Tim Berry - Buying into the dot-com boom hype

Tim Berry, founder of Palo Alto Software (developer of Business Plan Pro) has contributed much to this site (see here for a collection of stories from Tim). In this audio story taken from a longer interview, Tim discusses how his company was affected during the dot-com bubble of the late 1990's, and how he got caught up in the enthusiasm, with results you might expect.

You can download the podcast file here: Tim Berry - believing the dot-com hype (4:04)

Transcript:

So I was one of those who bought the craziness of the dot-com boom. And it was hard for me not to, because Palo Alto Software back in 1998 and 1999 was riding the web very high. I mean we're still very strong on the web; we get multiple millions of unique visitors per month at bplans.com. But back in '98 and '99 the half a million monthly unique visitors put us in the spotlight of that craziness where professional investors were valuing companies by their web traffic rather than their revenues. And although I should have had the vision to see that that wasn't going to last, what I did, to be perfectly honest, was I started to believe we were worth what the web traffic valued us at. Which was like $50 million, just to make it general. This was a company that had only consulting until '94. Our product business started in '95. We'd been successful; we'd been having double-digit growth, so we grew from a few hundred thousand dollars per year to five million dollars by 1998. So we were a good, interesting company, but in any normal time nobody would value the company at $50 million. But we had these web sites.

So I bought into this. We negotiated a minority equity share from venture capitalists in Palo Alto, CA. [We had moved to Eugene, OR.] We set about essentially getting the $50 million for the company. And we were just getting ready for that when the dot-com boom crashed. And, there we were, with a minority venture capital investment that was all predicated on us selling the company for $50 million. And after the crash, it wasn't worth $50 million. So eventually we had to buy the venture capitalists back out. Because you don't want to have an unhappy minority investor in your company. You don't want people to lose money on your company. It took us a while and it was painful, and it was just us. Because it was my wife and I just doing it. We managed the cash flow to get the venture capitalists their money back, with interest. And buy them back, and then the company became fully ours again. It was a long, difficult process, and caused a lot of upheaval.

And in the meantime, when the dot-com boom crash, our sales fell. We've declined in sales only two years since Business Plan Pro came out. One was 2001, the other was 2009. In 2001, when sales fell very fast, I failed to see that quickly enough, and I held on too long, and caused us a lot of financial problems from not cutting expenses fast enough.

Tim Berry audio story - on overestimating people early on

Another story from my 2010 conversation with Palo Alto Software founder (and superb blogger) Tim Berry. (The entire discussion can be found here.) In this story, Tim discusses a "long-term mistake" of his, and how he compensated for it.

Tim Berry - "I consistently overvalue people early on" (mp3 - 2m10s) - right-click to download.

Transcript:

I've never been a gun person, but I gather that the weapon sometimes has a natural lean to the left, or the rifle comes out high or the rifle comes out low. You get to know the weapon. And the markspeople compensate for that natural misalignment of the weapon by knowing that they need to aim slightly to the right or slightly up.

So I think of that analogy when I recognize that, through the years that I've been running a business, since 1983, when I went out on my own, I consistently overvalue people early on, early in the relationship. I've learned, with job interviews, and managing people, I've learned that this is a weakness, this is a flaw. And I know after I've finished the interview that I'm going to come out too up on that person. So I've tried through the years to recognize that and compensate. For example, when I was running the company, I started to get other people into the interviews to compensate. For example, for years, I'd never hire anybody until my wife had met and approved that person. Because she had better people skills.

Tim Berry audio story: leaving a consulting firm to write books

In 2010, I had a long conversation with Palo Alto Software founder (and superb blogger) Tim Berry about mistakes. (The entire discussion can be found here.) He related one story about leaving a comfortable job in a consulting firm for a life as a freelance writer of computer books. Things turned out very differently from his plan, but not in a bad way. A "brilliant mistake," perhaps?

Tim Berry: leaving a consulting firm to write books (mp3 - 4:19) - right-click to download.

Transcript:

One of the dumbest things I did had really good serendipitous results. So I can easily think of a mistake that I deserved to have suffered for but instead it worked out very well.

I left Creative Strategies; the entrepreneurial compensation wasn't enough for me. I really wanted to do more. This was a time - this was 1983 - when Stewart Brand had just won a $100,000 advance for the Whole Earth Catalog. And there I was, having a fancy MBA, I had fallen in love with computers. I built my first computer; I became very computer literate. I could program hex memory. But I had been a journalist; I could also write. The crazy mistake I made was leaving Creative Strategies on purpose in order to write computer books to seek my fortune.

And that was a horrible mistake, because Stewart Brand's $100,000 advance was an aberration; it was a moment in history that didn't repeat itself.

So there I was, with 4 children, a good strong marriage; we are still married, 40 years later, so at least we had that. I had left a high paying job to write these books. (I was on contract for three books which I eventually wrote and got published.)

The mistake turned to a serendipity event. About three months after I left from Creative Strategies, I got a call from the GM of Apple Latin America who had been my best and most favorite client while I was at Creative Strategies. He said, "Tim, I need you to go to Venezuela to do a market study." I can remember this conversation almost exactly as it occurred.

I said, "Hector, I left Creative Strategies. I'm in a home office, writing computer books."

And Hector said, "Tim, don't be an idiot. I never liked paying Creative Strategies for your work. It was just you I was hiring. I'm delighted to just pay you directly. Now seriously, how soon can you get to Venezuela?"

Leaving a good job to write computer books was a stupid mistake that had a very nice end result. And I'm not that dumb, because at that point in the conversation I said, "I'll call you back in five minutes." Then I got on the phone and booked tickets and went off to Venezuela. And in the next 2 weeks, I wrote a market study for Apple Latin America that created an invoice that was more than the total I got for the 3 books I wrote. And I did it in two weeks. I realized that consulting was going to generate the real revenue in the family, whether or not I was a vice president.

So there's a mistake that turned out well.

Tim Berry asks "why can't failures be included in speakers' bios?"

Tim Berry, in his great "Planning Startups Stories" blog, brings up a provocative assertion that is right up this site's alley:

I say entrepreneurs should agree on full disclosure in their bios. We should list not just our successes, but also the failures. Nobody lists the failures.

And he lists several reasons why this would improve our understanding of entrepreneurs and, ironically, success as well. Part of Tim's argument, which I agree with completely, is that people look at successful entrepreneurial ventures and create patterns that they believe are success rules. Then they publish them in books like "Good to Great" and readers think they have the magic formula. But because these books deliberately exclude failures (even from the same entrepreneurs!), their assessments are invalid and, worse, leave the mistaken impression that entrepreneurial success is replicable if you follow their 5 principles.

New businesses operate in a world of complexity. External issues, coincidence, luck, timing, etc., overwhelm operating principles when it comes to success and failure in entrepreneurial ventures. This doesn't mean you don't work hard and smart, but it does mean that those qualities don't guarantee anything at all.

"But that's not what we agreed"

This story from Tim Berry was originally titled "Goliath's Revenge, Part 1" and appeared in Tim's blog Planning, Startups, Stories.

I had a nice time in Bend (Oregon) last weekend, including a conversation after dinner with some friends, a nice summer night, staying light late; the subject of large companies screwing small companies came up. I had something to add — from experience. More of the "mistakes I’ve made" categories. They’re easier to talk about at the end of a good day, looking at the river, feeling at peace with things.

Before I get into this, I should point out that I’ve also had some very good deals and long-term relationships with large companies. For example, I consulted with Apple Computer almost steadily from 1982 until 1994; it was a large company, but I had no complaints. My company, Palo Alto Software, has had good long-term relationships with Inc Magazine, Prentice Hall, Entrepreneur, and several others. It’s not like all big companies are bad. But here’s a story, and maybe a lesson.

The Contract That Meant What it Said

We (two of us) sat in a conference room with eight managers of a very large company, wrapping up weeks of negotiations on a deal bundling a version of our software with a version of theirs. It was a tough negotiation. When we were very close, all the major points agreed, we flew to their location to do this final session. We had to go through things we thought had already been settled.  Finally, at the end, with everything supposedly settled, we signed a contract with a couple clauses we didn’t like.

One of them seemed to give them far broader rights than what we’d agreed. The word "unlimited" was there on the page.

"Don’t worry," they said, "that paragraph on page two is just for the disk duplicators, we have to have those rights or they won’t manufacture the disks. And you’re covered with the paragraph on page three, that limits our rights to exactly what we’ve agreed."

So we signed. Dumb. This belongs in the mistake bank for sure. But we did.

Three years later, our software appeared in a completely different context, way outside of what was agreed upon. I called the guy we’d negotiated with: no longer with the company. I called his assistant: no longer with the company. I called two others who’d been there: not longer with the company

Finally we took it to their corporate counsel. Actually to a person who was one of their legion of corporate counsels. We told him they didn’t have the right to do that.

"What do you mean," he answered. "Can’t you see it right there on page two? It says unlimited rights."

"But that’s not what we agreed," I said.

Silence.

Tim Berry: Trying to quit the wrong way

Tim Berry, president & founder of Palo Alto Software, shares this story of a mistake he made much earlier in his career. This story first appeared on Tim's blog Planning, Startups, Stories.

I've made a lot of mistakes. This one wasn't my worst, but it's perhaps one of the more memorable, and one that might help you avoid the same thing. There is a moral to this story. It was August of 1981, early morning, in the office of John Lutz, managing partner of McKinsey Management Consulting in Mexico City. I was three months out of Stanford with an MBA degree, working for McKinsey Management Consulting in Mexico City. The McKinsey offices sat in a very stylish high-profile office building overlooking a critical freeway junction over Chapultepec Park, linking the fancy Las Lomas residencial area with Polanco and the Paseo de Reforma main business district. The streets were wet from rain overnight, and the freeway was, as almost always, jammed. The sky was dense, a mixture of rainclouds and smog.

I needed to quit. It was so embarrassing. I didn't like to see myself as the archetypical fancy MBA blowing off the first job. I was 33 years old, married, and my wife was expecting our fourth child. I was way too mature for this stuff. But still ...I had arranged a job waiting for me with Creative Strategies International in San Jose. From where I was, returning back to the San Francisco peninsula, Silicon Valley, seemed like returning from exile back to paradise. I liked Creative Strategies, and liked living back in the states. I wanted out of McKinsey.

I really didn't like the job with McKinsey. It was stupid to have taken it. It was a job meant for a 26-year-old single person blinded by ambition untrammeled by relationships. Like most professional firms, success involved putting up with a corporate culture that spent 12 to 14 hours a day in the office, whether or not there was work to be done. The firm actively discouraged families by encouraging long-term business travel but without families, and by running 5-day strategy meetings at beach resorts and forbidding families coming along, even at the family's own expense. I was not supposed to disagree with partners on well, you get the idea.

I certainly didn't belong. I'd been entrepreneurial for 10 straight years, making my own way with freelance journalism and, later, my own consulting, and I wasn't up to faking awe for the partners. And as a family, we didn't belong in Mexico City. I had loved that place for nine years in the 70s, it had been good to me, but I was done. My wife is Mexican, she grew up in Mexico City, and had family there, but she was tired of it too. The city was too big, too hard to deal with. We had left in 1979 and shouldn't have gone back in 1981. I fell for the money and prestige, stupidly, because it wasn't enough to keep me.

So, back in the office with John Lutz, did I tell him why I was leaving? That I didn't like the job, had made a bad decision, didn't like Mexico, I'm sorry, it won't work.

No. I didn't. I told him I needed a lot more money.

This is one of the best arguments ever for telling the damn truth, even when it's embarrassing. I'm still embarrassed, but I'm older now, and, well, I think this is a good lesson to share.

So they gave me more money, and then how dumb did I look?

I still left, and I left looking really stupid. Why didn't I just tell the truth in the first place?

So there's the moral to the story. You'll be in a situation where you're tempted to slant away from the truth to make it easier, but remember before you do how bad you'll look if the other side answers the wrong issue, forcing you to admit it was never the real problem. So here there is. It bothered me for a long time but that was 25 years ago or so, and hey, I've made a lot of other mistakes since, the sting has worn off on this one. I hope you find the story useful.

Thanks, Tim

I'd like to welcome everyone here who stopped by based on Tim Berry's blog post today. Tim has been a supporter of the Mistake Bank work from the very beginning; in fact, there is a trove of stories from Tim, both from his blog and from an interview we did last year, that will be making their way over to this site over the next few weeks. Stay tuned. (If you can't wait that long, you can listen to the entire Mistake Bank interview here.)

Also, it was a recent post of Tim's ("5 Vital Truths About Business Mistakes") that gave me the kick I needed to get my collection of various and sundry mistake-related materials organized and presented in this forum. To quote Tim's post:

What worries me most about how much we all make mistakes is the whole mystique about excellence that leads to denial and distortions. I think of the song by Shaggy, ‘It Wasn’t Me.’ Reflect on your own work: do you make mistakes? If you don’t answer that with an immediate ‘Yes,’ then you’re in danger of being one of those delusional managers who blames others.

Accept that you make mistakes; reflect on them; learn from them; don't beat yourself up about them. That's our motto here. Hope to see you around more. (Use the subscribe link at the right to make sure you never miss a story!)