Wednesday, July 11, 2012

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.

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