peak of the dotcom boom, Malloy went with the story at online grocer Peapod. He was brought in to do what its founders couldn't: provide seasoned management to a fast-growing dotcom and bring in the big cash needed to feed a company that was burning through it like kindling.

The timing couldn't have been worse.

While Peapod was plowing through its cash reserves in late 1999, its competitors, WebVan and HomeGrocer.com, were getting the first taste of the market's hostility toward dotcoms with no profitability in sight. Malloy, who had been schooled in the entrepreneurial environment from his early days at McCaw, was thrown into a bad situation that was about to get worse.

WebVan went public in November, raising $405 million, which at the time was considered a lukewarm response from the market. HomeGrocer.com, backed by a high-profile investment from Jim Barksdale's VC firm, went public in March 2000, raising about half that amount and signaling the death knell for all three.

Less than a week later, Malloy abruptly resigned, citing health reasons. The move prompted a group of four investors — Apollo Management, Yucaipa Cos., Pequot Capital Management and GRP II — to rescind their offers that would have given the company an additional $120 million in cash. A month later, Royal Ahold, a Dutch grocery store giant, announced it was acquiring Peapod for $72.6 million. Strike one.

In retrospect, Malloy said, the drive to raise cash became all-consuming. “I was going to raise the money even if it killed me, and it almost did,“ he said. “After that, I decided to hang out. Then I learned that when you retire too early you have no one to play with.“

Instead of retirement, Malloy became CEO of WorldStream in October 2000. The software company, which was targeting the interactive presentation and conferencing market, closed shop in August 2001 after it couldn't come up with more funding.

“We were at the front end of the reality of down rounds,“ Malloy said. “It was probably more of a defining moment than I realized.“

Strike two.

Facing strike three, Malloy switched sides and now has a slightly different perspective on the money game. It's a view shaped not only by the two experiences of going — hat in hand — to VCs for funding, but also by a market that is much more pragmatic than before. Indeed, one of the most important elements Ignition is looking for is a realistic view of the market that includes achievable milestones. “If you get it by our team, it's either gold or a gold mine,“ Malloy said.

These days, Malloy is prospecting a lot around the enterprise environment in general and the wireless LAN market in particular. Ignition's current portfolio includes a batch of companies that straddle the blurring line between carrier and enterprise networks. Radio-Frame Networks, for instance, provides an in-building system that gives wireless carriers 802.11 wireless LAN and carrier-grade voice in the same infrastructure package.

Ironically, for someone who hasn't followed the crowd, Malloy is now finding the market very crowded. According to a recent survey, wireless typically generates $25 million to $30 million in announced venture funding per week with most of it in the enterprise space. While that's a far cry from the $100 million-plus weeks of 2000, it's a positive sign in a market frozen by inactivity.

Carriers also are placing the enterprise (translation: wireless LAN) market among the most promising over the next few years. According to a study by Jonathan Tirone, senior analyst for the Americas at Pyramid Research, carriers can use a wholesale or retail approach to wireless LANs. Under the more attractive wholesale model, carriers would provision access to the network over a defined geographic footprint and a minimum bit rate per cell while negotiating rates with media companies.

Whether Malloy can unearth any natural gems for Ignition has yet to be seen. But in keeping with the philosophies of Ignition — and, to be sure, philosophies Malloy learned in his McCaw upbringing — he will be looking to invest not only in good ideas, but also in people with the will to succeed. “Where we've won, we won not because we were always the smartest, but because we had people who were relentless in their execution.”