Nick Hanauer

Before aQuantive sold to Microsoft for a cool $6 billion in cash, the Seattle online advertising company had to navigate a roller coaster decade of ups and downs.

A tanned and relaxed aQuantive founder Nick Hanauer recalled that wild ride with stories from the early days in a talk Thursday in downtown Seattle. Interestingly, Hanauer said the company showed its true colors during the dot-com bust -- a period when aQuantive's stock dropped below a buck and investors were clamoring to liquidate.

Using aQuantive's story as a guide, Hanauer offered a particularly timely talk given the current economic climate. His thesis: In good times, companies get sloppy. In tough times, they get discipline.

aQuantive -- founded in 1997 just before the dot com euphoria hit -- had some of both.

Hanauer started his talk recalling some of the dumb things aQuantive did at the turn of the last decade. Those included a vice president who thought it was a good team-building exercise to buy tequila shots and lap dances for customers and employees at a strip club. And then there were the pub crawls in Seattle in order to try to find workers.

"If you could sit up straight in one of those Aeron chairs, we would hire you," quipped Hanauer, adding that the easy fundraising and customer acquisition climate made aQuantive "lazy." In addition, he said aQuantive rolled out "tons of stupid products that no one wanted" and signed up customers who didn't even know what a banner ad was. 

"It was fun while it lasted, but as I said it made us incredibly sloppy," Hanauer said. "It was amusing at times, but a lot of misplaced energy and a lot of wasted money."

Then, he said, the good times ended and the money dried up. The stock dropped from a high of $89 to 70 cents, with Hanauer saying some of the venture capitalists involved in aQuantive were pushing to liquidate the company for its cash.

"Some of our venture backers literally wanted to distribute all of the cash and let it be done," said Hanauer, now a VC himself at Second Avenue Partners. "I am pleased to say that not only did we turn it around, but those particular people made no money on our sale and got out at insanely low prices."

aQauntive was able to survive through "intense focus," with Hanauer drawing a comparison to the board game Risk. In that game, he said it makes no sense to spread troops over a number of countries. Instead, you have to amass large forces in certain geographies.

It was next to impossible for aQuantive to "outspend" its larger competitor at the time: DoubleClick. It had ten times as many people and ten times the market cap, said Hanauer.

"In these circumstances, you certainly can not outspend or outlast a larger competitor," he said. But, he said, you can "outfocus" them.

"The only way to do that is to narrow your focus at a decisive point in the strategic terrain," he said. The key for aQuantive was repositioning the company to serve the needs of advertisers, rather than publishers.

That allowed aQuantive to end up focusing on customers that had money to spend. As part of that effort, aQuantive dumped some customers. That's not an easy task for a startup company, but Hanauer said some customers can be "as harmful as they are helpful."

"We fired a lot of customers," he said."If a customer is not profitable for you, it is probably God's way of telling you that you shouldn't do business with them."

The company also fired a lot of people, cutting the staff nearly in half. That was a painful decision, but Hanauer said it was necessary in order to right the ship.

Having a smaller, more focused team was a key decision in getting aQuantive through the dark times, he said. In fact, Hanauer noted that nearly all of Second Avenue Partners' new Internet startups have no more than four or five employees.

"It is amazing how much easier it is to run a company the fewer people you've got," he said. "I am no engineer ... but I swear to God that the smaller the team the quicker stuff gets done."

Also, key to aQuantive's success was leadership. Hanauer cited executives Brian McAndrews, Clark Kokich and Michael Galgon who set an example of how to operate a company in tough times. Executives flew coach and parties consisted of a few pizzas.

Hanauer cited the auto executives of today who continue to fly around in their private jets, noting that the extravagances set a bad example for the rest of the employees.

"There is a culture that starts at the top which doesn't recognize this fundamental precept of leadership during tough times which is all for one, and one for all," he said.  "Like, if you are flying coach, I am flying coach full stop. We are all staying at the Holiday Inn. We don't have Four Season people and Holiday Inn people during tough times."

Overall, Hanauer said it is bad times that define good leadership and good companies where winning strategies emerge.

"Being optimistic about the difficulty is ... extraordinarily useful," he said. "Remember, that everyone is hurting during a retraction or tough times, the question is will you be hurting slightly less than them?"