Founders at Work.pdf

92 Founders at Work
drive—you had to have a second drive because you couldn’t save it on the first
drive. Then you had to quit out of VisiCalc completely and then start up
VisiPlot and then read in the file and then you could see the graph. If you
wanted to look at another graph and you hadn’t saved the data, you had to
repeat the whole process.
I could think of several ways to make this process less cumbersome, one of
which would be to put both programs on a single disk. I raised the issue with
the guys at Software Arts who did VisiCalc and they weren’t interested in it at
all. In fact, at various times I raised a number of ideas with the publisher about
combining the programs and they weren’t interested at all.
Why weren’t they interested? The people who did VisiCalc had serious
technical backgrounds and a bunch of computer science training. They knew
what they were doing and they had the hot product. I had no credentials or
background, at best sort of minor league success. So I don’t think they really
saw me as an equal. And the publisher was even worse in my view, in that they
were firmly convinced, between the venture capitalists and the people they
brought in, that they knew how to build this thing into a big business. And they
saw me, when I was there as a product manager, as an annoyance—as a marginal
person without experience or credentials who was kind of a pest. And I
suppose I was kind of a pest.
So they had no interest in doing more stuff with me. They were trying to
figure out how to technically get rid of me. And I took advantage of that fact.
I didn’t like it, but I took advantage of it. The royalty rate that VisiCalc was getting
and that I was getting was very high. My royalty rate was 33 percent of their
gross margin. And VisiCalc’s was higher—they got 35.7 percent. At the time the
contracts were done, the economics of the business, which was a new business
of packaged software for PCs, was not well enough understood to know that
that was obviously an insupportable thing to do. But it quickly became apparent,
because huge sums were flowing back to the authors, but the publisher was
the one that was incurring very significant expenses for support—which was
their responsibility—and all the marketing and sales expenses. Anyone who is
familiar with the business understands that royalty rates adjusted downward
pretty quickly.
So here’s the way the world looked to me at the time: I have a hit product—
not a number one product, but it’s making money. And it has an insupportably
high royalty rate. I no longer work for the publisher, but I know how they think
and I’m uncomfortable with them. And I know they don’t want to work with
me. So I felt what I should do is to have them buy me out. They would get control
of the code, close out the royalty stream, and I would go do whatever I was
going to go do next. I saw that was in everybody’s interest. And that’s in fact
what happened. They bought us out for $1,200,000, so I made a whole bunch of
money. I had never made more than $14,000 a year—I told you what kinds of
jobs I had. We had taxes to pay and I had a partner to take care of, but I wound
up with $600,000, which I divided into two piles. (I’ll talk about that in a
minute.)