Microsoft Buys Hotmail
Microsoft (MSFT) said Wednesday it is buying Hotmail to make free email a feature of the Microsoft Network . . . The stock deal for the two-year-old company has been estimated in the hun- dreds of millions of dollars, according to industry sources . . .
CNET News.com, January 3, 1998
Board Meeting Minutes
New Investors and Board Members: Moved: Dr. Denis Coleman and Wally Buch, M.D., each invest $100,000 and join the Board of Directors of Neoforma according to the conditions
in the stock purchase agreements and letter agreement prepared by Jack. Passed.
Officers: Moved: Denis Coleman be appointed vice-chairman and keep the minutes of meetings. Jack continues to be secretary. Jeff continues in his role as chairman and CEO. Wayne continues in his role as President. Passed.
Neoforma Board Meeting, January 20, 1998
Jeff and I had been putting increasing amounts of money into Neoforma—first, our own money; then borrowed money. By the end of 1997, we were running into dangerous territory...
Well before December, we had both exhausted our personal resources. If we did have to close the doors to the offices, we were so far in debt that it would probably take us a decade or more to dig our way out. Anni and I had absolutely no buffer left. Anni’s job couldn’t even cover a week’s worth of the bills that were stacking up.
Then in early December—eight months after beginning the process of fundraising—Jack brought another possible investor to the surface: Denis Coleman.
I was a bit intimidated by Denis. He had written one of the first wildly successful utilities for the personal computer. To sell his product he had formed a company that would become one of the largest software companies around. I had not heard of the programs Shawn had built, but I had several of Denis’s company’s programs on my computer.
It turned out that Denis was a very modest guy. He looked and acted like an engineer, one who simply faces each new challenge without preconception. With his modest manner, I would never have guessed that he had been a successful software executive. He was curious, cautious, enthusiastic, and very honest. I liked his directness. It allowed us to cover ground with him very quickly. He asked probing questions, but didn’t seem to need the same resolution that others did. He accepted that there were things we could not know yet. He made decisions based on what was here now.
We felt that, if we could just get Denis and Wally together, we might be able to get our funding in place by the end of the month. By holding off on paying some bills, I could just barely manage Neoforma’s finances until then. I’d be able to pay all of our employees—except me. But I told myself that that wouldn’t matter. I’d simply pay myself in January, as soon as our funding round closed in December.
I’d also have to postpone hiring Stephen until then. We’d planned on hiring Stephen to start a real sales program for us. He seemed like the ideal guy to upgrade our sales efforts. But he was used to making real money. Even if he’d agreed to take half the money he was used to, we wouldn’t have been able to pay his first paycheck.
Of course, we had to keep this pesky little fact that we were running out of money to ourselves. It simply wouldn’t do to discuss our need for haste with investors-to-be. That would give them too great a leverage on us.
So when Denis suggested that we start by trying to find a time to meet with a group called the “Band of Angels,” I tried not to panic. I knew this loose assemblage of wealthy investors met one evening each month to peruse new business opportunities. Each new business was sponsored by a member of the group. The assumption was that most companies presented would get several interested investors to join the sponsor in an investment round. It was obviously good for the new business, but it was potentially good for the presenter as well. There was great prestige in bringing a company to the group that provided strong returns.
Denis indicated that he would be willing to invest in us, but that it might be better to get a larger group together. Jeff and I met with the president of the Band of Angels at a well-known deal-making restaurant a few days before Christmas. The meeting went well. He indicated that he could probably get us on the schedule — maybe as soon as March! (“That’d be just fine,” I heard a little voice in my head saying. “Only we won’t have a company in March!” ) The words that actually came out of my mouth were something appropriate and casual, like, “Okay, sure. Just let us know when.”
Denis and Wally had yet to meet each other and both were busy for the holidays. So Jeff and I agreed to meet with the two of them sometime in early January.
Our calm, professional demeanor at the meeting had almost no relationship to the actual frenzy building inside us. Jeff and I were on the phone with each other incessantly during the next two weeks. We had to figure out how to make this work. We couldn’t watch it all disappear when we were this close!
I tried to disguise my despair when I was around my family. But sometimes, when I looked at this, all I could think was, “What have I done, putting my family at this level of risk?”
As my sons opened presents at Christmas, I found myself close to tears. I smiled and tried to be enthusiastic, while inwardly building some new walls to contain my feelings. Behind those walls, I found myself on an ocean of helplessness that made every minute seem like an hour.
Somehow, January finally arrived. We began making the calls and leaving messages. There was no response. With our precarious position increasing by the day, the uncertainty nearly choked us.
Finally, we got a call back from Denis. Hiding our desperation, we set up a meeting with Wally and Denis at Jack’s office for the following week.
I spent nearly every moment of my time that week convincing our creditors to keep working with us. Things were about to turn around, I said. It sounded better than it felt, when I said it. I could only hope I was right.
As we drove to the meeting at Jack’s office, Jeff and I were feeling despondent. By this time, we were so tense, we couldn’t even pretend to cheer each other up. When Jack greeted us, however, he was enthusiastic, smiling from ear to ear. His pride was obvious. These were the moments that he lived for. He told us that he thought these guys were ready to sign the investment documents. We were skeptical. This had already gone on for nine months.
Wally and Denis had spoken to each other on the phone, but this was their first face-to-face meeting. Jeff and I nervously reviewed Neoforma’s recent progress. We all reviewed the investment paperwork. The atmosphere was calm and serious. Wally and Denis discussed financial terms with Jack that I did not fully understand. His answers seemed to satisfy them. Once everything was reviewed, there was a pause in the room.
“Okay. Well . . . everything looks good to me!” Denis said, in an animated tone that was music to my ears. He turned to Wally and pulled his checkbook out. “Let’s get this done.”
Wally seemed momentarily startled. It seemed that he hadn’t actually expected this to be done right now. Wally went through a series of motions I would later become quite familiar with—a serious pause, a slight frown, a subtle hunch of his shoulders, a deep breath and a shake of his head — and then the quick steadiness, the eye contact, and the smile — the stages of settling into a decision. When he was done, Wally pulled out his checkbook too.
Jeff and I tried to act casual, as the papers were ceremoniously signed. We discussed Board of Directors issues. Handshakes were exchanged. Then Jeff and I drifted out of the room. My emotions were bound so tightly at that point that I can’t remember feeling anything. But I do remember that the sun’s glare seemed to be particularly bright as we walked to the car. My eyes hurt. Perhaps they even watered a bit.
We had not only been bailed out in the final hour (or just beyond it), but we’d been funded by very prestigious investors.
Months before, Jack had encouraged us to begin a banking relationship with an institution that would be able to help us manage our growth. Now that we had a future to manage, we chose the Silicon Valley Bank, a firm of local legend. It had been the initial bank of choice for many of the most successful technology companies in the Valley.
When Jeff and I walked into the bank, we deposited two hundred thousand dollars into our new account. The teller did not raise an eyebrow at that amount. Either we didn’t look like the young punks we imagined ourselves to be or the tellers in Silicon Valley had gotten used to six-figure deposits by young punks.
Two hundred thousand dollars—I had no idea how we could ever spend that much money.
There was no press release, no big celebration. We were much too exhausted for that. We had come to the brink of destruction, taken a few steps into the aftermath, been stricken with terror by what we saw — then the hands of Denis and Wally had reached out over the abyss and pulled us back.
After a quick shudder and a nervous, backward glance, it was on with the show.
With enough money in the bank, we could turn our attention back to the business with renewed energy. The business looked the same, but the infusion of cash had expanded our objectives. Return on investment was the only way to repay Wally, Denis and Jack. Jeff and I shared a deep sense of gratitude—but also obligation—about their investment in us.
So when our new investors emphasized that our priorities for the next month should include the production of an expanded business plan, we willingly agreed. Our only reluctance was due to the fact that we had produced business plans several times in the past and each time, potential investors had made it clear that we had fallen very short of producing a real business plan.
By nature, Jeff and I relied on observation and intuition for our business decisions. We tended to communicate our reasoning in qualitative rather than quantitative terms. For instance, we knew that the healthcare market was big enough. It didn’t matter to us how big it was. We cared about the product, not the business. So naturally, our plans always focused on the product.
This made outside investors nervous. What was obvious to us was not obvious to them. Wally and Denis knew that we would need more money to build Neoforma and that our earlier business plans did not adequately display our huge potential. So they insisted that we have someone else write a real business plan for us.
The idea that someone else could possibly know any more about how to position our business than us was troubling. It even hurt our feelings, just a bit. Wally and Dennis gently nudged us. “You guys have too much to do to waste your time fussing with the details of a business plan.”
They were pushing us toward the big picture—away from the details. That’s what successful leaders do, they told us. And we had to be successful leaders, if we were going to get them a return on their investment!
It wasn’t enough to be profitable. A profitable business does not return money to investors. A big business does.
The view our new investors saw was much larger and more panoramic than the one Jeff and I saw. They not only wanted a business plan that included that vision, they wanted to see that future in black-and-white. We agreed to let somebody else do it.
Denis recommended Sasa, a young and enthusiastic Stanford Ph.D., MBA, XYZ, etc. This guy had even been the President of the Harvard Club of Croatia. His great enthusiasm for whatever he was doing made me a bit uncomfortable. I was afraid my overt enthusiasm might look like that too.
Sasa tackled the creation of a new plan with precision and vigor. He solicited from us every quantifiable piece of information about Neoforma and the healthcare market. What he couldn’t get from us, he ferreted out from an array of research sources.
When he collected our résumés, I sensed his disappointment with mine. It was nowhere near as impressive as his or Jeff’s. From my own point of view, I was an Architect! I couldn’t understand why that seemed so insignificant. But the reality was that I didn’t have the kind of credentials that predicted a sure path to success—in the way that going to certain schools and racking up certain degrees could do.
So it appeared to be in the best interest of the company, if I were presented in Jeff’s shadow. We had struggled enough with funding over the past year that I was quite willing to trust the judgment of outsiders in shaping our image for the outside world. I figured that I, and our employees, would certainly know that I was still running the company’s operations, so, at the time, it didn’t seem to matter much.
As Sasa compiled his research, he became increasingly excited about our opportunity. “The healthcare products market is huge. There isn’t a lot of information about equipment like you have on your website, but the supplies market is very well documented. We can extrapolate from those numbers.”
I told him that the supplies market was very different than the equipment market and was of little interest to us. He insisted that, since we had such good data about supplies, we should include supplies in our market segment. “Wouldn’t it sound much better to say that we were targeting the $150 billion equipment and supplies market rather than the measly $50 billion equipment market?”
I couldn’t argue with that — or, at least, I didn’t argue with it. We did have some supplies listed on our site. Who knew how much we would focus on supplies in the future?
After two months of work, Sasa delivered a hefty document that defined our long-term business plan. I never even read the whole thing. I was much too busy, and I knew that the plan reflected where the company could go, not necessarily where I thought it would or should go. For the good of the investors—and I was one of them— maybe I didn’t need to make every decision on the company’s direction. With the completion of this document, Jeff’s role as leader of the company became official and our investors started taking an outspoken role as well.
When Sasa delivered the business plan to me, he said, “You know, Wayne, I have no difficulty at all showing how Neoforma can be wildly successful in the enormous healthcare market. It’s trying to imagine how you could possibly fail that baffles me!”