Startover.com

On a crisp December day, Thomas Herman sat at a Starbucks off Union Square, speaking in a big, self-confident voice around a flailing Internet marketing startup called KPE – "a real diamond in the rough." Once a 220-person firm, it had succumbed to a familiarly fatal overconfidence, artifacts of which were being auctioned off in an effort to make payroll for the fraction of employees who hadn’t already been fired. The clutch of 42-inch plasma-screen computer monitors. The $40,000 conference table. The massive fish tank in the New York office that cost $4,000 a month to maintain. "The fish are gorgeous," Herman said. "It’s sad to see them go. But it’s costing more than an employee."

What’s remarkable here is not what’s being said, but who’s saying it. Herman is an involuntary icon of sorts, having played a starring role in Startup.com, last year’s timely documentary of a grim dot-com meltdown. The two central figures were a pair of twentysomething buddies — Herman and childhood friend Kaleil Isaza Tuzman — who cooked up a scheme that had to do with paying parking tickets online, called it GovWorks, hired hundreds of people, raised $60 million. The business, and the friendship, unraveled: Herman was not only sacked by his chum, but escorted out by security; he went on to describe Tuzman as "definitely Machiavellian." On camera.

But remarkably — or maybe inevitably — they are in business together again. And in early February, a few weeks after that coffee-shop chat, KPE became part of a milestone in the young life of their new venture, Recognition Group. Following a short hiatus from dot-coms — and each other — Herman, 31, and Tuzman, 30, reunited in January 2001 to help guide troubled dotcoms and other firms through the pain and complication of shutting down and selling off whatever assets remain — or, more ideally, to turn them around.

New York-based KPE looked like a basic wind-down when Recognition was retained in early December, and that still seemed the likely outcome when the founder left and Tuzman was named acting CEO by the board a couple of weeks later. Then Recognition — which has a third founding partner, Solomon ex Juan-Carlos Carcia, and 11 employees altogether — pitched the board on another scenario: If some of KPE’s more onerous obligations could be reworked, the firm might survive. Recognition ended up providing part of a line of secure credit that gave it 75 percent of the preferred ownership shares (the other 25 percent went to ad firm Grey Worldwide, the only one of the original shareholders willing to play along). In early February, after weeks of financial reengineering, Recognition orchestrated a (mostly cash) deal to sell KPE to Mobilocity, a privately held wireless-computing outfit based in New York. It was, says Tuzman, choose the words with the care of either a poet or an investment banker, "our first closed liquidity event in a principle investment."

Now, you might think that having evidence of their dot-com failure shown on theater screens all over America would have effectively ended Tuzman’s and Herman’s careers – but obviously the truth is more complicated. "We’ve been knocked around some, professionally," Tuzman acknowledges. On the other hand, he argues, he and Herman have a firsthand knowledge the financial (and emotional) intricacies of, say, a Chapter 11 proceeding. Moreover, one could argue that they’ve actually benefited from the notoriety of their flop: They’re often invited to lecture business schools and elsewhere, Tuzman has a book deal, etc. Whatever govWorks’ dissolution may have represented to its investors, it was almost a branding event the founders.

Of course, Herman and Tuzman don’t exactly see it that way (and point out that the film hasn’t landed them any clients), and in fairness they’re the ones who actually had to live with the scrutiny. Their focus is on lessons learned — like their failure to bring in "seasoned management" at govWorks.

At KPE, now down to 33 employees, they hired as chief executive officer Kevin Labick. In the good old days of 1998, Labick sold a consultancy he’d co-founded, and at one point oversaw 650 employees; after that, as it happens, he worked for Mobilocity, and he’ll continue to run KPE as a subsidiary under the new regime. He’s 32. And what did he think about being interviewed for a job by the guys from Startup.com? "I hadn’t seen it," he says. "A lot of people in my industry… sort of avoided it. But it’s interesting to see it now — to see how they’ve both grown.

"Kaleil," he adds, "is particularly interested in making this a success story," probably for all the reasons you’d expect. ("I’m not a psychiatrist," Labick offers.) Tuzman himself doesn’t dance around the issue. "The general public impression of us was one of failure," he says. "A success for us was a success story, not a ton of money."

And actually it’s immediately clear talk to either one of them that they’re both true believers in the entrepreneurial idea. "I’d love to run this company," Herman says at one point, mid-rhapsody over KPE. Then he catches himself. "But I don’t want to fall into that trap." Sometimes, he and Tuzman have learned, it’s better to step aside, let someone else run the show, and settle for being successfully liquid.

A version of this story appeared in the March 4, 2002, issue of Fortune.