Almost Perfect

by W. E. Pete Peterson

Copyright 1993, 1998 W. E. Peterson



Chapter 5

Growth Spurt



As 3.0 sales took off, the company started to feel like a fast moving train, running totally out of control. We could not stop it, we did not know how to steer it, and we were not sure where we were headed. All we could do was hold on and hope for the best. We were a group of friends, relatives, and neighbors, all working hard and trying our best, but lacking any formal structure to our organization. Meetings were held in hallways whenever two or more people happened to meet. We lacked any official means of considering ideas or making decisions. If someone came up with an idea, we usually gave it a try. The only constraint on our experimentation was the amount of cash we had in the bank. If we could afford it, we tried it. Alan liked to tell the press that our success was a result of hiring good people and letting them do a good job. His analysis would always discourage me, because I liked to think the leadership and management of the Board was primarily responsible for our success. Looking back, Alan's opinion was probably closer to the truth. The Board exercised enough control to keep the company profitable, but we let people do what they wanted to do most of the time. The background we shared helped us hold things together. Most of us came from Utah or were somehow connected to the state through BYU or the Mormon Church. Many of our great grandparents were pioneers, who came west long before Utah was granted statehood. Most of them arrived with little money and few possessions after suffering much because of religious persecution. Our grandparents and parents, especially those who stayed in Utah, generally had a tough time making a living. Utah was not a rich state and was known for its low wages. As children we were taught that hard work and self-reliance were virtues and that debt should be avoided like the plague. We generally grew up in homes of modest means and were not accustomed to luxury or extravagance. Most of us did not drink or smoke. We expected to work long hours for few rewards. We were honest, cheerful, and happy to have our jobs. We were a personnel manager's dream come true. We loved the fact that we could run our own company. Most businesses that came to Utah did so because of our low labor costs, and most chose to import their own management teams. The opportunity we had to make our own decisions and control the nature and culture of our company was unusual. The fact that we enjoyed our independence so much was an extra incentive for everyone to make sure we were profitable. Turning a profit in 1984 was not very difficult, although if the reviews of WP 3.0 had been bad, we might have had a tougher time. Fortunately, the one that mattered most, the InfoWorld review, was no less than lukewarm and not bad enough to hurt us. Although our overall score was disappointing and a little puzzling, the author of the review wrote some very complimentary things about our product. Most of the reviews in the other trade publications were much more positive. We were now getting enough attention from the industry press that government agencies and large corporations were including WordPerfect in many of their evaluations. Sales jumped to more than two million dollars for the first quarter of 1984. We were surprised and excited to be doing so well, but we had trouble believing sales would stay at such a high level. We kept our expenses down to one million dollars a quarter in case the high sales proved to be an aberration. The huge growth in sales meant we needed more people, more office space, more computers, and more telephones. We probably also needed a little more structure to our organization, but we did not know what to do at the time. Our informal, all-for-one-and-one-for-all, family type of company had worked well with 25 employees, but was showing signs of breaking down now that we had more than 50. Many things were happening and at times no one seemed to know why. We had trouble keeping everyone up to date and working together. We had to keep adding more people for development, marketing, customer support, manufacturing, and order taking, but unfortunately, we gave them almost no training and little supervision. Each department was its own little empire, with its own policies and procedures. We dealt with the changes using a strategy I called "crisis growth." Rather than try to anticipate the problems and plan for them, we solved them as they came up. This strategy was forced upon us, because although we were showing a good profit, we were growing so quickly that we never seemed to have enough money to pay for a permanent solution. We never had enough money in the bank to build or lease a building that would hold the entire company, so we leased space around Orem as we needed it. We never seemed to be able to hire enough customer support operators to handle all the calls, so we did the best we could with the resources we had. It seemed that every month we needed a bigger telephone switch, more telephone lines, better computers, and more office space. Perhaps if we had gone public or raised money in some other way, we could have done a more professional job of handling the growth. At the time, however, we were more concerned with keeping our independence. We were happy to take things one day at a time and to solve the problems as they arose. I am not sure where we got the confidence to think we could do this forever, but the longer we did it successfully, the less we worried about the future. There were some benefits to this crisis growth strategy. It is always dangerous to spend money in anticipation of growth. A company that does runs the risk of having too many employees, too much equipment, or too little sales to cover its costs. Wang was a good example of a company that did too much planning. They planned on getting bigger and bigger, so they built large, beautiful buildings to hold all the people they would need to hire. When their business slowed down, they were left with hundreds of thousands of square feet of empty office space. By growing only at the very last minute, we never ran out of money. Sometimes our customers would get a busy signal, sometimes employees would have to share offices, and sometimes we all had to work a little harder to keep up, but we rarely had to lay anyone off and we never had to borrow any money. Our most difficult crisis at the time was maintaining good communications inside the company. There were, of course, informal lines of communication, but a friend to friend network of gossip and rumors was not an ideal way of getting good information distributed around the company. The solution we came up with was not perfect, but it helped. Alan and I used our lunch hours to run our areas of the company. We set up a very complicated schedule to eat with the different department heads on a regular basis. We brought the marketing and development departments together at a large luncheon every Monday. Then we would meet with smaller groups from Tuesday through Friday. We would find out what each of the groups was doing and offer advice as we ate. If problems arose between different groups, we would put them together at a luncheon to sort things out. Gaining weight almost became a part of our job descriptions. We learned a lot about the dynamics of communicating around a dining table. We learned that a luncheon with more than eight people was generally unproductive, because it led to multiple conversations that were usually off the subject. Six was generally the best number for getting work done. A round table was better than a rectangular one. If a rectangular table was the only choice, it was always better to sit in one of the middle seats if you wanted to be involved in the discussions. As we met with the different groups and began to understand more of what was happening inside the company, we discovered we had very little control. Many in the company had grown accustomed to doing whatever they wanted to do and were having trouble taking suggestions and reporting on a regular basis. Because the company was doing so well, it was hard to make big changes. We did, however, start to exert a measure of control with a budgeting process. If we liked what we heard at lunch, we funded the efforts. If we didn't like what we heard, we limited spending or hiring. Our management-by-luncheon system did not help Bruce's part of the organization, however. He spent much of his time traveling in Europe and other parts of the world and did not eat with us very often. We had very little contact with the people he hired, so our international business was isolated from our domestic business. Communication between the two was always a problem. Our increasing sales and good reviews were finally bringing calls from distributors. Instead of sending rejection letters, most were asking us to sign distribution agreements. Sears was the only exception. They took time out to send us a second rejection letter. Deciding to use distributors was not an easy decision. One consideration was money. Our dealers received a 50% discount off of the list price of our products. Distributors told us they needed at least a 65% discount to make a profit selling our products. The $75 difference seemed like a lot to pay. A second consideration was the additional discounting which was bound to occur if distributors sold our products. At the time the neighborhood computer dealer was the software vendor's most important sales channel. If we wanted the dealers' loyalty, we were expected us to keep our product out of the hands of mail order companies. The dealers wanted to charge a higher price for our software and did not want to have to compete with the discounters. We tried our best to comply with the dealers' demands, but it was not easy. Although we were able to keep the product out of the hands of reputable mail order companies with our refusal to sell to them, other mail order companies were selling our product. Ironically, they were buying product from a few of the dealers we were trying to protect. As we would find the dealers who were selling to mail order companies, we would cut them off. However, as quickly as we would stop selling product to one misbehaved dealer, another dealer selling in the grey market would start up. No matter how hard we tried, every month a few ads would appear offering WordPerfect at a discount. We knew if we used distributors the situation would only get worse. Once a product is in the hands of a distributor it is available everywhere, because distributors will sell to almost anyone with a sales tax number and a good story. Selling through distributors meant we were giving up on trying to eliminate the discounters. In the years to come, we learned to listen politely and sympathetically to the dealers' pleas for help, but we never found a practical and legal way to protect them. There were advantages to having distributors which outweighed these other considerations. Because dealers carry hundreds of items in a store, it is inconvenient and impractical for them to order all those items directly from each manufacturer. Dealers needed good distributors who could deliver many products quickly. Distributors helped us out, because it was much easier for us to service a few distributors than it was to service many thousands of dealers. Even real customers, the people who bought and actually used WordPerfect, benefited. As soon as distributors started carrying our product, the dealer price for WordPerfect went down and the competition among the dealers increased. The street price, or the price customers paid if they shopped around, ended up dropping below $300 for our $495 product. When we made the decision to sign distributors, we made the mistake of signing two or three of their agreements before we understood how much these agreements favored them. After we realized our error, we had them sign an agreement more to our liking. WordPerfect was selling well enough now that we could get away with drafting and enforcing our own agreements. Once we started signing up distributors, we did not seem to know how to stop. Before we realized that there was such a thing as being "over distributed," we had almost thirty distributors. Five or six would have been more than enough to ensure that our products were easily available and priced competitively. Unfortunately, it would take us years to get rid of the extra distributors. In April Doug Lloyd was given approval to start a summer "rep" program. Rep was short for marketing representative. By now Scott and John were home from their travels around the country, and Doug, well versed in IBM's sales strategies, wanted to try his hand at putting together a new outside sales force. We gave him permission to hire ten or twelve people for the summer. We posted the job opportunities on a bulletin board at the placement office at BYU. Doug would watch as the prospective salespeople arrived. He would interview the ones he thought looked good and let Scott interview the ones he did not like. I think he was looking for people who had that IBM look--at least six feet tall, good hair, nice clothes, and an energetic step. Doug hired about ten men and one woman, all good looking, all in their early twenties, and all with their own cars. Most of them had been on missions for the Mormon Church as well. The training the reps received was minimal. I asked Doug to give them a minimum of 27 hours of instruction, and that is all they got. During the last two weeks of the semester, they each spent about sixteen hours on the computer to learn WordPerfect, a few hours in the classroom to learn a sales pitch, and four hours in customer support to listen in on support calls. With this small amount of training and a trunk full of demonstration copies of WordPerfect, we sent them on their way. We were lucky to start the program back when dealers were not too busy to talk to salespeople. Some dealers went so far as to take some of the reps under their wing and show them how to use a hard disk (the reps had only learned how to use a two-floppy disk drive system) and give a good demonstration. In spite of the limited training and lack of support from the home office, most of the reps did a very good job. About half of them would go back to school in the fall, but the other half would stay out in field to work for us full time. Development work on the next version of WordPerfect was moving ahead very slowly early in the year. The biggest problem was that we were spending a lot of our time trying to find a way to stop people from stealing our software. Back then Lotus 1-2-3 was copy protected and was bringing in more money than any other application. A lot of people within our company thought our sales would improve considerably if we were to similarly copy protect our products. Bruce felt copy protection was an absolute requirement if we were to successfully sell our software in Europe, since a very large percentage of Europeans were pirating software. Trade publications e stimated that at least 50% of the software used in the United States was pirated. Europeans were thought to be pirating as many as 75% of their copies. In countries like Spain and Italy, the percentage of stolen copies was thought to be even higher. One option we had was to pay another company for protection. Some companies sold tiny devices for about $10 each which had to be plugged into the back of the computer for a software product to work. Some companies sold special, modified disks, called key disks, which had to stay in the disk drive for a program to work. Royalties for key disks ran from about $2 to $5 per copy. We wanted to avoid paying royalties, so we began developing our own key disk type of copy protection. During the first half of 1984, the developers came up with different ways to protect against the copying, but they were never completely satisfied that their schemes were unbreakable. We were rapidly coming to the conclusion that developing an inexpensive, unbreakable protection scheme was an impossible task. Meanwhile, software customers were coming to the conclusion that any protection was too much of an inconvenience. Our other products were also taking resources away from WordPerfect. In addition to the products we had begun, IBM had announced the IBM PCjr, and we were developing a word processor and a spreadsheet for the new machine. We believed that we had to broaden our product line to compete. We were determined that 1984 would "mark the end of the one product company, and the emergence of SSI as a significant software company with many products for IBM small computers." (This quotation was taken from our 1984 business plan.) We should have used more of our resources to improve WordPerfect, but back then we were preoccupied with offering a family of products, and shedding our one-product-company label. There was a common belief in the industry, which was regularly reported in the trade press, that a one-product company had to diversify to be successful. Even our bankers and accountants were asking us if we could survive long term with only one product. Like almost every other software company, we were caught up in the rage to have a complete suite of applications, all with a similar brand name. Software Publishing had PFS:Write and PFS:File. Micropro had WordStar, CalcStar, and DataStar. The PerfectWriter people also had PerfectCalc. There was a company formed by a few Micropro exiles with the products WriteIt and CalcIt and plans for DataIt and DrawIt. Of course, none of these product families were successful, but that did not stop any of us from trying. Sometime in the late spring or early summer we realized we were wasting valuable time and that we needed to get a good, new version of WordPerfect ready for the fall. The obvious name for the new version was WordPerfect 4.0. 4.0 was a perfect grade point average in school and described the type of product we wanted to release. Although we did not have the time to add in a lot of new features, we did have the time and the resources to improve the cosmetics of the product. Alan finally agreed that the old template had to go. It had covered the ten function keys at the left of the keyboard and the numbers keys across the top. It looked like an "L" on its side. I liked to call it the "gallows" template, because it seemed to be killing sales and looked a little like the figure you would draw to start the game Hangman. It did not stay on the keyboard well and did not fit many of the new keyboards which the clone makers were producing. By moving all the features to the ten function keys at the left, we could send a less complicated looking template, which would fit on more keyboards. We spent a lot of time and money on the 4.0 manual, using better paper, more color, and adding a tutorial with exercises. We also added a nicer looking jacket to the outside of the package. The new version gave the impression that 4.0 was a much improved program, even though the software was not that much different. There were some new features--installation was simpler, the dictionary was bigger, a block was now highlighted on the screen, endnotes were added, and error handling was better (WP could recover from many DOS errors, where before it would crash if DOS had a problem)--but there were not nearly as many new features as there had been in version 3.0. Until the last minute we had planned a simple, key disk copy protection for 4.0. This required the customer to put a WordPerfect diskette into the computer each time the program was started. I personally did not enjoy the procedure and begged Alan to use it himself before we shipped. He had been using non-protected software on his own machine to avoid the inconvenience of switching back and forth between P-Edit and WordPerfect. After about fifteen minutes of use, Alan told the developers to drop the protection. It was so close to the release that we did not have time to remove the key symbol, which signified a copy protected diskette, from the diskette labels. Dropping the copy protection was a good decision. Although we would still copy protect some of our software in Europe, it was not a good idea for the United States. Many businesses in the US were coming to the conclusion that they were not willing to live with the inconvenience of copy protection. Even 1-2-3 would eventually drop it. It was simply not fair to make the good, paying customers put up with an inconvenience caused by the bad ones. In the end, what was good for the legal customers was also good for our bottom line. We shipped 4.0 a couple of weeks before COMDEX in order to be ready for the year end selling season. There was a feeling of great excitement around the company. Version 4.0 stood for "A" work, and we were proud of our efforts. It seemed as if everyone in the company had been involved in making the product a success. We spent every dime we had on the 4.0 roll out. Bruce was adamant about this. He wanted to spend no less than $100,000 on advertising. This seemed like an enormous amount to spend all at once, since we usually budgeted only $15,000 a month for advertising. Our booth at COMDEX was six times the size of the previous year's booth. We put a stage in the booth and hired a trade show company from Chicago to produce a presentation. Their production included professional actors, singing, and dancing. We did not want to look like a technical software house from some remote spot in the Rocky Mountains. We wanted to look like a software publisher with exciting products and new ideas. During our evenings at COMDEX, a few of us, including a couple of programmers, met to trade stories and impressions from the show. Some there were discouraged by our image compared to the other large companies and complained about how difficult it was to improve our image without a lot of money. We were, however, already well on the road to improving our reputation. In addition to our improved product and our professional presentation at COMDEX, Dan was using an advertising agency, and at their suggestion we had a new logo, new packaging on the way, a new ad campaign, and a new name. The new name, SSI Software, did not make a lot of sense--Satellite Software International Software?--but it looked good in the ads. We no longer looked like amateurs. We had improved to at least a semi-pro level overall and were well on our way to getting things right. Despite these improvements, a few of our employees felt that the image we were projecting would hinder our growth. We had a young, bright, cheerful, clean-scrubbed, naive kind of look, and as a result many in the industry, including our competitors, did not take us seriously. Although we may not have appeared as sophisticated and cosmopolitan as some would have liked, I had trouble believing we should try to take on an image which did not fit us very well. I did not think it was fair to complain or to try to change our wholesome image, any more than it was to complain about a bunny rabbit having floppy ears and a tail. It was fair to expect that we should do our work expertly, but not that we should be something we were not. Until that COMDEX of 1984, my hope was to one day capture 35% of the word processing market. We had passed a lot of other products, like Select, Benchmark, Palantir, Peachtext, Volkswriter, and Easywriter, but WordStar seemed impassable. WordStar from Micropro had no less than 60% of the market, and their dealers and customers were very loyal. All Micropro had to do was to keep offering improved versions of WordStar to maintain their number one position. Sadly for Micropro, the one thing they could not do very easily was update their product. After their luck at getting the CP/M version of WordStar running on the PC, they could not seem to get an updated version out the door. They decided instead that they would produce an entirely new product, one which was easier to maintain and improve than the original version. Luckily for us, the new WordStar, introduced at COMDEX as WordStar 2000, was entirely different from the old product. Micropro intentionally attempted to replace their market leader with a product that was bigger and slower and used a different interface. Although it was not obvious at COMDEX, the product was doomed from the start. In spite of all the product hype and the size and beauty of the Micropro booth and presentation, the new product did not stand a chance. Micropro did more for us at that show than we could ever have done for ourselves. They convinced their customers that the old WordStar was not very good and that they needed to look for something better. Not only would these customers take a look at WordStar 2000, but they would also look at WordPerfect 4.0. We finished the year with sales of a little more than $9 million, which made us the third word processor behind WordStar ($67 million in sales) and Multimate ($20 million in sales). Even though our profits for the year were slightly more than $1 million after taxes, we had very little cash. Every dollar we made was going back into the company or toward the promotion of 4.0. Our hopes to have many successful products by the end of the year were not realized. The IBM PCjr was failing, as were the products we made for it, and none of our other products were selling very well. Most disappointing of all were the prospects for SSIData. The product came out just before COMDEX, and the InfoWorld review appeared in their Christmas Eve edition. The review was much worse than bad. We received only a one diskette rating, the worst possible. Their conclusion was, "This one needs work before your should consider purchasing it." It was one of the worst reviews ever given to any product in the history of the computer industry. The failure was particularly disappointing to me, because for a year and a half I had spent a lot of time working on the product. Lew Bastian, older brother to Bruce and my wife and the sole programmer of the original SSIData, kept his home in Tucson after leaving IBM. For most of the month he worked on his software project at home, and then for one week each month he would come up to Utah to visit the SSI offices. During these times, he would stay at our home. My kids liked having their uncle around because he would pick them up and run around the room so they could pretend they were Superman or Superwoman. My wife loved her oldest brother, but his week long visits were not a lot of fun for her. I spent every evening with Lew learning about his legal time and billing system and watching him write his program in Forth (I was, as I said, past being a workaholic). One evening we were downstairs talking about his program, when we came up with this great idea for a database. It was an "Ah Hah!" type experience, and it was exciting to visualize the product and think about how great it would be to use. I was so convinced that the product we envisioned was good, that I spent all my spare time working on the project. Once Lew had a prototype working, I started showing it off to the press. One magazine, PC World, did a major story about the product in their February 1984 issue. Through the spring and summer, I wrote the manual. In the early fall I did the alpha testing all by myself and organized the beta testing. I wanted so much to see the product come to life as we had originally designed it, that I would not let anyone else help with the project. I was so sure that the product would be a success that the very horrible review in InfoWorld was a complete surprise. The reviewer hated the documentation and was disappointed by all the bugs. I hated to admit that what he said was true, especially after all the time I had invested in the project in addition to all my normal work. The failure of SSIData taught me two painful lessons: ideas should be shared so others can improve on them, and no one, including myself, is infallible. Lew would struggle to improve SSIData year after year. Eventually the name would change to DataPerfect and many customers would enjoy using it, but the reviews would not get much better. The product would sell well enough to finance its development but it would never make the company a significant amount of money. Even with the failures, our SSI train, now our SSI Software train, was getting bigger and rolling down the tracks even faster. Sales for WordPerfect would overshadow all our other product mistakes. No matter what we did wrong, no matter how we wasted our resources, WordPerfect for DOS provided more than enough money to keep us out of trouble and make us look good. To our credit, we did have our share of successes. Our toll free customer support was already a well recognized marketing asset. Unlike Micropro, which referred their customers to dealers for assistance, we wanted to help our customers personally. We wanted to hear their complaints and their suggestions. Perhaps our image was a little too nice for some, but in a year we had almost tripled sales and grown from 47 employees to 84 employees. Although we had our share of problems, we were all going the extra mile and learning from our mistakes. Go to Chapter 6



