At a time of overflowing venture-capital coffers and instant stock-optio=
n
millionaires, it's instructive to look back at what life was like at a
high-tech startup at the dawn of the New Economy, oh, 10 years ago. Back
then, the question high-tech pioneers asked themselves wasn't: How high w=
ill
they bid? It was: How much chutzpah do I need to survive? Here's the tale=
of
one company that made it big without loans - even from friends and family=
--
or investors, GoldMine Software. Their secret? Extreme, long-term penny
pinching. The payoff: a huge piece of equity that reaped them a fortune w=
hen
it came time to sell.
Back in 1989, Elan Susser and Jon V. Ferrara, then 25 and 28 respectively=
,
were stuck. They were pioneering accounting software for networked
computers -- at a price small companies could afford. Word was starting t=
o
get around. A fortune beckoned. Right then, however, they desperately nee=
ded
a third phone line in the San Fernando Valley apartment where they lived =
and
worked. They were only allowed to install two lines per unit. They'd spen=
t
most of their $5,000 in startup capital on their first day in business, s=
o
moving was out. Mustering all their charm, they called on the nice retire=
d
lady next door: Could they drill a small hole through to her bedroom and
pull through a wire...Please? Amazingly, she consented. "We were just rea=
lly
sweet," says Ferrara.
What had Susser and Ferrara so charged up? The two, once computer-science
classmates at California State University at Northridge, saw networked
computers as the future. They were determined to get in on it early by
developing affordable software aimed at small and midsize businesses.
Unfortunately, all they had to fund their dream was Susser's $5,000 in
savings from his two-year-old computer consulting business. Neither had
business training. Not knowing any better, they ran everything on revenue=
s
alone -- no loans or outside investors. The alternatives became obvious f=
rom
1993 on, when venture capitalists and trading houses dangled money in fro=
nt
of them. They stuck with their strategy, though: "We were worried about
outside people funding the company and dictating its direction," Susser
recalls. "We preferred to wake up in the morning and make our own
decisions."
That stubbornness meant months of macaroni and cheese and years of minima=
l
salaries, but it paid off handsomely: Some 10 years later, Susser and
Ferrara still had 90% equity (employees had the rest). In April, when
GoldMine merged with another industry leader, the two hauled in $83 milli=
on
and still kept a significant minority stake in the company. What's the
lesson for today's hell-bent-for-IPO entrepreneurs? GoldMine's founders
don't pretend that their strategy is for everybody. Tech product cycles a=
re
much shorter now -- one reason venture capitalists pump so much cash into
their young charges. "If you're entering a marketplace like today's with
timing that forces you to be aggressive, it might make sense to bring in
venture capital," says Ferrara. Then, there's the misery factor: "It took=
us
five years to become a serious company. If we had funding, it would have
taken us one or two years," says Susser. But they do credit the shoestrin=
g
tactics with a good measure of their success. "It was because we created =
the
company on our own revenue stream that we were forced to do things
intelligently and profitably from the beginning," Ferrara contends.
Absent cash, the two figured out fast that they'd have to rely on illusio=
n
to lure customers. About $4,500 of their initial $5,000 disappeared the d=
ay
they began, paying for a server, a hard disk, and rent. Much of the rest
went into business cards, stationery, and packaging, which they designed =
on
their PCs. "That's how you get big -- you take every dime and put it back
into the perception, because perception is reality," says Ferrara. They
noticed that the bigger the company, the more understated the business ca=
rd,
so they emulated that. They paid for huge displays at trade shows, and wo=
re
khaki outfits with a tasteful pocket logo that looked like corporate
uniforms.
What kept them going that first year? A postcard with a sweeping view of =
the
Santa Monica coast on the fridge. "Every day, when we'd go reheat our
macaroni and cheese, we'd look at it and visualize it as the view from ou=
r
future office," says Ferrara. From a desk teetering on stacked books,
Ferrara sold by day and worked on the documentation at night. Susser did
customer support by day and developed the software by night. Susser also
wrote software to help them keep track of their customer contacts. They h=
ad
a moment of truth at a 1990 trade show, when they went to their computer =
to
retrieve a vendor's phone number. "People started congregating and wantin=
g
to know what it was, and that's when we realized we were on to something,=
"
Susser recalls. Software already existed for stand-alone functions such a=
s
E-mail, telemarketing, and client contact, but theirs integrated all the
functions into one package. "Back then, you couldn't find that kind of
technology in a program of any price, and people saw a new way to work,"
recalls Ferrara. They took a deep breath and switched their focus from
accounting software to sales and marketing software. It made sense: The
latter divisions are often three or four times the size of the accounting
division, and they need less customer support. "When you sell someone an
accounting program, they call you at the end of the month and ask account=
ing
questions," says Ferrara. "When you sell a marketing program, they don't
call and ask how to close a sale."
They sold first to local businesses, then to computer stores, finally
focusing on value-added resellers. Soon three more employees were working
out of the apartment. They even packaged the software there, using
shrink-wrap machinery so noisy that phone conversations had to be suspend=
ed.
Revenues surged in the next two years, rising from $20,000 to $200,000, a=
s
their 16-hour days and product quality paid off. They moved to an
800-square-foot office in 1991. Venture capitalists came calling around
1993. "Every year, the sums would get higher and the percentages lower,"
says Susser, referring to the VCs' offers and the stakes they wanted in t=
he
company. "But our growth was so fast that every year we would look back a=
nd
say: 'If we had taken X amount last year, we would have given a substanti=
al
amount of the company away, and now it wouldn't cover three months of
payroll.'"
Their big break came in August, 1993, when PC Magazine designated GoldMin=
e
Software the Editors' Choice in the contact-management category. "That br=
oke
our phone system and forced us to move again," says Ferrara. The software
won the designation the next three times it was awarded, attracting such
clients as GE Capital, Sprint PCS, Bank of America, Universal Studios,
Hewlett-Packard, Toshiba, Ernst & Young, Blue Cross/Blue Shield, Apria
Healthcare, and Shell Oil. Today, the software, which sells for $200 to $=
500
per user, allows a company's sales, marketing, and customer-support staff=
s
to track all contacts with clients. "No matter who in the company picks u=
p
the phone, they have in front of them a complete picture of that customer=
,"
says Ferrara. It also lets employees track sales quotas, projects, and
deadlines; allows managers to automatically schedule meetings; links
Internet messages to contact records; and integrates client records with
inventory, production, and finance databases.
In 1995, GoldMine moved to new corporate offices in Pacific Palisades. Th=
eir
reward: They finally got the coastal view on the postcard. By early 1999,
the company, which had garnered 60 major industry awards, had 150 employe=
es
and revenues approaching $25 million. Revenues have roughly doubled every
year, with net profit margins ranging between 10% and 20%, says Ferrara.
Staff turnover is currently 3%, with employees kept happy by profit-shari=
ng,
a stock-option plan, and 100% medical and dental coverage. In April, 1999=
,
after launching a search for a corporate partner, Susser and Ferrara sold
control of GoldMine Software Corp. to Bendata Inc., exchanging 60% of the=
ir
stock for $83 million. Bendata, a vendor of software for customer service
and support based in Colorado Springs, Colo., assumed GoldMine's name. Th=
e
company is now the world's largest provider of sales, marketing, and supp=
ort
systems to small and midsize businesses, with 1998 combined revenues of $=
52
million, 350 employees in six countries, and 100,000 customer sites
worldwide. Bendata is 100% owned by South African-based Ixchange Technolo=
gy
Holdings Ltd., a public company listed on the Johannesburg Stock Exchange.
Susser is now chief technology officer and Ferrara executive
vice-president -- positions that relieve them of day-to-day management
functions. "The stresses and responsibilities became too great. We're
entrepreneurs, not professional managers or businesspeople," says Susser.=
He
plans to "take some time off and breathe, which I haven't done for the la=
st
10 years." As for Ferrara: "I'm going to have more time to evangelize abo=
ut
GoldMine, which is what I really enjoy doing." Neither regrets missing
today's venture-capital sweepstakes. "I've seen many friends start compan=
ies
that went on to become very successful, but after five years they are lef=
t
with very little because they've had to sacrifice what they had for ventu=
re
capital," says Susser. Adds Ferrara: "In today's environment, there's so
much venture capital that new startups just throw money at problems. They
never really learn to do things profitably. But we were forced to be
profitable." That's a message that many a dotcom entrepreneur would do we=
ll
to heed today.
Tushar J. Mehta
email: [email protected]
voicemail: (206) 405-2335