Neoforma opens corporate offices in Mountain View, California.
April 1, 1996
Yahoo IPO closes at $33 after $43 peak
Yahoo’s much-anticipated entry to Wall Street began with a bang this morning at $24.50 per share and hit a high of $43 before closing at $33. Yahoo opened at about 8:45 a.m. PDT and shot up to $43 an hour later, which equals $1 billion for the company . . .Yahoo has been the talk on Wall Street and Silicon Valley since it filed for the offering last month, the most closely watched high-tech IPO since Netscape Communications made market history in December . . .
April 12, 1996
Neoforma’s first offices were located just a few blocks from my house in Mountain View, California, a suburban town near Stanford University and just south of the halfway point between San Francisco and San Jose.
At the time, I really didn’t have a specific idea of where the Silicon Valley was. I knew it was somewhere close to where I lived, but I thought it ended geographically south of me. Since I was a local, I had never given any thought to being a citizen of that legendary place. It turned out that our office was right in the heart of the Valley.
As an architect, I had helped design buildings for some of the companies that gave the Valley its reputation for innovation. But living in Silicon Valley was not the same as participating in the culture of technology. That was less about geographic boundaries than social and educational ones. I crossed these boundaries quite late, quite gradually, and quite by chance.
For me, the seed of Neoforma was planted in 1987, when I received a call from Dwight, an architect I’d worked with many years before. He ran the Planning Department at Varian, a radiotherapy medical equipment company. Varian made big machines that fought — and sometimes cured — cancer.
Dwight was what you’d call “a character.” Brilliant, and brilliantly flawed. Big mind. Big ideas. Big heart. A vulnerable, hippie/intellectual, struggling in the corporate world, he was absolutely unable to consistently distinguish between the good of an Idea, the good of The Company and the good of Mankind. He had little sense of prioritization, or supervision. But, what a mind! What a rebel!
Suffice it to say that, when he called to offer me a job, I was flattered. He offered me the challenge of bringing technology — specifically, computer design and drafting — into his department.
I was working in a large architectural firm at the time. I had worked there off and on since 1978. From the start, my fascination with technology, and its potential, had drawn me to the very cutting edge of the architectural profession. While most of the architectural interns were focused on the path toward licensure, I was playing with the new toys the company had acquired. In my spare time, I had taken over a pair of Apple computers and started programming some useful new tools for the firm. Later, I built more programs for the firm to help pay my college expenses.
When faced with inefficient traditions, I tend to obsess about changing them. Anything that repeatedly slows me down is an unacceptable distraction to me. I can’t rest until I fix it.
Over time, I became increasingly frustrated with my peers’ lack of enthusiasm for technology. And I didn’t quite fit comfortably into any niche in the firm. My tendency to dress casually, if not carelessly, and the fact that I didn’t wear shoes very often weighed heavily in the minds of my bosses against the fact that I was very good at my job. I decided that it was time for me to move on, but I didn’t know whereto go. And that’s when Dwight called me. Dwight had worked with me at the same firm a few years back. I admired him very much.
I am sure that, in spite of my disgruntlement with the profession, I would not have considered this substantial diversion from the business of architecture had I not been reading Nueromancer, the futuristic science fiction novel by William Gibson. The business world Gibson portrayed was lit by the projection of images moving on interlaced monitors — frenzied, gritty, smart, complex, individualistic, unrestrained. I convinced myself that this was the proper domain for the contemporary architect. The corporate world would embrace my quest for reconstruction and progression. The visually creative stuff could come later. This would bring bright light to my dark corner.
I accepted the job at Varian. Barefoot in the land of cubicles.
At the time Varian had only two computers in the marketing department. One, the “fast” one, was in the office of the head of marketing. The other was in my cubicle, with boxes of uninstalled software next to it. My job was to convert paper to pixels. Dwight had hired me because we had, working together in the past, shared an interest in the potential of computers to revolutionize architectural design.
Dwight talked on and on about how I should write programs to completely automate the three-dimensional design of hospitals. Of course, first I had to figure out what the heck a “medical linear accelerator” was and how the heck to use yet another computer drafting program — my sixth — to very quickly create drawings that architects could use to build departments to accommodate this big, complex equipment.
I was completely lost in this alien environment. At first, as I browsed mounds of ugly engineering drawings I was supposed to convert, I panicked. What was I thinking? This ugly stuff didn’t have anything to do with design. This is the most mundane job I could have gotten myself involved in. But by the second day, I caught glimpses of the potential. The current processes were so archaic that everything in the place was going to have to change, fast and inevitably. And I could be a big part of designing that change — learning with it — and that idea felt pretty good.
Once I had solved many of the big problems, I began to tackle smaller ones. For example, we required the services of a nuclear physicist to help customers design facilities that would safely attenuate the radiation generated by the linear accelerators. Gene, our internal resource, was a very well-respected authority on radiation safety, but his recommendations were often untimely and generally incomprehensible to the likes of me. And he was going to retire soon. So I wrote some programs to automate the process of determining how much concrete or lead or whatever was required to shield the rooms. I distinctly remember one day in my office a couple of weeks before Gene was set to retire. My boss, Evelyn, a short, fiery woman, whom I respected very much, but from whom I would seldom feel respect, introduced me to Jeff. Because of his closely cropped hair, conservative suit and confident manner, I instantly assumed that he was the new physicist. And I disliked him immediately.
In spite of the fact that the guys in my department all considered me to be “the college boy,” I was, in fact, quite wary of formal education. I hadn’t graduated from college. I had just played at it for awhile. It left me with a certain, unshakable scorn for the professional student. (Of course, this scorn was really based on a fear that those of a certain class could instantly identify my ignorance of protocol. And, for the most part, they could.)
There was some initial friction between Jeff and me over the computer program I had written. I had created it to essentially eliminate my dependence on the services Jeff had been hired to provide to my department. He pointed out some significant flaws in the program’s calculations. This pissed me off. He did not act in the least bit impressed by what I had built. I argued that most of his points were irrelevant under most conditions. He argued that they could indeed be not only relevant, but critical.
Somewhere along the way, we stopped arguing as much and began collaborating on the next generation of this tool. We realized that we both shared a focus on making things better. His initial rejection of my work had not been a rejection at all. He simply had been more concerned with how it could be better.
More than once before, I had become good friends with someone I had initially disliked. It looked like that was going to happen again.
Since I had already built a tool that worked quite well for Varian, the new project had to be created almost entirely on our own time. And since it was our own time, we wanted to build the best, coolest, most feature-rich stuff we could build. What started as a relatively modest effort to build a completely accurate, linear-accelerator calculation tool would evolve into something much more.
We thought it would be great to add some graphics to illustrate the concepts and variables. And it would be great if we added sample drawings of common ways to solve various problems. Then there were all of the global regulations that could be included, so that everything would recalculate when different regions were selected. Between the two of us, there was no end to the possibilities. Jeff and I built easily on each other’s ideas and, somewhere along the way, we inadvertently amplified each other’s yearning to be free of boundaries.
Our brains started working overtime. What if we added other types of machines that Varian made — like after-loaders and simulators? And if we did have multiple types of machines, then, of course, we should include layout drawings for all types of equipment. And of course if we were including information on different types of big equipment, why not gather information on all of the hundreds of smaller items that went into each room?
After all, my department spent an inordinate amount of time supporting the decision process for third-party products. Why not distribute this information to customers in software that they could use themselves?
In fact, the more we thought about it, the more we realized that this tool we were building was so unique and yet essential to the radiotherapy installation process, that if we made it self-supporting it might even be — profitable!
We knew that customers would be willing to buy this program. While it was used entirely as an in-house tool, customers would often see it in action when members of my department were doing on-site calculations. Or they would simply see the pretty, detailed reports we produced. They were nothing like the scribbled reports they were used to seeing. Customers from all over the world began asking us about the software. They’d ask how much the program cost and if it worked with competitors’ machines.
That gave us pause. Certainly every manufacturer had a similar need to compile this kind of information. Didn’t it make sense to consolidate these efforts? Varian had just created a partnership with another, much larger manufacturer of medical equipment. Since I had to coordinate our planning tasks with this other company’s, I had an opportunity to become friends with their head of planning. He verified that they did indeed have the same problems gathering information from within the company, aggregating it with information on hundreds of third-party products and distributing this information to customers in a useful, cost-effective way. Not only were the processes almost identical, but much of the information overlapped.
This simply didn’t make sense. Maybe if we included all competitive and compatible products in our tools, Varian would benefit by reinforcing, in the customer’s eyes, the fact that we were the clear market leader in medical equipment. After all, our equipment was better. Everyone in the company seemed to sincerely believe that to be the case. What would be the harm in showing it next to competitive products? Now that made sense to us.
Convincing management of this was an entirely different matter. Being the clear market leader, Varian’s sales and service teams had long been in the habit of conveying only the minimum necessary information to customers. If the customers agreed that Varian equipment was the highest quality in the industry, why take the chance of messing something up by giving them some unnecessary piece of information that might confuse them?
When I had implemented an automated fax document distribution system, I received huge resistance from the sales organization. How would they know who was getting their precious information? Even the competitors would be able to get these documents. Of course, I, and everyone else in the field, knew that the competitors could and did get this information through customers already. That’s how we got our information on their products. This double standard really irritated me. Didn’t we make good products? Shouldn’t we support — to the fullest extent possible — the customers who put their faith in our products?
The answer from sales was that I was “naïve.” Control of information was the key to success in sales, they informed me. Why would we even need salespeople at all, if information were conveniently and freely available on all products available in every category?
A dangerous question indeed, since the power in a market-leading company lives in the sales department.
Even if we provided more information only on complementary —rather than competitive — products, I knew that there were better and far less expensive products available than what we were recommending. Tens of thousands of dollars could be saved on every room, if we were to provide a bit more information to our customers. Wasn’t that my job? I was told by sales management to “Butt out.”
But Jeff and I agreed that this was too important an issue to drop. Despite internal resistance, our program was now being distributed on CD-ROM to all of the service and planning offices, as well as to a few of the more progressive salespeople. Soon, at the request of the international salespeople (who weren’t as far ahead in the market and thus were generally delightful, creative people), our program ended up in the hands of some customers for the first time.
Before long, it was clear that we had insidiously made our program into a key component in some equipment sales. Important customers were assertively requesting that we provide support for their non-Varian equipment as well.
We were now spending every spare moment expanding the program— every evening, every lunch hour, every weekend where possible and every spare moment on our business trips. And, slowly but surely, we began to spend some of our work hours on this too. Our bosses reluctantly put up with this distraction, since there were some salespeople who swore by our program — not the majority, but a few key ones.
Our program was particularly popular among the international sales and service groups. They had been frustrated by the lack of support they received from the U.S. and welcomed any tools that put more control into their own hands. To better understand how our program supported the international audience, Jeff and I went to the main European support office in Switzerland for a week or so. I know there were reasons other than our project for us being there, but I can’t remember them. We knew the trip would increase our support within the company and, more importantly, give us several long plane flights and many uninterrupted evenings to work on the program.
We stayed at a small, modern hotel in the center of old Zurich I had discovered on a previous trip. By day, we would go to offices in Zurich and Zug to discuss assorted business issues, as well as to validate and garner support for our software. By night, as the locals lined the narrow cobblestone streets with tables for dining and socializing, we would grab a meal in whatever interesting restaurant we could find, and then return to the hotel to begin our real work. We had rooms across from each other at the end of a hallway. Since the rooms were too small for both of us to work in, we’d prop open our doors and yell questions across the hall to each other as we worked frenetically on our laptop computers well into the morning hours.
While sitting over our meals in this neutral land, far away from our jobs and families, Jeff and I spoke to each other with a candor that went beyond our project for the first time. We asked each other the hard questions: What were our goals in life? Where was this whole thing going? Was this just a distraction, or could there be more to it? There was something here that was developing a life of its own. Was its life tied to ours? If so, how?
We were working our asses off to build this thing, and people were benefiting from it. Yet there was no financial reward in sight. We were taking time away from our wives and children with no reward, other than the praise of some of the customers. If we could sell this thing —and we knew we could — shouldn’t we get a piece of the action?
We each had hundreds of hours into this. Could we convince management that this should be turned into a Varian product and sold? Could we convince them that, since we had developed this on our own, we should get apiece of it?
I had tried in the past to get management to provide bonuses to my team for generating substantial profits on construction management projects, to no avail. If our guys were to get a piece of their action, then everyone in engineering would argue that they should get a piece of each new product they rolled out. Where would it stop?
Yet, we felt that this was something different, something fundamentally new — an opportunity to embrace the information age aggressively. There was this great new power in the storage capabilities of CD-ROMs, not to mention the distant possibilities of the Internet. Jeff and I agreed, then and there, to ride this thing to its conclusion, wherever that might be.
In the past, we had tried to go through Evelyn, my boss, to request fundamental changes, but we realized that she was probably not the person who would make this kind of decision. So we navigated down the slippery slope of personal empowerment by developing a proposal to present directly to Ed, the president of our business unit.
We knew that Ed, who had come from the service end of the business rather than sales, was far more open-minded and inquisitive about the power of information technology than most of the managers in the company. His was often the first computer to have the latest software installed. And he had made the effort to greet me in the corridors by first name long before we were ever formally introduced. That meant a lot to me. He was a man of contradictions — playful and serious, nerdy and shrewd, doubtful and confident. Most of all, he was a man we trusted.
I knew that Evelyn would be upset with this apparent disregard of her authority. She was very powerful within the company, and very well regarded and rewarded. But most people believed that she had gone as high as she would go. Anyway, I knew she would be very upset. That bothered me, but what could I do?
The members of my department would be upset too. They had already noticed that my previously frenzied attention to their needs had slowed substantially, as I had become more distracted. I justified it to myself this way: I had provided them with the tools and status to perform their jobs better, so they could afford for me to be less attentive. They expected me to keep pitching. And I expected them to step up to the plate.
I regretted that I no longer met their expectations, but I had contributed a great deal more than was required of me throughout my first eight years at the company, so a little selfishness was overdue. And I wasn’t being entirely selfish. What I was doing was helping the customers. That was important, right? (Okay, the truth is, I had significant pangs of guilt about abandoning my department, but I did it anyway.)
I felt a bit alone with my moral dilemmas in dealing with my boss and my employees. Jeff had no employees and a more supportive boss. I discussed my concerns with him. Jeff was good at addressing such issues. He was able to articulately point to the selfish acts of others as justification of one’s own self-interest. In fact, he would point out that if we didn’t protect our own interests, we would get trampled, pure and simple.
His finely educated, self-righteous attitude conveyed confidence. And the projection of confidence can be very powerful indeed. Although I was very confident about a lot of things, I did not project unqualified confidence. Quite the opposite. I often embraced doubt as an opportunity for improvement, which could make me appear to be uncertain. But I was grateful for Jeff’s ability to project certainty. I had learned in the past that partnerships with opposite personalities created opportunities for great balance. And, sometimes, great volatility.
Our proposal to Ed would be this: Let us turn our software into a product. Let us sell it. Give us a small commission on sales. Simple. We sketched out a basic business plan, complete with a financial analysis.
As we developed the plan, we began to see its faults. The marketing of the software by Varian would dilute our objectivity and would restrict our ability to work with Varian competitors. The profits we could produce would be large by the standards of two guys running a business, but miniscule by the standards of a business selling more than half a billion dollars worth of stuff each year. But we argued that it would have great strategic value and who knows where it might go in the long run?
Just to cover our bases, we added the option that Jeff and I could simply spin this project out as a separate business. A separate business could continue to support Varian’s equipment without the risks associated with developing an in-house product.
We didn’t really think much of this option until after we’d pushed SEND on the proposal and emailed it to Ed. But seconds afterward, Jeff and I looked at each other, eyes wide and bright. Somehow, we sensed that the latter option was going to be the likely one. We had each started companies before. We had a pretty good sense of the consequences of this option.
We cut our safety net that day near the end of 1995. If management said no, our loyalty and our commitment would be forever in question. My boss and my staff would never forget that my dedication had been elsewhere.
And we knew that we couldn’t accept no for an answer. We were too far along for that now. We both spent a great deal of time discussing the implication of our actions with our wives over the next few weeks.
Each hour after pressing that SEND button felt like a day. We had sent a message-read request with our email, so we knew exactly when he had read it that afternoon. He did not respond that day or the next. Jeff and I were as excited as kids and completely distracted from our other activities.
Jeff began to propose theories to explain the delayed response. “He just skipped and ignored our email... He is threatened by us... He is working with the legal department right now, trying to figure out away to take all of our hard work away from us.”
I didn’t think so. “Nobody’s trying to take anything away from us,” I told him. “We’re proposing something that really rocks the boat and we need to realize that it’s hard for anyone to stay balanced on a rocking boat.”
That dialog was the first indication of the nature of our partnership from then forward, suspicion and calm. Whenever Jeff’s radar detected any hint of possible threat, he would jump to “what if... ?” and “they must be... !” He had an innate skepticism of people’s motivations. I had an innate conviction that resistance was not necessarily the same as rejection. Of course, the middle is the right place to be. Intense back-and-forth would usually lead us to the middle.
In this case, Ed had paid attention to our memo. We knew he was paying attention because, a week later, he asked for more details. He wanted a more detailed business plan and answers to a bunch of questions.
We didn’t know whether to be thrilled or frustrated. On one hand, we weren’t being ignored. On the other hand, now we had to go through all this formality of justifications and projections. This was just slowing things down. We thought, Either this is a good idea or it isn’t. Why not just make a decision about which direction to go and, if it doesn’t work out, we’ll figure something else out when we get there? We felt that we had put so much into thinking this thing through that we wouldn’t be proposing ideas that didn’t make sense. They should just assume we knew what we were talking about and accept our ideas out-of-hand. Didn’t they realize that our self-interest was integral to the company’s interest?
We wanted to just get going at full speed. But we dutifully answered the questions and expanded the business plan.
There was much back-and-forth with Ed, and then with Ben, a matter-of-fact but hard to read guy, who had been Ed’s right-hand man as Ed had risen through the ranks. Nobody was quite sure what the boundaries of Ben’s job really were. He didn’t have specific authority, but was Ed’s choice for a variety of special projects.
Ed gave us a preliminary thumbs-up, indicating his support for our efforts and preference for us to take on this project as a separate company. Ed didn’t want our proposal to cause confusion among the rank and file, so he asked us to be discreet in our activities. He quietly assigned Ben to be our primary contact going forward.
Ben was a cordial, frank and frequently offbeat guy. While we weren’t working with the top guy anymore, we liked Ben and felt that, even though he often seemed distracted, he would treat us fairly. He did.
While we tried to present everything to Varian in a balanced way, we were slanting the conclusions toward the formation of a new company. We began to explore all of the steps to starting a company — office location, name, legal structure, etc.
We needed to find our own lawyer to help us with the incorporation and negotiation with Varian, assuming that things went in that direction. I asked a lawyer I had worked with a few times at Varian for a recommendation. I really liked this guy and knew I could trust his opinion and his discretion. He was intrigued with, and supportive of, what we were proposing. It was the first time I had shared our plans with anyone outside Varian management or my family. His encouragement gave me much needed support.
He recommended an individual at a large law firm with offices nearby. The firm had expertise in company spin-offs. I made an appointment for the following week.
At the law firm, we were directed into a large, luxurious conference room. The lawyer we met was polite and formal. He treated us like businessmen, like men who made important decisions. This was a very new and invigorating feeling to me. Jeff and I acted very calm, but we certainly weren’t feeling calm.
After an hour or so of listening to us and then presenting the strengths of his firm, he told us that he had to check one detail before we went any further. He had to see if his firm had any conflict of interest with Varian. He called someone in his firm and asked to have this checked into. We continued to chat for a few minutes until the phone rang. The lawyer had a quick conversation, nodded his head several times and hung up.
It turned out that there was a conflict. The firm had done recent and relevant work for Varian. They couldn’t work with us. In fact, he told us that it would be difficult to find a large firm in the area that hadn’t worked with Varian. So, he suggested that we work with a smaller firm. He had one in mind. It was formed by a lawyer who had previously worked at his firm. We thanked him and moved on, feeling a bit let down.
Later that day, when I was abruptly asked by Evelyn to come to her office, I had an immediate sinking feeling. By venturing outside the company, I knew that I was on shaky ground. Jeff’s paranoia caught up with me at times.
As soon as I entered her office, I knew that she was upset. She was pissed. It turned out that, in order to verify the conflict of interest, the lawyer had called Varian’s legal department. Evelyn was in charge of most sales contracts, so she worked regularly with the legal group. One of the people in that group had casually asked her why a guy who worked for her was scouting out legal firms that did not have a conflict with Varian.
She was seething. She was very upset that I had worked around heron this. She hadn’t been supportive of the work I had done on this project and for me to have gone around her... well, that was inappropriate. I explained to her that I had worked at Varian relatively selflessly for nearly a decade. I believed I deserved this opportunity. She disagreed. She felt that I had broken her trust. She was even more upset at Ed, who hadn’t kept her in the loop on his decision process.
In any case, the news was out. Everyone was treating me differently now. Most, knowing how upset Evelyn was, distanced themselves from me. Those that were friends interacted with me in whispers.
As the news spread, I noticed changes in the pattern of my daily phone calls. A few individuals — mostly the maverick sales guys —were more respectful and familiar. With the rest, conversations were more formal and curt. I was slowly but surely being isolated from the body of the company.
To avoid further human resources confusion, Jeff and I wrote a letter to Ed requesting official authorization to explore the creation of a new company. Once this was signed, we made an appointment with the new lawyer. The lawyer met with us within a few days. We liked him and initiated the formal process of negotiating the spin-off. Jeff, wearing his NewCo (as we had come to call it) hat, positioned every deal point to slant completely in our direction. I feared that starting off with a deal that leaned heavily in our favor would create an atmosphere of resentment and it did. But many deal points that I thought would never end up in our favor, did end up in our favor. So Jeff’s aggressive approach had its benefits.
The contract process went painfully slowly, but eventually a deal was made. We would be allotted a certain amount of money to get things going, but only enough to get started. In exchange, we would support Varian’s customers and their use of the software for a period of time. And, they would get all of the intellectual property back if we discontinued support for the software within a certain amount of time. There wasn’t much else to it. Things ended up so simply for two reasons.
First, while there was little business reason for Varian to support this new enterprise, there was good reason to get distance from it. If Jeff and I stopped supporting the software, some important customers might be upset. There needed to be some way to phase out Varian’s role in the process without losing face.
Second, we were doing something interesting, even if it was a bit unclear what impact we would have.
I believe that Ed’s unpopular decision to support us was based primarily on his support for our pursuit of an idea and subsequently justified by the legitimate business motives.
Jeff and I agreed to name the company Neoforma. More on that later. When it came to assigning corporate titles, we really didn’t see much difference between CEO and President. Both titles seemed to sound equally important and inflated. We flipped a coin. Jeff got CEO. I got President. In many ways, this is the only way the coin could have landed. I was more naturally an inside guy. Jeff was more naturally an outside guy.
So, in March of 1996, in a tension-filled atmosphere, a formal agreement was signed between two corporations, Varian and Neoforma. Jeff and I agreed to stay with Varian for at least a year, but that day, our minds moved on.
During the later days of the spin-off negotiations, I had been getting administrative support for our project primarily from Patty, a young and complex woman who had worked as a temporary administrator in my department. When she was due to be released from her stint at Varian, I arranged for her to work entirely on Neoforma activities. I knew her to be resourceful, self-motivated and discreet. These were key characteristics I needed to help get the doors at Neoforma open.
That first day in April, on the first of hundreds of long lunchtimes at Neoforma, I stepped into our small office feeling like a new man. Patty was on the phone with a customer, a Neoforma customer. There was much to do.