May 1996 - The Frontier

Microsoft Internet Explorer 3.0 Beta Now Available Microsoft Corp. today announced the immediate, worldwide availability of Microsoft® Internet Explorer version 3.0 beta software, the next generation of its popular World Wide Web browser . . . For users, Microsoft Internet Explorer 3.0 provides a dynamic browsing experience for viewing content created in Java, JavaScript, Netscape™ Plug-ins . . .     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 . . . Microsoft Press Release May 29, 1996

I’d like to say that we had it all figured out from the beginning. That we knew the Internet would be the hot place to be. But it wasn’t like that at all.

Our survival would depend on how efficiently we could get our message out to a diverse and potentially hostile audience. While we had great advocates using our software, we weren’t certain how openly we would be welcomed by healthcare equipment suppliers.
    One of our first tasks at Neoforma was to create an image for this new entity. Even though we only had one person, Patty, on salary, the company had too little money to survive for long. By this time, we had run the numbers enough times to see that the most lucrative path to profits would be to leverage our captured-customer base and get the bulk of our money from healthcare equipment suppliers. In our view, they had the most to gain.
    Usually when a group of customers gets together in the form of a professional society, they adamantly shield their members from suppliers. They support themselves by doling out bits of customer information in exchange for the sponsorship of society events.
    We planned to take this time-honored concept and project it into the digital world. We would gather together a group of architects and healthcare providers who shared a similar need for information to improve their ability to expand and build hospitals. We’d provide them with software tools, such as shielding calculations, room templates and product information, which met their needs.
    We would get suppliers that shared the same customers to help us build those tools. They would sponsor the tools by paying us to include detailed product listings and images among a sea of unenhanced listings. Since we put this information in front of their targeted customers very early in the product decision process, this product placement was very valuable indeed. We had offerings varying from a couple of thousand dollars to tens of thousands. We justified these rates by comparing our service to the high cost and low return of traditional media.
    We would give these tools away, charging only for the more advanced versions. It was kind of like shareware. We’d get a little money from the buyers and more from the sellers. Everyone would benefit. This process was far less expensive and more predictable than traditional customer aggregation. So, we had to get the message out to suppliers quickly. We had some initial success cold-calling suppliers, but we needed scale and speed to keep the doors open. We decided to send a brochure to a large number of carefully targeted suppliers.
    This seemed like an old-fashioned way to start a grand wave of technology, but we knew that this was a very conservative industry. The business of healthcare was very serious indeed. Our official introduction as a company would need to be familiar and professional. It would also be very expensive for us. We would only have enough money for one shot.

Seeing the first brochure at the printer was a breathtaking experience. Its two folds opened outward, exposing a rich view of the world we were trying to create. It was conservative in layout with striking colors, expensive-looking, professional, exuberant, and beautifully eye-catching. At least it was as exciting as a brochure primarily about radiation shielding and medical room layouts could be.     To top it off, our new logo — a diagonal spiral — looked great on the cover. This was the first visual representation of our company. Our business was getting more real every day.
    Our families got together that weekend to stuff thousands of envelopes with the brochures. We addressed them to thousands of manufacturers. The stacks of mail went out the doors on Monday. And, we waited.
    We knew it would probably be several days before anyone actually received the brochures, but that did not make the fact that we received no calls from new customers on Tuesday any less disappointing.
    Wednesday was a different story. Several manufacturer representatives who knew us called us to say some variation of, “Wow! You guys are really serious about this thing!” We also received some calls from companies that we had not spoken with before. Some part of me relaxed, just a bit.

We also needed to establish a presence on this new thing called the Internet. For the most part, I had only used the Internet for email and technical support for assorted computer devices, but I had seen enough to know that our products would rely heavily on it someday. If we wanted to project a vision of the future, we had to be on the Web from the start.
    So, as we were producing the brochure, I called around, asking for a referral to someone who built websites. I knew a great deal about computers, but I knew very little about the Internet. I didn’t understand how it worked or what software was used to make things work or even what the computers that ran things looked like. I didn’t know why there was a “www” prefix in front of so many Web addresses.
    What I did know was that this medium had the potential to solve many of the problems and reduce the costs associated with traditional media distribution. I asked people I knew who seemed to know more about this stuff than I did where to go for website construction. Nobody could give me recommendations.
    It seemed that everyone was a novice at this. I was left with no resource other than the phone book. There were only a few listings under “Internet”. Galatia was the first number I called where someone actually answered the phone. They only had six employees, but were poised to grow. They could do anything we needed. Now and in the future. Sounded good to me.

At first, our website was mostly a distraction for me. It was something I had to keep updated, but that was about it. My focus was on the CD product. However, the quick expansion of our products required us to change our information very often. So, with increasing frequency, we directed our supplier and buyer customers to the website for new information.
    The problem was, the Internet was so new that we spent an incredible amount of time painstakingly explaining to manufacturers how to use a browser.
    The good news was that, once they understood what we were doing, they embraced our ideas with vigor and started asking us if we could add this feature or that. One of their most frequent questions was: Is there any way to keep our own product information up-to-date using the Internet? Well, I assumed that this was possible, but I had to verify that it was practical.
    We had been receiving more and more product literature from suppliers to scan and convert for use on our CDs. It was becoming a bottleneck for us. We had to input everything into the computers, then send it out to be reviewed by the suppliers. Additional changes were made by us, and then reviewed with the customer again. It certainly would make sense for us to put the editing control into the hands of the suppliers themselves.
    I asked Linda at Galatia how much it would cost to create a secure interface on the website that would allow the suppliers to maintain their own information. The price was high, but easily justified. Since the master database I had written was resident on our own computer server, Galatia would have to track all changes made to their copy of the database. I would need to write the interface to capture this data and merge it with ours on a regular basis.
    Within a couple of months, we were up and running. We now had a real, interactive application running on the Internet.

The customers loved the idea of this. A few even used it. What we found, however, was that we ended up using the Web interface quite often. It was simple to use and a very convenient way for us to change supplier product information while at trade shows, which had just now begun to have Internet terminals. The suppliers were very impressed when they saw their products immediately appear on our website.
    My interaction with Galatia became a daily, then hourly occurrence. Our list of features to add to the Web interface grew rapidly. Since we had all of this supplier information on the Web, we thought that we might as well make it visible to those few Internet-savvy people who might prefer to get this information via the Web rather than a dated CD.
    It turned out that there were quite a few people who liked the idea of getting this information via the Web. Our traffic started at a trickle and would slowly, steadily, become a torrent. Although our business model didn’t change much, the medium of delivery sure did. We started to realize that, at the rate we were going, the CD might soon disappear.
    The Web projects quickly became more complex. The Web development bills grew larger. Much larger. As I paid each bill, my demands increased too. I needed more, faster.

I still worked my day job at Varian. I had to establish a routine that allowed me to be at home in the morning to help get my two young sons ready for and off to school. Also, it was important to me to be home and attentive during dinner, until the kids’ bedtime. From what was left, I had to carve out enough time to allow me to keep up with an increasing workload at Neoforma.
    I ended up with a routine that worked. I would get up at between four-thirty and five each morning, take a quick shower and get in an hour or so of work before the kids awoke. Each evening, I would begin work immediately after the kids were in bed, at around eight, until my mind slowed down — usually between eleven and two, sometimes later. For the first time, coffee became a critical part of my mornings.
    With my hour-and-a-half lunch, this schedule allowed me to put almost eight hours a day into Neoforma on weekdays, plus Saturdays. Because of this schedule, I would often send messages to Galatia at one or two in the morning and then again at five.
    Once I had maintained this pattern long enough, I tended to forget that not everyone kept the same schedule. As my pressure on Galatia increased, Linda remarked that it was unreasonable to be expected to keep up with the demands of someone who never seemed to sleep.

The pressure had increased not only because of our increasing demand for new features, but because the nature of what we were doing with the Web was so unique that it stretched Galatia’s software and hardware beyond their boundaries.
    We were doing things that hadn’t been done before. Or, more accurately, we were hitting these new website features with a volume of traffic that hadn’t tested before.
    Under the weight of increasing interactivity, data and traffic, the site began to crash. Often. I grew terribly frustrated. In the middle of the night, perpetually short on sleep, these unpleasant discoveries would occasionally drive me to rage. And my messages would fly: Why can’t you just keep this thing running!!?? Why do I have to find these problems myself!!?? I have a business to run. This is supposed to be your expertise!
    Over time, I became a demanding and impatient client. We had clearly outgrown Galatia, but I still held onto the idea that they should be growing in pace with us. And they were growing, but not at our pace. I couldn’t understand why.
    The fact was that they had decided, long before I’d interrupted their peaceful existence, to pursue a more restrained and more human pace. The very characteristic I had selected them for was the one that forced us to leave them behind.
    Eventually, we couldn’t avoid reality any longer. We decided that we had to bring our Web development inside the company. By late 1998, controlling our website would become much too critical to our future to leave to an outside party.
    By that time we had a rapidly growing equity value. We considered buying Galatia. This would be a great way to quickly acquire a trained staff. But almost as quickly as we thought of this course we dismissed it, knowing that the cultural gap between Neoforma and Galatia would be too great, even if they became part of our company. So, we had to hire our own programmers. Galatia graciously helped us transition our website services to inside Neoforma. And that was that.
    We were a rapidly growing company that had simply left behind what didn’t fit. They had watched us grow from a company with one employee and no Internet experience to a company with nearly forty employees that was becoming a major player in the hastening Internet race. While I did not slow down enough to adequately thank them, I hope they felt, as they watched us disappear into the distance, some pride over their contribution to our success. They were pioneers too. They had simply chosen not to run quite as wildly as we had.

April 1996 - The Prequel

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 . . . CNET News.com April 12, 1996

There was no master plan. A series of chance encounters planted the seed that was to become Neoforma.

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. While expensive on a square-footage basis, our office suite had all of the overhead services we might need: administrative support, phone service, copy services, conference rooms, kitchen, etc. This was important because we had very little money for such investments. Our office doors officially opened April 1 — the annual day of surprises and punchlines. We considered it an omen of sorts. The total capital assets of the company consisted of a computer, a secondhand desk and a chair.
    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.

March 1996 - Inking It

Neoforma incorporated. March 6, 1996

It was an inauspicious start.

Neoforma’s official beginning can be traced to a day more than three years earlier than our IPO filing. At the time, I would never have predicted the scale and intensity of the course we were about to take.
    I do remember that the building it all started in was far from flashy. A quiet, somber place, the bank’s small attempts at welcoming us — a carpet here, some wood-grain there — were subservient to the formal processes involving the exchange of money. Sixties modernist design without the modernist attention to detail. Cold flooring, high ceilings. This was not a glamorous place.
    We had selected this bank not for its prestigious name or its dedication to customer service — it was known for neither — but because it was located a couple of blocks away from the offices we were about to open.
    But I did feel a sense of glamour as Jeff and I were directed, along with our wives, to the business desk.
    Though there wasn’t much to it, this was our official opening ceremony. We would each sign some forms and checks. These were just about the only physical requirements of this ritual. However, its completion would formalize our willingness to embrace real risk — not physical risk, but lifestyle risk. All risks share the same emotional basis — that one might return with less than one started with or nothing at all. When this risk is voluntary, it comes with the thrill of potential reward.
    Our wives were there because the ten thousand dollars that we were each depositing to purchase the first shares in our new company was being transferred from jointly held accounts. When I think back, I am impressed how much support my wife provided at this big step. It took me a long time to appreciate the emotional investment Anni made that day. We had discussed the details and potential consequences of this investment at length, but in the end, she was making this decision primarily on the basis of faith in me. We were taking most of our savings and putting it into a place from which it might never return. And there was little doubt in any of our minds that this was only the first small step into an uncertain future.
    While there was not enough money in the new business to allow me to leave my nice safe job yet, I was certain I was going in that direction. There was no turning back.
    It represented a big turning point in my life: a turn away from one of the paths I had envisioned for myself in youth — the creative artist/ architect and toward another — the developer of an idea into a business.

The first significant enterprise I had founded was a business I started at fifteen, some twenty-two years earlier, breeding tropical catfish. I convinced three fellow misfits at school that if we each put in $100 (a lot of money for fifteen-year-olds back then), we could create a funand profitable business. I wish I still had those sheets of the calculations I had created to convince them. They were full of youthfully optimistic assumptions.
    After two years of hard work, silly mistakes, small successes, little arguments over division of labor and relatively clean fun, we became bored, closed the doors and sold everything. In the end, we broke even financially, excluding labor. However, we made a huge profit developmentally. That felt pretty good at the time. I liked building a team. I liked the thrill of being emotionally and intellectually challenged.

I can’t say how thoroughly I had evaluated the risks of this new venture prior to writing that first check. I had children to raise and educate. Mortgage to pay, marriage to nurture. I do know that I dismissed the risks quickly as I embraced this new challenge.
    Jeff and I had some good ideas and a vision of better things. My new, less youthful, but equally optimistic financial projections indicated that Jeff and I might, between us, be able to make enough money over time to pay off our mortgages if we did things right. We believed that could make up for a lot of family neglect. And we felt that, after this formal ceremony of incorporation, we would go on to be good corporate citizens. Ready to follow the path tread by many before us. To contribute, with a little luck, more than we consumed.

October 1999 - The Printer

Medical supplies supply the next B2B wave Take the temperature of the medical equipment supply industry and you’ll sense the next hot batch of business-to- business IPOs... Neoforma.com filed Friday for an IPO... In its filing with the U.S. Securities and Exchange Commission for a $75 million IPO, Neoforma.com disclosed that it received a final $70 million round of private funding this month... Red Herring October 16, 1999

Somehow, I ended up on the outside, looking in.

An initial public stock offering (IPO) represents a company’s official launch into the delightful realm of public scrutiny. It is the time when a company steps into the public limelight, drops its drawers, and says — Look at me. Here’s what I intend to offer you. To competitors, it is the first real glimpse at the company’s pricing and positioning strategy. To investors, it is the first chance to evaluate whether this new offering represents a chance to make a killing.

As Neoforma’s IPO documents were being sketched out, I kept hearing talk about the “Printer.” I assumed that it was jargon for something I should already know about, so I just went along, nodding and smiling, without asking what it meant.
    The Printer was actually a specially designed place where public companies’ massive reporting documents are assembled by large teams of people, then electronically submitted to the SEC. Several companies are usually involved in various filings at the Printer at any given time. Each is assigned conference rooms and given access to an assortment of food and beverages.
    Almost twenty-four hours a day for weeks, an amazingly large group of young lawyers, accountants and investment bankers — almost none of whom I knew — had been enthusiastically gathering and assembling mounds of obscure Neoforma information into crowded conference rooms.
    A private company can have many secrets. There is very little requirement for the public disclosure of information. But once you go public, all of that changes. A public company can have very few secrets. And even those secrets are controlled by all kinds of legal restrictions.
    The team of mostly young professionals assembling those mounds of information hardly acknowledged my presence when I visited. I don’t know whether it was that they didn’t know who I was, whether they were simply being polite, or whether this was such a common situation for them that I was barely worth their notice. Personally, I would’ve been incredibly interested in what might be going through the head of someone about to make a ton of money. And, in no way had I connected that someone with me.
    They seemed so engaged in the process that it made me feel proud — if somewhat surreal — to be a part of it. I was impressed by how they could put so much into a process that they wouldn’t directly benefit from. They seemed to be driven simply by the knowledge that they were at the heart of a unique and very exciting time.
    Jeff and I were only bit players in the filing process, but we did visit the Printer several times to go over minute events in the early history of the company. Our biographies and the financial history of our investments in Neoforma were also being included. This would be the first time that anyone outside Neoforma would have complete visibility into my ownership of Neoforma.
    I am a private kind of guy. I didn’t like the idea of my personal information being published to the world in so raw a form.
    Typically, only founders, investors and their lawyers and accountants know the ownership make-up of a private company. This would be the first time for almost everyone inside Neoforma to see the ownership position of any of the corporate officers, including me.
    My own position was pretty staggering: four million shares of company stock. That is what I owned. I hadn’t thought much about it before. But we were rumored to be filing a starting price at up to $10 per share. It didn’t take much for me — and everybody else — to figure out that I might soon be filthy rich.
    Because the bits of information requiring disclosure were changing constantly, it was impossible to pinpoint the day that the filing would take place. If we changed anything — made any strategic decisions, considered any new acquisitions, were party to any new legal actions, or even changed our snack policy — the filing date would be pushed back so adjustments could be made.
    Our strategic funding round, which we were announcing in parallel with the filing statement, was a complex mess. All of the funding details, including any operational adjustments made to accommodate it, had to be included in the final filing document.
    As we neared the second week of October, we knew that everything was almost lined up. Each day was going to be The Day. Then something new would rear its ugly head. Each day the tension would increase, even as each issue was resolved.
    On the evening of October 14, just after finishing dinner with my wife, Anni, and my sons, Weston and Reece, I received a call from Jeff. He told me, “We’re filing tonight! You might want to come down here.”
    I really hadn’t thought that the actual submission of documents to the SEC was such a big deal. Anni and I talked it over. Of course I wanted to go, but there had been so many nights where Neoforma had intruded into our lives that I had lost perspective on what made this night any different than the rest. We agreed that I should go to the filing.
    When I arrived at the Printer, there was a crowd of thirty or so people standing around, mingling. Only a small number of them were Neoforma employees. The atmosphere was electric, celebratory. Everyone was drinking expensive champagne. One of our PR employees recognized me and energetically handed me a glass. She told me that they had just completed the document and were ready to submit it.
    Leading me through the crowd to a small cubicle. Jeff was there already. She pointed to the keyboard of a simple computer terminal. She told us that all we had to do was: “Push that button!”
    The aisles were filled with unfamiliar, excited faces. Someone had a camera aimed at us. I felt silly, but proud. It was heartening that this group of intelligent people were giving up their evening to be here to watch us push a button. I was glad I had come and shocked that I had considered not being here.
    We pushed the button — to cheers and toasts. In a month or so, we might be a public company.
    I found out then that, despite the late hour, a group of thirty or so Neoforma employees — mostly long-time employees — had gathered at the company offices to celebrate. I drove there feeling quite disoriented.
    At the door, someone handed me a Nerf gun. Slightly inebriated people were racing through the maze of cubicles, laughing freely, firing soft darts and balls at each other. The stress created by hyper-growth had been building for a long time. A lot of stress was vented that evening. I was a favorite target. I fired at a few satisfying targets too.

This is the email message Bob, our CEO, sent to Neoforma employees that evening:

Today at 6:45 p.m. we closed on our Series E Preferred Stock financing in the amount of $70 million. At 6:50 p.m. we pushed the button (literally) and transmitted our S-1 registration statement to the Securities and Exchange Commission. At 7:03 p.m. we received confirmation from the SEC that they had accepted our filing with a filing date of October 15. Any of these events is a big event in the life of a company — having them all occur on the same day, within minutes of each other, is a pretty rare thing.

    It wasn’t until I read that message the following morning that I realized the filing date hadn’t been the 14th. Instead, the filing was registered on the next business day, the 15th, my fortieth birthday. Forty was a big deal to me. Not because I was getting old, that didn’t happen until at least 41, but because, ever since I was ten years old, I had always considered forty to be the age at which wisdom was achieved. I had told myself as a child that I would be ready to write my first book when I was forty. I believed that life experience would take that long to ferment. I am still waiting for the wisdom, but I have quite a bit of experience.
    It was on that day that I made a formal resolution to write a book about my experiences at Neoforma. I believed that the richness and peculiarity of my experiences during these times was worth trying to communicate. It certainly felt strange enough to me to be worth exploring.

Starting Something - Introduction

I made a few hundred million. I lost a few hundred million. But that does not in itself make this story particularly unique — considering the place and time: Silicon Valley, at the end of the twentieth century.

Back in 1996, my partner, Jeff Kleck, and I started a company called Neoforma. We started with a product. A good and needed product. But this product served a very large and complex audience — the healthcare industry. So we could only provide for its initial needs. Other people would be needed to facilitate its growth and ensure its survival. Our company had to grow into something beyond its product. As it happened, it turned into quite a large production.

This book is about control.
    When we started Neoforma, Jeff and I were firmly in control. As we hired people and invited investors, we had to yield some of that control. Sometimes we gave too little. Sometimes we gave too much. Sometimes it didn’t matter. Sometimes I wanted to scream.

This book is about confrontation.
    Jeff and I knew that our ideas and product might stir things up a bit. In fact, we believed that the healthcare equipment industry could use quite a bit of stirring. So there was certainly some level of spunk and rebellion in us when we started Neoforma, but we really didn’t mean to start a fight. We were young, but not that young. However, fights are what we got. One after another.

And this book is about corporate culture.
    We had become frustrated with one company’s culture. We left that company in a fit of rebellion and opportunity. When we had the chance to start from scratch, we were committed to building something creative and empowering — something more like us. But a culture’s formation is complex and subtle. Everyone who touches a company affects it. The earlier they touch it, the more they affect it. In the beginning, Jeff and I were the culture. In the end, the culture had little need for us.

In 1995, as I began to realize that I might soon be heading down the entrepreneurial path, I was fortunate to come across Jerry Kaplan’s book, Start-up. I read with great interest his story of the formation of a pen-computing company that would entrance, befriend and then be
crushed by industry giants.
    I was both entertained and educated by Kaplan’s book. Now that I have been on a similar journey, I believe there is more to say.

This book is not a guide on how to start a company, though it should certainly be helpful for anyone planning to start something. This is not a history book, though its context is quite historic. Instead, it’s a look at some of the peculiar ways that things get started. Some of this
book is about business. Most of it is about how people — individuals and groups of people — interact with each other in new and unusual situations.

No complex series of events can be fully understood without some consideration of its context. The time and place in which this story took place distorted and magnified what might otherwise have been relatively mundane behavior. In the final years of the twentieth century, Silicon Valley was quite an unusual place. Everyone involved with a plethora of new businesses felt more important than they had ever expected to feel. That alone led to some interesting situations.

Any assumption that this story accurately reflects historical truth should be weighed against the fact that I have a perverse tendency to feel certain in the absence of uncertainty and to feel skeptical in the presence of facts.
    While the name of the company on which this story is based is factual, and can be verified, the events described in the following chapters should be assumed to be at least partially fictional — being based primarily on the notes and memory of one person. In the interest of privacy and self-preservation, the names of most of the characters and some of the companies have been changed. For the most part, it’s not who did what that matters. Instead, it’s what they did — and maybe why they did it — that provokes thoughtful retrospection.

I must also mention that, regardless of my take on things, you should tacitly assume that the characters and events in this book all have equal and opposite sides. I, of course, only see what I saw.