395 Lesson 3 Vermeer ABC

8/4/2019 395 Lesson 3 Vermeer ABC

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Vermeer (A, A-1, B, C)

STC 395

(C) Jeffrey A. Martin

If I were to wish for anything, I should not wish forwealth and power, but for the passionate sense of thepotential, for the eye which, ever youngsees thepossiblewhat wine is so sparkling, what so fragrant,what so intoxicating as possibility?

-- Soren Kierkegaard


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Jeffrey A. Martin, PhD 2

Lets Vote on the VCs Offer

YES Take the Offer NO Dont Take the offer


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What is the opportunity? What have they done tocreate value?


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What do the Entrepreneurs think

Vermeer is worth?


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What do the VCs think Vermeer is

Worth?


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What do each of the stakeholders get out

of the deal?Charles Randy Frank Employees VCs

GET?

Want?

Risk

Manage-

ment?


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Should Charles Accept the Deal?



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VERMEER A-1



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Candidate #1

VP of marketing of a reputable west coast database company, in hislate 30s, he has strong marketing skills, and relevant experience inclient/server technology. In his current position, he manages 25people. Prior to joining the database company in its startup phase,

he was the proprietor of a small advertising business.

he projects tremendous enthusiasm about Vermeers future, and hasoffered numerous ideas about leveraging the companys lead in themarketplace through strategic partnerships. The VCs have really likedhim as a magnetic, gregarious, smart, and down to earth person. ButRandy isafraid this person may be a little to slick[T]he candidate

doesnt possess a deep understanding of the technology. I amsomewhat concerned that he has never held profit and loss responsibilityin the past. Also, he doesnt seem terribly enthusiastic about relocatingfrom the west coast.


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Candidate #2

VP of systems management products with a large East coast-basedsoftware company, in his early 30s, he has the reputation for beingan extraordinary team builder and earning the loyalty of employeesat all levels. In his current position as the manager of a business

unit, he has increased revenue from $1 million to $50 million in 30months. Hes been the vice president of engineering for thecompanys subsidiary. Yet he has limited experience in sales andmarketing.

He is a trustworthy consensus-builder and has a low-stress demeanor.He is very smart, thoughtful, and careful, but does not exhibit the forcefuldemeanor of someone who will get up and rouse the troops. He has avery good understanding of the product, but doesnt have muchexperience in marketing shrink-wrapped software.


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Candidate #3

President for five years of an East coast-based software company, in hisearly 40s, he took the company from startup to IPO. The company producesa high end graphic user interface, programming language, and client/servertools. It sells directly to customers, often entering into long-termrelationships with them. The IPO lead to a management change and, as a

result, he hasnt been active in software for approximately a year. He isinterested in reentering the industry.

He has a strong, polished style. References are universally of the opinion that heis someone who can do the job, and he has the track record to prove it. In hisprevious organization, he had created a flat structure, and encouraged purposefulcompetition among subordinates. However, some of his ex-employees feel thathe was a bit aloof with others, which led to lack of clarity in the organization aboutmanagement agenda. He has an extensive marketing background, but no in

shrink-wrapped software. Although he has a fairly good knowledge aboutVermeer and its product, some of us are concerned about the depth of histechnical ability.


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Vermeer CEO Candidates

1. VP of marketing of a reputable west coast database company, in his late30s, he has strong marketing skills, and relevant experience in client/servertechnology. In his current position, he manages 25 people. Prior to joining thedatabase company in its startup phase, he was the proprietor of a smalladvertising business.

2. VP of systems management products with a large East coast-basedsoftware company, in his early 30s, he has the reputation for being anextraordinary team builder and earning the loyalty of employees at all levels. Inhis current position as the manager of a business unit, he has increased revenuefrom $1 million to $50 million in 30 months. Hes been the vice president ofengineering for the companys subsidiary. Yet he has limited experience in salesand marketing.

3.

President for five years of an East coast-based software company, in hisearly 40s, he took the company from startup to IPO. The company produces ahigh end graphic user interface, programming language, and client/server tools.It sells directly to customers, often entering into long-term relationships withthem. The IPO lead to a management change and, as a result, he hasnt beenactive in software for approximately a year. He is interested in reentering theindustry.


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GETTING OFF THE BLOCKS



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Vermeer 1995 (B): Realizing the Dream

January: Secure first round financing Set up artificial deadlines, outward bound environment March: Threat from Navisoft (AOL Subsidiary) when they announce similar

product

April: Vermeer produces first working demo August: Netscape IPO September: New CEO Mandile joins Vermeer, Director of sales hired September: Netscape announces similar product for Q4 95 (not yet in beta) October 2: Vermeer ships first product Late October: Secure 2nd round ($7.2 million on $32 million pre-money

valuation)


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Vermeer (C): Negotiating the Future

Demo continuously downloadedlots of deal possibilities.

Second round of financingarranged of $7.2 million against a

valuation of $32 million

Marc Andreessen (Netscape)expresses interest

Microsoft calls; visit to Redmond isarranged: three scenarios offered:

joint marketing arrangement,licensing the source code oroutright acquisition

Subsequent meeting held in aCambridge hotel initial offer of$70 million cash (but stockpreferred for tax reasons.

Ferguson wants acquisition,Forgaard wants independence fast track IPO option the troopsare divided.

Vermeer people are deeper, moresophisticatedhave sufferedmore than MS people

Microsoft convinced that Vermeerwas the missing piece betweenthe individual user and the Webmarket.


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Vermeer 1995: Acquisition Negotiations

November 8th: Meet with Marc Andreesen of Netscape about possibleacquisition

November 8th: Call from Chris Peters, VP of Microsoft Office Early November: Spyglass offers to acquire Vermeer for $70mm in stock December 1: Meet with MS reps in NY and MS offers $70mm in cash December 4: Meet with Netscape's Andreesen and Barksdale December 7: Gates Pearl Harbor Day speech. Sleeping Giant awakes December 12: Receive significantly larger offer for MS, but team must

move to Redmond ($130mm Stock)


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What Should Charles Do?

Microsoft?

Netscape?Go it Alone (e.g., IPO)?


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NEGOTIATING THE FUTURE



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Lessons from Vermeer: Promoters out in

the big world

R&R was a simple, short-term opportunity

Vermeer is a more complex longer-termopportunityVermeer requires the skills from R&R plus an

additional set of skills related to managing anorganization



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R&R verses Vermeer: Opportunity

identification R&R: Quickly identified an opportunity, dropped

everything to pursue it

Vermeer: The same but needed to continuously refinethe idea

New information (WWW)

Eventually, new product generations

Both: Driven by opportunity, not current position


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R&R verses Vermeer: Team-building

R&R: Use contacts to create loose network of individuals,each doing what they do best

Vermeer: Use contacts to find initial individuals(Forgaard), then add other practices to build theorganization Employee references Headhunters

Once outside own network, need strict screen processes

Both: Need to obtain skills/resources outside of thosecurrently controlled


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R&R verses Vermeer: Team-Management

R&R: Simple financial incentives Vermeer: Asking employees for more. Therefore, a

tougher management task

Longer-term commitment. Need them to believe this opportunityis better than their current employment

Long working hours Dealing with personality clashes

Heterogeneity is necessary to get all required skills; but alsobreeds conflict


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R&R verses Vermeer: Financing

R&R: Low overhead, bootstrap and borrow friends line ofcredit

Vermeer: Start out with low overhead, no pay, no offices.But eventually need professional investors

Financial incentives do NOT keep people at jobs

Both: Use staged investment, use resources owned byothers


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R&R verses Vermeer: Harvest

R&R: Not an issue. Opportunity burned itself out

Vermeer: Next time: sell the company?

Timing, means of harvest adds another layer of

complexity


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R&R verses Vermeer: Big Picture

Entrepreneurial opportunities come in an enormousvariety of forms

The skills required to pursue these will vary, particularlywith the complexity of the opportunity

Hence, entrepreneurs come from many backgrounds and havemany different personalities

What kind of opportunity is the best fir for you?

But, the entrepreneurial mindset is a constant Future classes with revisit these skills in more depth



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The potential Role of Pattern

Recognition in Opportunity recognition

Source: Opportunity recognition as patternrecognition Baron, 2006

Events, Changes, Trends in the

External World

Changes in technology Changes in markets Trends in demographics Changes in government

policies and regulations Other events, changes,

trends in relevant business-related variables

Possible founding of newventures

Knowledge; Experience

Alertness

Search

Perceived patterns inthese events, trends,

changes

Patterns that suggest newproducts, services, etc.

Business Opportunities

Patterns that do notsuggest new

products, services,etc.

Cognitive

Frameworks

(prototypes,exemplars, etc.)

Perceived,interpreted

through


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Jeffrey A. Martin

Vermeer (F)(G): Epilog

What happened and where they are today


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Vermeer (F)

Enormous increase in sales,150,000 copies at $149

FrontPage 1.1 gets rave reviewsamong top ten sellers

Competition intensifies. Deathmarch continues. Dominance ofone sector not enoughGates

25 week cycle! Officedevelopment in 18 months!Driven, 80 hour weeks..

PMs critical, keep schedule, cutfeatures, facilitate communications

Soon slipped in timebehindschedulequality of processbegan to fail...consistentexcellence disappearedcrisis

mode took over

At Microsoft, a spec meansdelivery. At Vermeer, a deadlinecould change.

Lots of money-no time-tighteningthe handcuffs

Lots of firsts, 100,000 boxesshipped, 6 languages, stockdoubled in one year

Project finished! Specs Postedright away for FrontPage 98!

Forgaard retires Germanoleaves Jeffrey A. Martin


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Jeffrey A. Martin

Vermeer Update

Summer 1996: ship FrontPage 1.1 In first four months sells 150,000 copies Wins rave reviews

November 1996: ship FrontPage 97 Developed on 6 month schedule (vs. 12-18 moth cycle for MS Office) 1 million users download trial beta version. Launched in six languages. Ship date for FrontPage 98 set for July 6 1997 Forgaard and Germano announce retirement from MS

By 1999: FrontPage industry standard for Web site developmentsoftware 70% world market for Web page development software Nearly 3 million users Bundled with new version of Microsoft Office

February 2002: 40 million installed base


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Where are they now?

Andy Marcuvitz involved in Matrix III fund, with 22/24successful investments

Charles Ferguson wrote a book, High St@kes, NoPrisoners and later testified against Microsoft in its anti-trust case

Chris Peters left Microsoft in 1998, trained to become aprofessional bowler, and in 2000 led a group of investorswho bought the Professional Bowlers Association

Jeffrey A. Martin


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Chris Peters

Jeffrey A. Martin

Revenge of the Pinheads, Pacific Northwest, The

Seattle Times.


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WORK IN TEAMS ON BLITZPRESENTATION


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395 Lesson 3 Vermeer ABC