1: In the middle of the dot-com crash, against all odds, Ben Horowitz had succeeded in finding a buyer for Loudcloud, the cloud computing company he had founded.
EDS agreed to acquire the firm for $63.5 million in cash, along with the associated liabilities and cash burn.
Not only that, “we would retain the intellectual property, Opsware, and become a software company,” Ben writes.
“EDS would then license our software to run both Loudcloud and the larger EDS for $20 million per year.”
Ben was elated.
His shareholders? Not so much.
“I had sold all of my customers, all of my revenue, and the business they understood,” Ben writes in his wonderful book The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers.
“Every large shareholder bailed out, and the stock price fell to $0.35 per share, which represented about half of the cash we had in the bank,” he notes.
2: Things were also rocky inside the company.
“I realized that nobody besides me knew how bad things had become and nobody besides me believed in the future,” he recalls, “so I decided to take the employees off-site and resell them on the opportunity.”
Ben rented 40 rooms at a low-end Santa Cruz motel and invited his remaining 80 team members out for a night of drinking and a day to share the new opportunity to become a software company.
“I tried to be as honest as humanly possible,” he writes.
Here’s what Ben told the team: “You have now heard everything that I know and think about the opportunity in front of us. Wall Street does not believe Opsware is a good idea, but I do.
“I can understand if you don’t. Since this is a brand-new company and a brand-new challenge, I am issuing everyone new stock grants today. All that I ask is that if you have decided to quit that you quit today. I won’t walk you out the door—I’ll help you find a job. But, we need to know where we stand. We need to know who is with us and whom we can count on. We cannot afford to slowly bleed out. You owe it to your teammates to be honest. Let us know where you stand.”
Two associates quit. The other seventy-eight stayed.
3: There was a lot of work to do as we moved into the next phase.
Ben received a blunt letter from the NASDAQ stock exchange stating that the firm had to increase its stock price to over one dollar, or it would be “delisted” and sent “to the purgatory known as penny stocks.”
Ben began aggressively telling the Opsware story: “We had a great team, $60 million in the bank, a $20 million a year contract with EDS, and some serious intellectual property,” he writes. “Unless I was the worst CEO of all time, we should be worth more than $30 million.”
The market listened, and the stock price increased above $1 a share.
Next up: Shipping the Opsware software product.
The software had originally “been built to run Loudcloud and Loudcloud only,” Ben explains. “The user interface was far from ready for prime time. The component that managed the network was called Jive and featured a purple pimp hat on the front page.
“It was not yet ready for the world,” he notes.
And Ben had to rebuild his leadership team.
“I had a CFO who didn’t know software accounting, a head of sales who had never sold software, and a head of marketing who did not know our market,” he shares. “Every one of them was great at their old jobs, but not qualified for their new jobs. It was miserable, but necessary, to see them all go.”
In time, however, the strategy and the team began to come together. They began to sign new customers, and the business found its groove.
The stock price increased from its low of $0.35 to $7 a share.
“It felt like we were finally out of the woods,” Ben writes.
“Naturally I was wrong.”
More tomorrow!
____________________________
Reflection: When the story others tell about my situation is “failed” or “hopeless,” am I willing to see and sell a different future strongly enough to bring the right people with me?
Action: Identify one area of my life or work that may need a bold pivot rather than incremental tweaks, write out the honest risks and the upside of that pivot, and have one clear, candid conversation this week with the key people I’d need on board.
What did you think of this post?
