From MBA to Internet Success

His company has attracted millions from investors, but Farhad Mohit’s credit is so bad he had trouble getting a car loan. He was kicked out of his West Hollywood apartment for making too much noise. He’s notorious for his shouting matches.

So why are smart people giving 30-year-old Mohit their money?

His company, BizRate.com, operates one of the top 50 destinations on the Web. Online merchants are signing up for his service at a rate of 15 a day. It employs 130 people, up from six two years ago.

“Farhad has the best characteristics of an entrepreneur,” said investor and board member Robert Kibble. “Intelligence, passion and vision. If I could bottle him up, I would.”

In a scant four years, Mohit has progressed from MBA student to entrepreneur to chief executive emeritus, while remaining an all-around party guy. Even when a career moves at Internet speed, success boils down to the basics: contacts, smarts and an idea.

Mohit, chairman and chief strategist of BizRate, took the conventional route to the business world. After graduating from UCLA in 1991, he put in a stint at Andersen Consulting before moving on to the University of Pennsylvania’s Wharton School. He received an MBA degree in 1996.

Regarded as a training ground for economists and investment bankers, Wharton ignited Mohit’s entrepreneurial career. As a class assignment, Mohit and several other students wrote an 80-page business plan for an Internet company that rated the performance of online merchants. The paper, which got a P--similar to a C on Wharton’s grading scale--later served as a blueprint for BizRate.

Two relationships from Wharton also shaped BizRate. Henri Asseily, a classmate and computer whiz who worked on the paper, co-founded BizRate with Mohit. And Wharton marketing professor David Reibstein took Mohit under his wing, advising him and later investing in the online rating service.

Reibstein first knew Mohit through “Ask Farhad,” a satirical advice column poking fun at serious-minded MBAs that appeared in the Wharton student newspaper. He subsequently had Mohit in a class, where he stood out for his quick mind and cavalier attitude.

“He danced to a different beat,” Reibstein said.

Upon graduation, Mohit returned with his business plan to Los Angeles, where his family moved in 1981 after the revolution in Iran. Asseily joined him and helped set up BizRate in a spare room in the home of Mohit’s parents.

They started out with about $220,000 in seed money, 60% of which came from Asseily, whose family operates a prosperous cement company in Lebanon. Reibstein’s involvement gave the venture credibility.

Their plan was to create a company that would help online shoppers choose from among a growing number of “dot-coms,” while collecting information about e-commerce that BizRate could sell to banks, consulting firms and e-tailers.

In a replay of business school, Asseily and Mohit pulled all-nighters developing software and consumer questionnaires amid a clutter of documents and computer equipment. Asseily said Mohit relentlessly haggled over the smallest details, such as the size and color of the BizRate logo.

“He’s like a rug merchant,” Asseily said with a sigh, an intentional reference to their Middle Eastern background. “He doesn’t quit until you’ve convinced him that you know your stuff.”

Mohit’s tenacity served him well in critical negotiations with potential investors. He pit a venture capitalist group from Southern California against investors from the Bay Area and extracted concessions from veteran deal makers.

“He got a better price from us,” Kibble said. His San Diego-based Mission Ventures combined with Media Technology Ventures of Los Angeles to invest $4.5 million in BizRate. A month later, in June 1998, Mohit was booted from his apartment for throwing loud parties--not what his investors expected from their CEO.

Mohit’s financial backers nudged him to change his unconventional style. He got rid of his beat-up Volkswagen GT at their behest, but subsequently cracked up the car he bought to replace it. They haven’t yet persuaded him to trim his shoulder-length hair or shed the well-worn pullovers he wears to work.

“I like chaos theory,” Mohit said.

BizRate also needed support from online merchants. That turned out to be the easy part. E-tailers embraced BizRate as a tool to help them persuade skeptical shoppers to give them a try.

“We could tell consumers, ‘Hey, we’re great,’ but it’s more appropriate coming from a third party,” said Lisa Sharples, chief marketing officer of Garden.com. “When BizRate came along, we said, ‘We should do this.’ ”

BizRate surveys consumers by attaching a questionnaire to merchants’ order forms. It conducts the survey and posts the results on its Web site at no charge to consumers or retailers.

It brings in revenue in three ways. It licenses its survey to other online companies. It collects a fee from merchants when consumers click from the survey to their sites. And it sells market research based on the information collected from consumers to credit card companies, merchants and such consulting firms as McKinsey & Co. About 80% of BizRate’s revenue comes from market research.

It has competitors. Gomez Advisers and Forrester Research, both of Boston, are two firms that rank Web sites and conduct market research. And competition is certain to increase as the pace of e-commerce intensifies and traditional market research firms enter the fray.

Investors have responded favorably to BizRate though. It already has raised $26.5 million and is in the process of selling 10% of the company for more than $50 million, according to people familiar with the terms under discussion. If completed, BizRate would have a value in excess of $500 million. The company expects an initial public offering later this year.

The combined stake of Mohit, Asseily and Reibstein would be worth $225 million--at least on paper. Still, when Mohit ordered an Acura last month from CarsDirect, he initially was turned away for poor credit--a result of outstanding education loans, he said. The sale eventually went through.

BizRate is growing with e-commerce. In the last three months of 1999, amid the holiday sales rush, 1,500 merchants joined BizRate. A total of 3,300 merchants use BizRate surveys on their order forms.

And thanks in part to an advertising campaign that warned consumers, “Don’t get e-screwed,” the number of consumers visiting BizRate’s Web site increased by one-third in December from November.

The company, which had six employees in a Culver City office two years ago, occupies a converted warehouse on a parcel it shares with Del Rey Self Storage in the marina. With encouragement from its investors, BizRate has filled out its management ranks, bringing in a chief financial officer from Sandpiper Networks, which recently merged with Digital Island, for example.

In December, Mohit handed the CEO mantle to a seasoned executive his investors recruited from Walt Disney Co. While praising Mohit for his vision, they said BizRate needed an experienced manager.

Chuck Davis, 39, former head of e-commerce at Disney’s Internet unit, has already beefed up family benefits, started a ride-sharing program and checked out potential caterers to run the cafeteria. He’s also exploring initiatives on the e-commerce front, where merchants might use BizRate to send targeted pitches to consumers who ask for them.

Sitting in his spartan office in his faded jeans and ripped thermal shirt, Mohit seemed content to share power. He said he considers himself a poor manager and has much to learn about the process of running a company day-to-day.

He sure has making money down cold.

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Net Gains

BizRate.com is attracting an increasing number of people to its comparison-shopping site. Media Metrix, an audience-tracking service, estimates monthly the number of people visiting the Web and individual sites. Number of visitors to BizRate.com each month in 1999, in millions:

4 million

Success Strategy

Want to succeed as an Internet entrepreneur? Here’s one formula that worked for the founder of BizRate.com:

* Get a business plan, preferably one with an OK grade from a prestigious business school.

* Entice deal-conscious venture capitalists, and play them against each other. Get their competitive juices going!

* Don’t dress for success. Come as you looked as a college student.

* Know when to step aside and let experienced hands run the show. After all, if you’ve played your hand right, you’ve locked in your millions.