Bend, Not Break

by Ping Fu

  “So, your true interest is in our patents?” I asked for clarification, biting my tongue so as not to say anything that might start a fight.

  “Yes.” Adam continued, “We want those patents.”

  “I’d be happy to license the patents to you,” I offered at once.

  Adam looked agitated. I wasn’t sure whether it was because he didn’t like playing hardball or whether he really felt that we had wronged his company. “We want you to hand the patents over to us, free of charge,” he said. “We want to own these patents outright. You shouldn’t have filed them in the first place without our approval.”

  I was stunned. What? Give you the patents? I nearly asked, outraged at the request. I knew full well that we had every right to have filed these patents. I felt quite certain that I’d be able to prove in a court of law that Geomagic had not relied on any of these two companies’ proprietary information. But I stepped back to gain a larger view. At first glance, it didn’t seem fair to me for these companies to take ownership of our patents. At the same time, I had no other choice: agreeing to their terms was the only way out of Geomagic’s current predicament.

  I recalled William Ury’s advice to focus on the desired outcome rather than short-term consequences. It was more important for me to be able to run a financially viable company than it was for us to own these two particular patents, which comprised a relatively small market anyway. Handing over the patents in their field would be the “golden bridge,” as Ury calls it, that these executives needed to cross over and drop their lawsuit. All Geomagic required was the ability to use the patents going forward, and assurance that the customers who bought or licensed our software and technology would be protected.

  I said to Adam, “I hear you. You want the two patents we filed in your field.” Then I looked straight at Bob and asked, “Can you tell me whether that is also most important to you?”

  Bob cleared his throat. “Ping, you don’t have to be so agreeable. We are not going to exploit you because you are vulnerable. Would you give us five minutes alone?”

  “Of course,” I replied, and stepped out of the room.

  When I came back, Adam and Bob had a reasonable settlement ready for me. It released Geomagic and our customers and partners from further legal action and provided a financial payout for our two patents and legal fees. It took us a total of twenty minutes to agree on everything. We typed up the terms on Bob’s computer, and he e-mailed a copy to each of us. I thanked Adam and Bob again for agreeing to meet with me. I complimented their open-minded, straightforward, and cordial style and told them to call on me if they ever needed my help. They thanked me in return for reaching out to them, saying that they never could have initiated a meeting like this. We shook hands and bid farewell. I glanced at my watch on the way out the door. The entire meeting had taken less than an hour.

  Stepping outside the hotel, I called Vic. I could not contain my excitement: Geomagic was saved once again. “Vic, we did it!” I exclaimed. “They agreed to drop the case.”

  “Congratulations! Tell me what happened and what they agreed to,” he said. When I finished, Vic said, “Wow, Ping, you did even better than I expected. And you even managed to get them to cover your legal expenses.”

  I thanked Vic for having guided me through this harrowing experience with such levelheaded advice. Then I added, “Let me know when they pay your legal fees. If they don’t, I will definitely cover your expenses.”

  “Oh, don’t worry, Ping,” Vic replied with a robust chuckle. “Hale and Dorr is a big law firm. We know how to collect our own payments.”

  I laughed. “You’ll be my litigation attorney forever, Vic.” Although we have been fortunate enough not to have any other major lawsuits filed against Geomagic, Vic earned my enduring gratitude and respect. I also had learned valuable lessons about how, in negotiation, vulnerability can be a strength.

  —

  My 2003 New Year’s resolution for Geomagic, which had achieved profitability, was to focus on growth. In January, Fast Company named me one of its “Fast 50,” strengthening this desire. I didn’t know it yet, but growth is not a goal; much like losing weight, it is an ongoing commitment to progress.

  Geomagic’s vision to make mass production personal was audacious, especially given that there was no defined market for our products at the time we launched. We came out with our first software tools before there was much awareness of 3D printing and imaging, and found that we had to build it, slowly, ourselves. Our early customers, such as Mattel, Boeing, and Align Technology, were enthusiastic but could not offer us enough recurring business based on our existing software offerings. Developing custom products for them was too expensive and time consuming; it didn’t provide sufficient cash flow.

  Requests from potential new customers, on the other hand, pulled us in many different directions. If Geomagic’s software could help make aligners, could it assist with the manufacturing of custom-made hearing aids? What about fully customized knee replacements and, ultimately, valves made to precisely fit every individual’s heart? If we could create 3D models of the parts on commercial jets, what about military aircraft? What about repairing and maintaining turbine blades used in jet engines and power plants, an industrial sector in which the United States retained a global lead? Could we enable owners of Harley-Davidson motorcycles to custom design their own gas tanks? Make Olympic bobsleds go faster? Keep blimps in the air? We didn’t have enough people on staff to adequately explore, much less implement, every request.

  The most obvious way to expand was geographically, by selling our existing products to new customers in international markets. Our first choice was western Europe, where we already had a few sales, thanks to some 3D scanner manufacturers. A business contact referred us to a German national, Gerd Schwaderer, who had the skills to sell our product and understood our target customers. Gerd had worked for ImageWare, one of the early software companies in the 3D scanning space.

  I flew Gerd to Raleigh-Durham for an interview, forgetting that Herbert’s mother was scheduled to arrive from Austria the same day. Herbert was out of town. I didn’t want to leave my mother-in-law and ten-year-old daughter home alone without dinner, so I decided to bring them both along with me. I naively imagined that since my mother-in-law spoke German, this would be fun for Gerd. It never occurred to me how odd it might appear to a businessperson to have a CEO show up for an interview with two of her family members in tow. Gerd looked surprised when the three of us arrived at the restaurant, but handled the situation with grace. We had an enjoyable dinner and Geomagic hired him.

  To set up our European expansion in Germany, we had three choices. One, we could ask Gerd to set up his own business and act as Geomagic’s master distributor. Two, Gerd could set up a German sales office for Geomagic. Three, we could create a German subsidiary of Geomagic, which Gerd would join.

  The first option required Gerd to be an entrepreneur, a role he was not prepared to take on; that choice was out. Setting up a sales office would have been simpler than establishing a subsidiary. To create a wholly owned subsidiary that was an independent business entity, we needed to register our company in Germany and set up legal, HR, and accounting systems. The advantage of a subsidiary was that it would signal our commitment to the European market, a move that would be favorably received by our customers and resellers. I reasoned that if we wanted to be a global company, we needed to show the world we were serious. We went with option three.

  Geomagic GmbH was established in November 2003, and we recruited an exceptional team. Our European division grew quickly from zero dollars in 2003 to more than 30 percent of our business by 2008. Gerd remains a sales manager who, to this day, enjoys teasing me about “joining the family business.”

  —

  Around the same time we were opening our German subsidiary, I made my first acquisition. It was unplanned and ultimately not as successful. In D
ecember 2002, I attended EuroMold, one of the largest industrial trade shows in the world, held in Frankfurt each year. There, I met BMW and Volkswagen engineers who were using Geomagic software to design cars at their manufacturing facilities. They both independently mentioned a Hungarian research and development company, Cadmus Consulting, whose technology they loved.

  “We are big fans of your software and their technology,” the automobile engineers said. “If you could put the two together, you’d have a killer product that every car company would want.” They explained that while Geomagic’s software enabled the engineers to scan and create 3D digital models of their cars, Cadmus’s technology allowed them to functionally break down the data into meaningful pieces by separating the car’s various components. The Cadmus software could split apart metal, glass, and rubber from the car door data with ease.

  My curiosity piqued, I spoke with Herbert about Cadmus after returning home. He had heard of the company and its founder, Dr. Tamás Várady. Hungary, he explained, is famous for having great mathematicians. This group hailed from the prestigious Hungarian Academy of Sciences.

  During the summer of 2003, while I was working in Europe to establish Geomagic GmbH, I hopped on a plane to Budapest to meet Dr. Várady in person. As we talked, Dr. Várady showed me around the old city, whose ethereal beauty delighted me. I loved his passion and noticed that he was a complex and logical thinker.

  After a few hours of wandering through Budapest, I asked Dr. Várady, “Would Cadmus consider becoming part of Geomagic? You might come on board as our chief technology officer.”

  “That’s an interesting proposition,” Dr. Várady replied, raising his eyebrows. “I’ll think it over. By the way, Ping, you can call me Tamás.”

  When Tamás accepted my offer a couple of months later, I traveled to Budapest as soon as I could. We sat down at a café and sketched out the deal on the back of a paper napkin. Tamás agreed to a stock buy, which was helpful because Geomagic didn’t have much cash.

  The acquisition closed smoothly, but the road got bumpier after that. Both Tamás and I were inexperienced; neither of us had done an M&A before. We had different expectations of the outcome and very different personalities.

  I made several mistakes and naive assumptions. For one, Hungary itself had no markets and brought in zero revenue. The cost of supporting fifteen people in our Budapest subsidiary was substantially higher than I had anticipated. Prior to the merger, Cadmus employees had taken reduced salaries and worked on the side at various university jobs; now we paid them at full salaries at market rate. Inflation in Hungary was high, and within a couple of years their salaries were only moderately lower than the going rate in the United States. We also had to cover the costs of extra office space, administrative support, and travel. We weren’t a large enough company to afford such an expense increase.

  Language was another challenge. It turned out that most of our Hungarian employees did not speak English well, although their skills were sufficient enough to read and write software. This made communication between their office and headquarters difficult. It also meant that we could not fully utilize our employees in Budapest as a technical support team for our European customers, which would have benefitted sales and marketing.

  The biggest contention was a misalignment in our mentality and attitude—a lack of what is known in business terms as “culture fit.” Though technically brilliant mathematicians, our Hungarian employees came from an academic background in the former Soviet bloc, where funds were not tied to results. They had no practical experience of what it takes to build a product for end users.

  Tensions between Hungary and headquarters quickly emerged. We asked a small team in Budapest to build a dental product for a client in Germany. True to their scientific nature, the Hungarian mathematicians developed complex algorithms to solve several challenging problems. However, they came in behind schedule and over budget. The product didn’t work well in the dental lab environment, where average users had no technical training. The team developed the software until it was 80 percent complete, but we couldn’t get them to finish the last 20 percent—the user interface features. Without good user interface and workflow design, the smartest software does not show or function well. Our Hungarian technical team didn’t seem to grasp the importance of usability. I had to move the project back to the United States for completion.

  We simultaneously began working on the project that had originally brought us together: integrating Cadmus’s technology into Geomagic Studio software. Studio was our market leader at the time. It enabled industrial designers and engineers to transform 3D scan data into highly accurate models for product design, rapid prototyping, and analysis. We wanted to expand Studio’s functionality to allow designers to shape more stylized products that are free-form and beautiful, such as the exterior of a car. We named the product Geomagic Fashion, and assigned Tamás and his team to develop it.

  Thirteen months later than we’d expected, we sent the beta version to some expert users for field-testing and feedback. Our beta testers liked the software’s new capabilities, but found it only half usable—they could not finish their designs for some parts. It is known that the first release of any software rarely works perfectly, so I wasn’t too disappointed. I also knew that we had given the Hungarian team a difficult problem to solve. I trusted that Tamás and his team would make it work better.

  The next phase of improvements again came in several months behind their release schedule, and yet again we didn’t have a finished product. At this rate, it was clear that it would be another two years at least until Fashion was mature enough to be a groundbreaking product.

  My patience ran thin. I didn’t recognize at the time that we were part of the problem for having unrealistic expectations. I started questioning whether Tamás had sold me a company that didn’t have the capabilities he said it had.

  Tamás seemed surprised. “But we’re thrilled with our progress. We’ve solved several complex theoretical problems that no one has ever been able to tackle before. That takes a long time.” I could hear his excitement, like a child about to ride his first roller coaster.

  Tamás’s goals were noble, but he was not accustomed to operating a commercial company. Inventing theoretical solutions was a task that belonged to a university or research institute and was rarely a priority in business. Tamás was passionate about being the best researcher he could be. Making money and meeting deadlines did not motivate Tamás and his team. Making scientific discoveries did.

  I took a deep breath. “Tamás, your team has worked on just a few data sets so far. We need to test two hundred varieties of data sets to make sure the software works. We’ve got to make sure Fashion is a product, not a prototype.”

  “I know, Ping, but that is the job of Geomagic’s engineers. You guys know better how to build a product,” he replied. “I think we should change the organizational structure so that Hungary only builds prototypes and Geomagic builds the products.”

  I wanted to reach through the phone and shake Tamás by the shoulders. “Your job is not just invention; it’s mostly engineering. You need to deliver a product that works.”

  When Tamás began arguing again, I cut him off. “I’m sorry, Tamás. You’re just going to have to adapt.”

  The discussion did not end there. During every one of our scheduled weekly calls, Tamás would argue with me about something. He would criticize my business decisions or question why I thought product usability and company growth should come ahead of solving the most difficult theoretical problems.

  “Just put Geomagic into steady state mode and let’s solve all these unsolved problems,” Tamás would say.

  “You’re not working for the Academy of Sciences anymore, Tamás,” I’d reply. “If the company doesn’t grow, it shrinks. The world is not waiting for us.”

  It seemed to me that Tamás had a lot of time and energy to talk
, which I did not. He loved to debate with me for hours. Often, I’d hang up the phone feeling as though I’d just hauled a twenty-pound stone up a hill, only to watch it go tumbling back down again.

  Eventually, I had to give up. I was genuinely fond of Tamás and deeply respected his intellect and imagination, yet we were always at odds. An inveterate tinkerer, he could not shift to a more commercial mind-set. When we talked, I said, “Tamás, I’m sorry, but I can’t do this anymore. We need a more productive way of channeling your talent and energy.” I suggested that he step down as CTO and accept a position as chief technology adviser.

  I thought Tamás would be hurt and disappointed, possibly even angry. Instead, he let out a huge sigh. “Thank you, Ping. I really didn’t enjoy being CTO. I felt that I had to debate those issues with you because it was my duty as a corporate officer. I’d rather help out by solving technical problems and leave the business decisions to you.”

  True to his word, Tamás stopped debating me. Our two-hour weekly calls ceased. He went about his new advisory role with gusto, engaging our engineers enthusiastically on any complex issues they faced. I couldn’t believe it—simply by changing his title, I had altered his perception of his responsibilities and reduced stress for both of us.

  Nevertheless, Geomagic never did manage to integrate the Hungary team effectively, mostly due to our own inexperience. We didn’t give them full accountability or autonomy. Six years after the acquisition, we spun the Budapest subsidiary off, offering a job at headquarters to anyone who wanted to stay with Geomagic and relocate to U.S. headquarters. Tamás remains as an adviser.

  The Hungary acquisition was not a total failure. The team contributed critical pieces to the Geomagic Studio software, enabling it to remain a world leader in its category for many years. I learned a great deal about the importance of culture fit, market synergy, and postmerger integration.