@LARGE
Feeling "seller's remorse"

By Scott Kirsner

Jim and Janet Baker are like unfortunate hitchhikers who just happened to hop into the wrong car. The question now: Can they extricate themselves before it's too late?

The husband-and-wife entrepreneurs spent 18 years building Dragon Systems of Newton, widely regarded as the world's most advanced speech-recognition company. They developed software, including Dragon Dictate and Dragon Naturally Speaking, that not only won industry awards and accolades, but beat competitors like IBM to market and outsold Big Blue and other major players.

Then, in March of last year, after a failed run at an IPO, Jim and Janet Baker decided to sell the company they'd built to Lernout & Hauspie, a Belgian conglomerate focused on speech-recognition and translation technologies.

In a matter of months, L&H came under scrutiny for questionable accounting practices that may have conjured up as much as $277 million in revenue out of thin air, began receiving regular calls from the SEC, swapped CEOs twice, and filed for bankruptcy. The $500 million worth of L&H stock the Bakers received for Dragon is worth roughly $20 million these days.

And now, it seems, the Bakers want their company back. Or at least some part of it.

They've hired David Boies's law firm - you may recall him from a little antitrust case, or possibly from some election law work he has done - to represent them. For the past several weeks, attorneys from Boies, Schiller & Flexner have been arguing on the Bakers' behalf in Bankruptcy Court in Delaware. In this phase, the attorneys are asking the bankruptcy judge to appoint a trustee to protect the assets of the former Dragon Systems, now known as L&H Holdings.

If Dragon gets a trustee, it would likely ensure that the company won't be sold for parts as L&H scrambles to raise money and keep creditors happy. That could pave the way for the Bakers to buy back the former Dragon, license some of its technologies from L&H, or sue to have the whole acquisition nullified. The bankruptcy judge will decide this week on the trustee, which is likely just phase one of the litigation.

The scenario - two entrepreneurs swooping in to save the company they founded - certainly has plenty of feel-good mojo.

''I'm not sure you can appreciate the immense and intense personal loyalty that many of us feel toward the Bakers,'' says one long-time Dragon employee who is still with the company.

Former employees describe a company that ''hired the best and brightest'' and where the rallying cry was, ''Keep the foot on the accelerator. Never stop innovating.''

But there are huge hurdles to a successful Baker repatriation of Dragon. As many as two-thirds of Dragon's employees have departed. Some people observe that Janet Baker, who had been CEO before the L&H acquisition, probably committed the classic entrepreneur's mistake by not bringing in professional management when the job exceeded her abilities.

And, a current Dragon employee observes, ''They could destroy Dragon in the process of trying to get it back.'' If the bankruptcy judge appoints a trustee, L&H could lose $60 million in financing it has secured, which would likely have a ripple effect on the former Dragon.

The odds of the Bakers regaining control are long, says lawyer Michael Barron of Nixon Peabody in Boston, who has been following the case. ''In Bankruptcy Court, the fiduciary obligations are to the creditors, not to stockholders [like the Bakers],'' Barron says. ''That will make it difficult for them.''

Still, there's a chance the Bakers could win back the company they built, which makes this yet another David Boies case with a very high drama quotient.

Bright ideas, cont.

The grapevine informed me -- mistakenly, it seems -- that several of the executives who helped launch the Boston office of Idealab were leaving to start their own venture, after that branch closes.

It turns out the obituaries for Idealab's Boston office, which is in the old Exeter Street Theater in the Back Bay, were premature. Managing director Lars Perkins explains that he and office honcho Bruce Johnston are staying put -- not bailing out -- and that they've kept about 33 people working in the Boston office.

''We're still going to be creating new companies'' - unlike the Idealab outpost in Silicon Valley - ''and we're probably going to stay in this [office] space,'' Perkins says, though the majority of the space in the historic building will be sublet.

Idealab's first Boston venture, the employment service Refer.com, has been shut down. But Perkins and Johnston soft-launched their second company, Compete.com, this month. Perkins describes it as ''a competitive intelligence service for the Web. It lets you monitor what's happening on your competitors' Web sites.'' Charles River Ventures is helping to fund Compete.com, and CRV general partner Ted Dintersmith is on the board.

A third company is only weeks from being unveiled. Perkins describes it as a ''wireless infrastructure play.''

''The old Chinese proverb is more true now than ever,'' Perkins says. ''We live in `interesting times.''' Idealab will try to endure these interesting times with its Boston office intact, albeit in a scaled-down mode.

Digital ink

Three Boston writers have new books in stores this month.

One is David Meerman Scott, vice president for marketing at NewsEdge Corp. in Burlington. ''Eyeball Wars,'' about the intrigue behind the IPO of freshspot.com, a tabloid Web site, is his first novel.

Another is Patty Seybold, whose latest book, ''The Customer Revolution,'' is a follow-up to the best-selling ''Customers.com.''

In the new book, Seybold uses the Napster story as a launch pad. ''You are no longer in control of your company's destiny,'' she contends. ''Customers actually take control of an industry and reshape it from the outside. It happened in the music business and it will happen in yours.''

The third is Glenn Rifkin. ''Radical E: Winning Strategies in the Race from Big Biz to E-Biz'' is a successor to an earlier Rifkin book, ''Radical Marketing.''

The book ''identifies a group that embraced e-business with ferocity and has thus far done well online,'' Rifkin writes in an e-mail.

''It's an eclectic list - from David Bowie to General Motors. Some didn't launch full-fledged efforts until 1999, but being late may have worked to their advantage.''

E-commerce lives?

The Globe holds the latest in its series of `.COMversation' roundtables Wednesday evening. The topic: the future (and the failures) of e-commerce.

Panelists include Mary Modahl of Forrester Research, Jonathan Guerster of Charles River Ventures, and Dale Williams of HomePortfolio.com. If you're interested in attending, you can find more information and RSVP at www.evite.com/kirsner@att.net/march.

Scott Kirsner is a Boston freelance writer and a contributing editor at Wired and Fast Company magazines.