Mit Enterprise Forum -- Local Business Group Tackles Problems Of Growing Company

Even with rapidly growing sales in the millions and a best-selling product, a company is in deep trouble if it doesn't have strong leadership, a long-term vision and a solid business plan.

That was the consensus of about 170 people last week at an unusual session of the MIT Enterprise Forum of the Northwest, a nonprofit organization that meets half a dozen times a year to foster business development by reviewing the business problems of local companies.

Last week's Forum analyzed the case of a hypothetical software company - and found the company in danger of extinction because it was nearly out of cash, its owner had no long-term vision and its executives, each focused exclusively on getting the company's products out the door, were fighting among themselves over how the company could survive.

Although the company was hypothetical, "These are issues that all of us on the panel have seen occur, and some of us have lived through them," said Frank Catalano, production and sales promotion manager of Egghead Discount Software.

"Many of the companies that come to the MIT Forum don't bring these issues up because they are too embarrassed," said Catalano, who played the role of the chairman of the board of Techno-Feat Inc., a Bothell software company owned by Diane Byte, an engineer and formerly a senior programmer for "Macrohard Inc.," another made-up company.

Byte (in real life Diane Haelsig, president of Peopleware in Bellevue) and five other executives, all played by top executives of actual software companies, demonstrated Techno-Feat's problems in a staged executive committee meeting presided over by Catalano.

THE PROBLEMS

Though the company's single product, a $495 database program, had become an overnight best-seller, Techno-Feat's problem was money. "Here we are with $1 million in sales, and we don't have any money," Byte said. "We can't go on if we don't have more working capital. Next month, we're out of money."

The sniping started as soon as Byte asked for suggestions on how to make a presentation in an upcoming meeting with a venture capital group, D. Vour Capital Partners.

"I think they are going to want to see a business plan, and I've been telling you for a couple of years that we should have one," said the company's chief financial officer and controller, Mr. Bean, played by Pete O'Dell, president of Autodesk Retail in Bothell.

Pointing to the company's $500,000 in accounts receivable, "and those people aren't even answering our calls any more," Bean accused everybody else in Techno-Feat of "giving the products away" on credit.

Mentioning the most recent quarterly sales of $1 million, Catalano asked: "Where is all that money?"

"Everybody is out spending it," Bean said.

Other executives began interrupting one another, each defending his own turf and blaming the others for the company's problems.

"All we have in this company is a bunch of programmers," said Mr. Close, vice president of marketing and sales. Close, played by Gary Gagliardi, president of Fourgen Software in Seattle, repeatedly pushed for money to hire a sales force.

"I'm not giving my money to build a sales empire," snapped Byte.

"Why can't we all calm down here, we are all really wonderful people," said Mr. Nice, vice president of human resources.

By the end of the evening, Nice, actually Bob Zollo, president of Software Architects in Bothell, was overwhelmingly voted by the audience as the Techno-Feat executive most in need of firing.

Byte presented several options to get cash into the company.

-- She could take a $250,000 second mortgage on her home, but she didn't want to risk it.

-- The company had an offer, which she had turned down without consulting her board or executives, from a competitor that wanted to buy Techno-Feat for $5 million. She said she believed the company "will be worth 10 times this much in a few years, and we'll all be wealthy."

-- Another competitor, It's Big Money Inc., had offered to loan Techno-Feat $1 million immediately if Techno-Feat would start making a product for It's Big Money. Byte liked that offer, saying, "All they want in return is a lien on the company."

Techno-Feat executives could not agree on what to do with the money, from whatever source, once it was obtained.

Close, the company's only salesperson, wanted to spend $1 million on a sales team, saying "anything that's left over" could be spent on production. Mr. Smart, vice president of research and development (in real life Don Bottoms, president of Bellevue's Attachmate), was sure the company should put its money into new products.

THE SOLUTIONS

Members of the Forum audience, mostly local technology company executives, accountants and consultants, were then asked to act as consultants to Techno-Feat.

Several in the audience agreed that, because the company had no plan, whatever money it got would disappear quickly. "Even $1 million will not get you out of the hole you are in," said one member of the audience.

There was general agreement with one person's comment that Techno-Feat's troubles were illustrated by the fact that most of its executive committee meeting was concerned with tactics, with no discussion of a long-range vision or strategy.

In a show of hands, most in the audience agreed that Techno-Feat was in such sorry shape that it should take the $5 million offer Byte had already turned down.

There was little support for any other option.

"It's Big is clearly making a predatory takeover offer in the guise of an R&D project," said another consultant.

Catalano then asked each panelist who had played a role in Techno-Feat's board meeting what he or she would do.

Haelsig (Byte) said she would take the $5 million that Byte had turned down and use it to build a direct marketing sales force.

"Probably the best thing is to take whatever money we can and run with it," said Bottoms (Smart).

Gagliardi (Close) summed up the feelings of many in the room when he said, "Companies come down to people, and here the problem is people.

"I'd buy it for $5 million, and I'd fire everybody," Gagliardi said. "What they have here is a hot-selling product, and that's the hardest thing to get in the market."

Zollo (Nice) said the meeting had demonstrated that "People who are in a crisis situation tend to close their minds to other ways of solving a problem. The problem here is a complete lack of leadership on the part of the owner."