Chemdex Shines on Market Debut
Chemdex, an online seller of laboratory chemicals and equipment with sales of $29,000 last year, rose almost 60 percent in its first day of public trading . . . The Palo Alto, California–based company rose 8.87 to 23.87 . . . The company closed with a market value of $758.65 million.
Chemdex’s investors include Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers . . . The company will use $30 million of the net proceeds to fund anticipated operating losses . . . It will use the rest of the proceeds . . . possibly to acquire complementary businesses, it said.
CNET News.com, July 28, 1999
At first, I didn’t see much of Bob...
I was surprised and somewhat flattered to hear this, which, I suppose, was the idea.
I told Bob that I had not wanted to prejudice his own evaluation of the company and its employees. I did not want to dilute the value of Jeff’s unbiased appraisal of the company. “Also, I wanted you to know that I do not see you as a threat in any way and that I have no desire to manipulate you. We hired you because we sincerely believe that you will make the best decisions for Neoforma.”
Bob asked me many questions about the organization—how it had evolved and why, what I thought its strengths and weaknesses were, what I thought of the senior managers—that kind of stuff. It was our first real conversation. When the meeting was over, I felt more confident about the future of Neoforma than I had in a long time.
From that day on, Bob consulted with me on many organizational issues. However, there were many issues he did not discuss with me. He knew the risk of getting too close to me, or anyone else. He endeavored to make everybody feel important and nobody feel indispensable. That was his job.
And his job was a tough one. Bob had been hired to star in and direct the company. Our investors were in heat. Their scent was followed right to Neoforma’s doors by reporters, bankers, lawyers and accountants. His first major challenge would be to prepare the company for its public premiere. And he wasn’t given a long production schedule.
Our investors wanted an IPO before the end of the year. Since IPOs don’t tend to do as well in the last couple of months of the year, the IPO would need to occur in September—or October at the latest. Extensive IPO documents needed to be filed with the SEC at least a month before that. That meant that Bob had two months to figure out the company, get it under his control and fill in his executive team.
The quality of a company’s management team is a major factor in how well a company will be received by Wall Street. Bob had a good reputation there. And the Street already knew a little about Frank, our CFO. We had located him through some investors many months before, but we had just hired him. Beyond Bob, Frank, and Sonic, we didn’t have any well-known or proven executives on board.
Bob knew that he was an outside guy. He was good at managing outside relationships with key customers, partners and investors. His most critical need was to hire someone to manage the company’s operations, someone he could trust to run the inside of the company. Someone capable of taking over the company in the event that he wasn’t available. With a confidence in his own skills that only the best leaders have, he strove to make himself dispensable.
Bob knew who he wanted for this role. He wanted Dan.
Dan had been a fierce competitor of Bob’s for many years. Dan was president of the healthcare division of a large distributor. His mid-thirties youthfulness, calm demeanor and reputation as a strong, ethical competitor had made him very popular in a tough industry. I would later interview a number of individuals who had worked for him who told me, “I would walk off the edge of the world for Dan.”
Dan was a forward-thinking guy. Bob had little difficulty coaxing Dan to join Neoforma. Dan saw it as an opportunity to fundamentally improve healthcare. However, as it turned out, convincing Dan was the easy part.
When Jeff and I left Varian, the few Good luck! comments were cursory. Afterward, we were generally despised as traitors. When Bob resigned from his job, he had been very excited about the possibility of collaborating with his old company. He’d even thought that they would embrace the idea of investing in Neoforma. Instead, he faced rejection, indignation and anger to a degree he could not have imagined.
When Dan resigned from his job—well, let’s just say that Jeff, Bob and I had been warmly nudged from the nest compared to the ordeal Dan went through.
His former bosses were incensed. Dan’s company, like most of the large distributors, had been having casual discussions with Neoforma about ways we could improve their business. The managers of Dan’s company were known for their warrior’s sense of loyalty. You were either for them or against them. They felt betrayed that the young executive they had groomed so affectionately would jump to a little start-up company. And they were not inclined to forgive such treachery.
So, they did what any self-respecting company does when it craves revenge: they sued Dan. But that wasn’t all. They garnered from a friendly Texas court a restraining order, forbidding Dan to work at Neoforma, any similar company, or any distributor until the lawsuit was settled. Such lawsuits can take years. They knew they were starving him of his livelihood. But their anger was still not satisfied. Private detectives were hired to follow Dan and pry into his personal life, trying to dig up dirt on him.
I met Dan only briefly in the week between his being hired, then legally banished. He seemed nice enough, but I was amazed by how unabashedly committed Bob was to helping Dan through his legal mess. In no uncertain terms, Bob told us that Dan’s position would be open for as long as it took for the lawsuits to settle in Dan’s favor.
There were suits and countersuits. There were motions and appeals. And, there was absolutely no progress toward resolution. If anything, everyone’s position became more hardened.
As I’ve said, when Jeff gets his mind set on something, he won’t let go. After about three months of wrangling, Jeff got fed up with the whole legal battle for Dan. It was distracting and destructive.
He told me, “You know, I’m just going to visit Dan’s ex-bosses and get this thing behind us. The lawyers won’t like it, but tough shit.”
Now, the last thing that lawyers ever want to see is their clients talking directly with the other side. So, it was over their objections, then only with careful coaching, that Jeff visited Dan’s previous employer.
Jeff’s meeting started with great hostility. Then Jeff turned on his intellect and charm. I don’t know how, but by the end of the meeting Jeff had essentially settled the issue. There were still a lot of details and gripes to work out, but he had, in less than two hours, miraculously turned these angry bulldogs from arch-enemies into friendly partners. The lawyers lost big that day.
Dan rejoined Neoforma and lived up to his reputation. That Dan had managed to remain level-headed throughout that nightmare presaged his ability to cope with the challenges he would meet in the years to come.
While recruiting Dan had turned into a mess, Bob had no such trouble recruiting the best sales team in the business. He knew nearly everyone who was anyone in the healthcare supply chain. He built an enviable sales organization almost overnight.
After operations and sales, we had a few more executive roles to fill. Both the marketing and engineering groups were floundering under a lack of leadership. Most of us on the Board believed that these roles would likely be filled by people outside the healthcare field. Bob asked me to take the lead on filling these last two positions. JP agreed to help with the marketing position. Alexander agreed to help with the engineering position.
I knew these would probably be the last key positions I would fill, so I took this task very seriously. After reaching consensus with Bob and others about the type of leaders we were seeking, I began working with a top recruitment agency to locate candidates.
As I have said, we had been looking for our marketing VP almost continuously for more than a year. The fact that we had not been able to fill this gap successfully did not look good. Our earlier candidates had, for the most part, come from technology industries. We still considered technology experience to be acceptable, but had begun to believe that someone with more consumer branding experience might be preferable.
Branding, the creation of very broad name recognition associated with positive emotional responses, was then very popular in the Internet press and very important to JP, Alexander and Bret. If Neoforma was going to be the First Mover in Internet healthcare B2B then we needed a BIG brand.
Though our selection of candidates was severely limited, one seemed to fit the bill quite well. Tim was a marketing executive at a major television network. The network was undergoing a management shake-up that had just placed Tim on the job market. Jeff and I first met Tim over dinner at a local restaurant. Gregarious, selfish and insensitive, Tim was the opposite of the type of person we had tried to recruit into Neoforma. But he did seem to know a lot about branding and he was clearly strong enough to lead people. He reminded me of a great cat — his large frame always relaxed, yet ready to pounce at any moment without the slightest hesitation or self-doubt.
With one eye on the disastrous hiring and departure of Mara, our last marketing recruit and cultural reject, and the other on our history of problems created by periods of uncertain leadership, I reviewed the feedback from our team. We all saw the risk inherent in Tim’s coarse style and obvious financial motive, but we all agreed that stirring the company up a bit before the IPO probably wouldn’t be such a bad thing. So we hired him.
Tim swept into Neoforma with a level of vigor and recklessness that dwarfed Mara’s earlier invasion. He pissed people off. At the same time, he garnered and elevated a crew of loyalists. But, unlike Mara, he was good at choosing very smart loyalists. And, he spent money as if money were an obstacle to be obliterated. He shoveled a path through it, scattering bits here, there and everywhere.
He did know how to build a brand that Wall Street could appreciate. And, he did know who he shouldn’t piss off. So, I was willing to put up with the stream of angry, long-time employees into my office, at least until we made it through the IPO process.