This partnership would be a big deal for Neoforma because it could turn a number of previously hostile distributors into potentially profitable partners. It could strengthen Neoforma’s position against increasing competition. Bob was one of the top four executives at Cardinal. Ironically, it had been two divisions of his at Cardinal that we were close to partnering with a year previously, until that trivial third-party lawsuit screwed everything up.
While I had not personally met Bob, I was told that the discussions with Bob and his team at their headquarters had been refreshing. He was straightforward, enthusiastic, professional and courteous. This was not how we were used to being treated by the increasingly wary large distributors and manufacturers. When his name showed up on the list, we were ecstatic.
However, when John got to Bob’s name in his summary of the candidates, he curbed our enthusiasm quickly. Bob was a long shot. He had been included on the list because of his stellar reputation, but he was not likely to go anywhere. First of all, Bob was the likely successor to the number-one spot at Cardinal. Cardinal was an established company worth tens of billions of dollars, with forty thousand employees, several corporate jets and generous executive compensation packages. Neoforma was a $30 million start-up company with less than a hundred employees, a ping-pong table and free snacks.
Also, Bob’s family was just about to complete their dream house in Ohio. His wife and school-age children would not likely be thrilled by the idea of leaving friends, family and a new house behind and moving to Silicon Valley, where they knew almost nobody and the equivalent house would probably cost five times as much.
When I had gone to ECRI to close that deal a while back, I had been dogged and stubborn. I had gotten it in my head that the deal had to be done and, thus, I would get it done. Simple as that. That’s how Jeff was about getting Bob to join Neoforma. He said, “Wayne, I’m telling you, I’m tired of being CEO and the right guy for the job is Bob Zollars. He doesn’t know it yet, but he is going to work for us!”
Jeff could be scary sometimes. When he got something in his head like this, he wasn’t kidding around or exaggerating his conviction.
Bret, our VC Board member, had taken a lead role in the candidate-screening process. We knew that he leaned away from hiring someone from the healthcare industry. He believed that it was essential to convey the impression that Neoforma would target other industries after dominating healthcare. Hiring someone outside healthcare would increase the perceived long-term potential of Neoforma. Our IPO valuation should then reflect that larger potential.
Because we had only seen glimpses of Bret’s darker side, we generally trusted him to take the first pass at a candidate. But this time, Jeff was adamant, “I have to be there when we first meet with Bob! I know that Bob wants to hear a healthcare story, not some Internet tale.”
When John called Bob to convey our interest in him, he turned us down out-of-hand. While he was intrigued by the Neoforma story, he did not want to disrupt his job and family at this time. John knew that we thought Bob should be our guy, so he continued to pursue Bob anyway.
After many weeks of dogged persistence, Bob agreed to meet with us, but only if we could accommodate his very busy schedule. He was on the road about seventy-five percent of the time and never seemed to pause anywhere for long.
After some frantic coordination of schedules, a meeting was set up for a couple of weeks later. Jeff first met Bob in New Orleans. The meeting went so well that Jeff was able to coordinate another meeting, this time with Bret. To ensure maximum privacy and discretion for Bob, we reserved a hotel room near the Denver airport for the meeting. Jeff and Bret flew into the airport and drove to the hotel to meet Bob. As the three of them checked in, they could not help but recognize that it probably did not look altogether wholesome for three men who seemed unfamiliar with each other to be checking into a hotel room without luggage.
The meeting went well. Bob sent a positive summary of it to John. In it, he expressed his excitement, but made it clear that he still had a lot of ground to cover financially and emotionally. However, he was now open to visiting our offices and meeting more of the team.
By this time, our other candidates were out of the picture, either by their choice or ours. Bob was our only serious candidate and he was a long shot. I was continuing to panic, but Jeff assured me that he believed that Bob would eventually be convinced. Jeff was giving it his all.
It took another couple of weeks to schedule Bob’s visit to Neoforma. The visit itself would be two weeks after that.
By this time, we were three months into our search. While everyone was busily building new products and services, the stress at Neoforma was palpable. We had not been able to keep our CEO search a secret for this long. It was obvious that Jeff was focused on hiring a replacement. He wasn’t giving speeches at company luncheons or showing up at many meetings. I was making myself more visible, but everyone knew I was a lame duck. Neoforma was running without a long-term leader.
On the same day that we finally scheduled Bob’s visit, John sent our CEO recruitment team a startling message. He had surfaced another candidate for us. This candidate, Joe Galli, was currently the most sought-after executive in the country and he wanted to meet with us at our offices later that week.
Joe had built a reputation for himself on Wall Street as the thirty-eight-year-old wunderkind who had engineered a spectacular turnaround of a large division of an even larger public company.
Somehow, everyone knew that he had wanted to move from the top position in that division to the top position in the company. Everyone knew that he had been turned down. Everyone knew that he was now looking for another job.
The Wall Street Journal and assorted business periodicals were following rumors of Joe’s options with the eagerness of a National Enquirer gossip journalist. It was rumored that he was being courted by one of the largest food companies to take over the top job at the largest division of their huge corporation. He was also rumored to be the top choice for the number-two position at the Internet retailing giant, Amazon.com.
These were, indeed, two of the options Joe was pursuing, but nobody in the press knew that his third option was a little company called Neoforma.
When our Board heard that Joe had expressed interest in Neoforma, they became as ecstatic and hyperactive as kids at an amusement park. Imagining what Neoforma’s valuation would be if we were able to recruit Joe was as exciting and gut-wrenching to them as the first downhill section of a roller coaster. The PR value was awe-inspiring. They were star-struck.
JP, Alexander and Bret buzzed into the Neoforma offices that day to make preparations for Joe’s visit. Joe would be visiting on the following Saturday only, so about a dozen Neoforma managers would need to break any previous plans they had and spend the remainder of the week preparing presentations for Joe. Bret was uncharacteristically engaged. He made it clear to Jeff and me that we only had one shot at Joe. Everything had to be perfect.
Jeff had several long phone calls with Joe during that week. Jeff turned on his charm and developed a good rapport with Joe in preparation for his visit. Jeff told me that Joe seemed to be incredibly astute, that he might even be able to overcome his deficit in healthcare experience. He’d be a good second choice after Bob.
JP and Bret had a different perspective. Without even meeting Joe, they believed that Joe was the clear first choice. Wall Street would love the story of Joe turning down the other companies for a relatively obscure start-up. They would gain bragging rights for years to come.
Our team spent all day Saturday with Joe. The meeting was very focused and intense. Joe impressed everyone with his thorough research, quick grasp of difficult concepts and boundless aggressive energy. He had many ideas and freely expressed them. Recognizing that our biggest obstacle was user adoption, Joe declared that this was a simple problem to solve. “Hire a thousand MBAs right out of school and plant them in the country’s top hospitals. That will get their attention.”
While I must admit that I was thrilled by Joe’s optimism and the grand scale of his vision, I had been working at this start-up thing for long enough to know that the economics and logistics of this idea were questionable at best.
At the end of the day, Joe told Jeff and me that he was very impressed with the team we had built and the opportunity Neoforma represented. He’d improved his opinion of us. He’d have to give this a great deal of thought—and soon—because he was under extreme pressure to take one of the other two jobs.
When I debriefed our team, everyone expressed admiration for his amazing intelligence and energy, but several people expressed concern over Joe’s lack of healthcare and technology experience. They said that he seemed a bit naïve about the challenges inherent in the healthcare industry. And almost everyone expressed concern over Joe’s cultural fit. He was unabashedly aggressive and ruthless in his view of business objectives. That wasn’t the approach Neoforma had been built on.
Alexander surprised me by expressing the same concern. He had lived inside the Neoforma culture for long enough that he had come to care about it.
But JP and Bret were adamant: Joe was our man. There was a ferocity in their insistence that I had not seen before. Their charming smiles were a bit strained, quivering just enough that I imagined glimpses of fangs.
A few days later, we heard from Joe. He’d like to come by again in a couple of weeks. This time, he wanted to bring along his girlfriend and one of his children. He liked our story, but had personal issues with moving to California. He’d recently been divorced and had several children. He wasn’t sure he wanted to live in California at this time in his life.
A few days before Joe was due back on his second visit, Bob was scheduled for his first visit to Neoforma. Jeff was as insistent as ever that we would be able to recruit Bob. Bret and John were both adamant that Bob was a long shot, at best.
Bob’s visit was a bit more casual than Joe’s had been. We did not have rehearsals. Bret and JP did not coach us. Bob saw us pretty much as we were. The fact that we did not feel the need to put on a show should have told us everything. We instinctively knew that Bob was so connected to the industry that any inflation or deception wouldn’t fool him. We hoped that this meant he would be equally forthright with us.
Because I wanted to gauge Bob’s reaction to our team, I was last on his schedule. By the time he had finished with the rest of Neoforma’s key players, our one-and-a-half hour meeting needed to be cut to a half-hour. Bob was due to fly out early that evening.
I had been seeing Bob through Jeff’s eyes for so long that I had lost any true recollection of what I imagined Bob to be like in person. Whatever fragments of association or stereotype that I harbored about Bob were shattered when I finally met him. As I’d been told, Bob was a full head taller than Jeff and I. But he did not project the aura of control and power I had expected. In fact, he seemed a bit nervous.
After shaking hands, we each took seats on opposite sides of Neoforma’s Board room conference table. Because there was no time for preliminaries, biographies or prepared speeches, we each jumped right into the heart of our concerns. I wanted to know how he had gotten along with our team. He told me that he had been impressed by our team and, most of all, by our team’s passion. Usually I dismissed such niceties as perfunctory, but something about the way Bob said this made me believe him. He asked me a few questions about the origins of the company. He asked how I felt about giving up control to someone else. I told him the truth, that Jeff and I knew there were better people for the job of running the company during its next phase, but that I cared very much that we handed control to the right person.
He then summarized his criteria for making a decision to join Neoforma.
First of all, he had to believe in the company’s vision and management team. He told me that, after his meetings that day, he was mostly convinced that Neoforma was the real thing.
Second of all, he had to believe in the business prospect. More specifically, he had to believe that he would professionally grow with the opportunity. He said the reason he was sitting here with me, in spite of his initial rejection of our inquiry, was because of a recent Young Presidents’ Organization meeting he’d attended. At that meeting, he had shared the nature of the opportunity with a group of similar young business leaders whose opinions he valued. They had asked him to review the pros and cons of accepting the position.
All of the rational, risk-avoidance reasons went into the cons column. He had a safe, challenging job. He had substantial compensation. And he was next in line to run a huge corporation. Neoforma was completely uncertain.
Every prospect for emotional and professional fulfillment went into the pros column. He would have the opportunity to impact an industry he was passionate about in ways that he had never imagined. Neoforma was completely uncertain.
In the end, everyone agreed that there was no rational reason to take the new job—and he would be foolish not to take it. It was clear to all of these business leaders who knew Bob that he had more to offer the world than his management skills.
So, here he was.
The third criterion was not so simple. He had spent most of his professional career climbing the corporate ladder. He had moved his family from one opportunity to the next. He had been on the road most of the time. Now that he was almost at the top, now that his wife and children were just about to settle into a new dream house, now that he was ensured a stable, lucrative position with decreased travel and early retirement, he was considering something completely different.
Well, he had a point.
While our time together was short, I left the meeting with a feeling of great confidence that Bob was the right guy to take Neoforma to the next level and an equally intense feeling of disappointment that there was no way that Bob would accept the job. How could anyone have that enough courage and self-confidence to do so, under the circumstances he’d described?
I started to think that Joe might be our only hope and I didn’t put much hope in Joe accepting.
The weekend after Bob visited, we were due to host Joe again. This time our Board was going to do everything possible to smother Joe, his girlfriend and his son with artificial love and affection.
First, there was the Saturday night dinner—a positively grand affair, Silicon Valley style. It was all in the hands of Bret and JP. They reserved the private cottage at a very trendy and expensive Palo Alto restaurant. They requested the attendance of the members of the Neoforma Board and a couple of other key investors. We were all expected to bring our spouses.
Other than Jeff’s family, I had not met the spouses of any of the Board members, let alone socialized with them. Investors are usually very cautious about keeping their family life shielded from those they invest in. They know that the investor/investee relationship is likely to undergo extreme stress. Nobody wants that stress to overflow into their personal life.
But, for that evening, we were one big happy family. Everyone dressed up. We met Bret’s wife, the infamous Christy Emery, the woman who had posed provocatively for her company’s magazine ad. After the introductions, she ignored me and adored Joe. In fact, she not only ignored me, but also Jeff and both of our wives. Maybe she was just shy. Everyone else seemed to make an effort to get along. Anni and I especially enjoyed our conversations with Alexander and his wife.
The food was good. Joe and his girlfriend seemed to be having a good time with Bret and Christy. Everyone drank enough wine to loosen up. Nobody said anything nasty to each other. I guess we were a happy family. Joe seemed to think so.
Next was the Sunday dinner. This time it was going to be even more intimate. Wally had volunteered to host a dinner the following day at his house. The same crowd was invited, except that this time we were to bring our children along. Joe’s grade-school-aged son would be there. It was the responsibility of all of our kids to make him feel comfortable at Wally’s house. This would be a bit tricky, since they had not met each other and had not been to Wally’s house before, but, hey, there’d be food, a swimming pool and movies.
I hadn’t been to Wally’s before. Wally had always been a very humble guy—especially for someone who had clearly done some
remarkable and diverse things in his life. I expected his house to be visibly affluent, yet as humble as he was.
Instead, I discovered that the gates at the entrance to his yard, if laid flat, could have served as an adequate roof to my home. The house was a luxurious, formal mission-style house with generous swaths of dark wooden casework. Wally’s gracious wife greeted us and guided us through the house to the back yard. My wandering gaze pulled my focus away from the path in front of me, so I tripped and stumbled at each threshold as we navigated the house. This is where Wally lived. I had never seen this side of him. My perspective of him widened. My admiration and appreciation—of the courtesy, warmth and respect he had always shown to Jeff and me—grew.
The back yard was immaculate, with carefully maintained gardens, tennis court, swimming pool, gazebo and lawns. Our boys were introduced to Joe’s son. Typical boys, they grunted awkward greetings and avoided eye contact. Wally’s poised and friendly teenage daughters then discreetly shuttled the kids away, showing them the various amenities.
Even though we had arrived fashionably late, Anni and I were among the first to arrive. Joe greeted us warmly. Unlike the previous evening, we were able to exchange small talk with Joe and his girlfriend. Joe almost immediately gushed to Anni about what an amazing company Jeff and I had built. He was very upbeat, charming and talkative. We learned all about the challenges he and his girlfriend would have to face, if they were to relocate to the area.
Others arrived and Joe’s attention was diverted for the rest of the evening. Anni and I watched the kids swim and chatted with some of the other couples until dinner was served.
As the formal, catered meal was served, everyone’s eyes were discreetly on Joe. He openly discussed the pros and cons of the two other opportunities, compared to the Neoforma opportunity. He seemed to be very positive about Neoforma. He even seemed to be mischievously thrilled by the thought of how the other companies would react if he took the Neoforma position instead of theirs. The smile on Bret’s face was radiant. I was so used to his more common, less respectful smile, that I found this genuine smile quite disconcerting.
Bret’s smile momentarily faded when Joe suddenly interrupted the wine-enhanced conversation and toasted Jeff and me. This sort of attention to Jeff and me was not what Bret wanted to see. The time when a new CEO comes into a company, just before an IPO, is the best time for early investors to gain control. Bret wanted to ensure that he was in a good position to switch the balance of control from the founders to the investors—well, really, to himself.
Although the atmosphere was generally jovial and upbeat, I noticed that Jeff’s mood was uncharacteristically dark. While his preference for CEO candidates had always been clearly in favor of Bob, Joe’s intelligence and energy impressed Jeff. As time went on, Jeff became increas- ingly adamant that Bob was the only good choice. I agreed that Bob was better, but believed that Joe could be good too. Sure, he’d stir up a lot of the employees and boot us out as soon as possible, but he just might be strong enough to pull off something good for Neoforma.
This evening Jeff was feeling particularly concerned. He had been getting a nagging feeling that Joe might not actually have what it took to meet the challenges of our young company. Joe had a cocky confidence in himself. He had accomplished a lot. He had a well-deserved reputation as someone who could fix a big, complex company. But, Neoforma didn’t need fixing. It needed building, and that was something else entirely. It took a different kind of confidence.
After dinner, we broke up into groups. Some of us checked on the kids, who were happily watching a movie on a theatre-sized screen in a darkened room with tiered seating. Out of the corner of my eye, I saw Jeff chatting with Joe alone in a hallway.
By the time everyone gathered for dessert, Joe was a different man. He was serious and distracted. I leaned over to Anni and said, “I don’t know what happened, but we just lost him.” He seemed anxious to finish-up the evening. He said his son needed sleep.
After Joe had departed, Bret and JP were still very upbeat. They thought he was definitely leaning our way. I thought not.
The next day, I asked Jeff what he had said to Joe.
Jeff’s doubts about Joe’s willingness to take risks had prompted him to settle the issue once and for all. He took Joe aside after dinner and asked him what he thought of the Neoforma opportunity. Joe was very positive, even excited. “So, this company you’ve built has real potential?” he’d asked. “It’s going to be very big, right?”
“Yes, Neoforma has real potential,” Jeff had answered. “But, frankly, there is real risk here. I mean, healthcare is a very entrenched industry. It will take a long time to make a real difference. Years, maybe decades.”
Jeff was absolutely right. But, apparently, Joe didn’t like hearing it. Everyone had been so upbeat about the market opportunities and IPO returns, due consideration had not been given to the nature of this challenge versus the other opportunities Joe had. Jeff, knowing how important this evaluation was, had forced Joe to confront the true nature of the risk. Better to find out now than later.
We didn’t hear from Joe during the next week. It had Bret and JP on edge. Joe wasn’t returning phone calls. Then we heard the news: Joe had accepted the job at the food company. Then, a week or so later, we heard more news. Joe hadn’t formally accepted the job with the food company, after all. They just thought he had. It had been a simple misunderstanding. What he had actually accepted was the number-two job at Amazon.com.
Later I heard that, once Joe met the Board of the food company, he had become disillusioned. He thought he was going into some vibrant environment, to be the hero and save the day. What he met there was a very conservative and restrained audience. As he was mourning his fate, he received a call from none other than the legendary John Doerr of KP.
Doerr had a reputation for brilliantly exploiting the buyer’s remorse that individuals often feel after being aggressively recruited in a competitive business environment. KP had invested heavily in Amazon.com. Doerr made one last run for Joe. He flew Joe out to meet with him and the famous CEO of the retailer. They convinced Joe that a guy as innovative as Joe belonged in the world of the Internet, not some stodgy food conglomerate.
Joe’s defection became a scandal. Not only was the food company furious, investors at Amazon.com were angry at the generosity of Joe’s compensation. In addition to substantial stock options, Joe would be paid more than three million dollars in cash if he stayed there for only one year, regardless of how well the company did.
Ultimately, Joe didn’t stay long at Amazon.com. The company’s stock took a dive. He stayed there one year and a couple of days. He accepted his money and moved on to the number-one spot in a then-buzzing Internet business-to-business company, VerticalNet. He didn’t stay there long either—about six months. That company’s stock took a dive. He resigned, pocketed a couple of million dollars and moved to a large manufacturer of household items.
Bret would later say of Galli, “We sure dodged a bullet there!”
In spite of my worries, Bob was still interested in the Neoforma posi- tion. Interested enough to begin negotiations. The recruiter had a good idea what it would take to get Bob—a very large compensation package and a bit more equity than either Jeff or I had. I was okay with the stock, but a bit chagrined by the salary expectation. I thought, After all, this is a start-up. We all make short-term sacrifices.
But it didn’t take long for me to realize I was wrong. This wasn’t a start-up anymore. We didn’t want someone to come in with the idea of short-term sacrifices for short-term gains. We wanted someone looking for long-term gains. I believed that’s what Bob was looking for. At least, I sure hoped so.
In spite of a few rough spots during the negotiations, Bob eventually decided to join Neoforma. Jeff and I were thrilled, to say the least.
At Neoforma’s peak, John Thompson’s stock compensation for recruiting Bob would be was worth thirty-one million dollars. Such were the times.
By coincidence, there was a major healthcare trade show scheduled during the week that Bob was completing the final paperwork. Bob attended the trade show as a representative of his other company. During a break between conferences, the CEO of Medibuy, our not-very-serious competitor, came up to Bob and excitedly told him, “I want you to be among the first to know. We’ve just been funded by Kleiner Perkins. I am sure you know that this means we’ll be the leader in the healthcare supply chain space.”
Bob complimented him on that admirable accomplishment, thinking, I don’t think so!
When Bob told us about Medibuy’s news, Jeff and I freaked, fearing that Bob might change his mind. We knew how tough Bob’s decision had been. Now he had been informed that a competitor was being funded by the most fearsome VC in the Valley.
KP had been flirting with Neoforma during our previous funding round. They had expressed serious interest in investing in us, even though they usually preferred to invest in earlier funding rounds. They had implied that we were the only company they were considering in the healthcare supply chain. Now we had confirmation of what we had suspected at the time—they had only been trying to slow us down, to postpone our funding, while lining up a younger company to get a large piece of and then set up as a competitor to us.
To Bob’s credit, he wasn’t threatened by the news at all. He wasn’t from the Valley. He was from a world where VCs were investors. Nothing more, nothing less. And he didn’t think he’d have any trouble finding people to invest in him.
Bob’s resignation from his other company and acceptance of the post at Neoforma was big news in the industry. On the day before the announcement was to be made, Bob visited Neoforma with his wife, Patsy, and their children. When I heard that he had arrived, I scurried into the office we had set up for Bob. It was a large office, by Neoforma standards, located in the corner of the building. Jeff and I had moved into regular offices nearby.
I was feeling very proud of the company and its quarters, and I was very excited to welcome Bob. Bob was already in his office with his family when I arrived.
My excitement plunged to despair as I saw the expression in Patsy’s eyes. I could imagine her thinking, YOU IDIOT! You gave up everything you had for THIS?!
As I looked around, I could see her point. The furniture was mis- matched. Through the narrow windows of the ground floor office, the view consisted of an assortment of car grills, parked almost against the tilt-up concrete building.
I walked up to Patsy, looked her in the eye, and said, “I’m sorry, but we needed him . . .” She might have tried to smile. I couldn’t tell.
Next, we called a company meeting. By now, almost everyone knew that we had hired a new CEO, but they didn’t know who. When the sixty or so employees based in the home office had gathered in our lunchroom, Jeff and I walked into the room, followed by Bob.
Jeff made the announcement. He gave a glowing summary of Bob’s career and made some comical remark about how relieved he would be to hand over the CEO job. He wanted to make sure that everybody understood he had no reservation at all about handing over the reins to Bob. He then handed the microphone to Bob.
Without thinking, Jeff and I both stepped back toward opposite corners of the room, further exaggerating Bob’s larger stature. Bob, with eyes wide and intense, said a few words to the gathered strangers. The strangers stared back at him with equally wide, uncertain eyes.
Jeff and I finally got what we asked for and we hoped that we had asked for the right thing.