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A Start-Up Story

Favemail began as a unique marketing idea -- the kind of never-before-seen concept that made venture capitalists salivate.

Here was the pitch: consumers would send their friends e-mails that contained a banner ad, which they had selected. In short, they were helping to promote products with which they felt an affinity. It was supposed to be sort of like an online bumper sticker, or the equivalent of wearing a Nike hat. For doing this, users were rewarded with "points" that they could exchange for cash, or other online currency products like Flooz.

It arrived on the Internet business scene last year when investors were still willing to take huge risks in hopes of a grand-slam payoff. Spending on online marketing was booming and there was no end in sight. But somewhere along the way, things changed, dramatically.

This week, Favemail announced it had changed its name to its original moniker -- Expression Engines, brought in new leadership and embarked on a new direction.

The fate of Favemail illustrates what's occurring with a host of start-up companies, in a stock market environment that's putting the squeeze on marketing budgets. It's also a cautionary tale of the twists and turns that all start-ups face as they struggle to "find themselves" and find a market -- a process that requires strong leadership and turn-on-a-dime flexibility.

Back in 1999, David Kent, a West Bloomfield, Mich.-based ear nose and throat doctor, came up with a concept that combined the ubiquity of email, the creativity of home page building, the viral marketing techniques pioneered by Hotmail, the popular affiliate marketing model, and the loyalty rewards model used by MyPoints.com. He was the brains behind the idea for Respond.com, which had already received $55 million in venture capital funding, so when he came up with ideas, people listened.

The idea was powerful enough to convince New York's Flatiron Partners, a well-respected venture capital outfit, to back it with $2.5 million and incubate it in-house -- an unusual practice for the firm. Around the same time, similar companies popped up across the country. Epidemic Marketing emerged in Colorado, and SuperSig debuted in California. As entrepreneurs are so fond of saying, this "validated the model," by proving that, if other people had this idea and were getting funding, it must be a good one.

At the time, Michele Slack, senior analyst for Jupiter Communications' online advertising group, said, "I think the reason these companies are coming to market is that everybody is trying to find a way to systematically harness the power of viral marketing."

But there were signs of trouble with the consumer model. It failed to gain traction for the most basic of reasons. "I don't think that the vast majority of Americans want to make money off their friends," said Slack, "or will feel good about their friends making money off of them."

Almost right out of the gate, SuperSig began to take more of a business-to-business approach, deploying its solution on sites that were already destinations. A Britney Spears Web site, for example, would let you add a "Sig" that featured pictures of the singer. SuperSig would be compensated by, in this case, Britney Spears' record company. Then, it began developing a corporate product. In this scenario, corporations would pay SuperSig to install its graphic e-mail "stationery" on a company-wide basis, which would help them build their brand with every e-mail