At three in the morning he finally gave up trying to sleep. He slipped out of bed without waking his wife, got in his car, and drove to his office three miles down the road. The problem was the fucking computer language. One of the reasons the software business favored the young is that every so often the language changed. It was as if you announced to the population of France that everyone would be speaking Esperanto instead of French. Old people with their old language were shoved aside by new people who, with nothing invested in the old language, picked up the new language more easily. That Clark, in the late 1980s, had bothered to teach himself C++ was itself a triumph of character over condition; in the Valley anyone over forty tended to fade into technical irrelevance. “I’m an old dog who taught himself a new trick,” Clark would say. He was an old dog who taught himself so many new tricks that he was a threat to the reputation of old dogs.
This particular trick did not exactly do the trick. And so there, at three in the morning, in his dingy little office over the Jenny Craig weight loss center, Clark solved his problem with mathematics, then translated the solution back into computer code. When he was finished, he had a gauge he liked. A few hours later I plucked his work out of the garbage can, as a memento of how the late twentieth-century American technology billionaire spent the hours between midnight and six in the morning:
The truth was that no casual observer could say when Clark was working and when he was playing. In part this was because, to Clark’s way of thinking, the big distinction wasn’t between “work” and “play” but between “creating new technology for money” and “creating new technology for pleasure.” In part it was because there was no distinction at all.
By the fall of 1995 Clark had finished with Netscape. Having learned from Silicon Graphics that he did not really belong inside a large organization, he designed all future large organizations without a place for himself inside. He kept the title of chairman, and sat on the Netscape board, and held on to most of his nineteen million or so shares (the stock had split), but really he didn’t do much but attend a few meetings and trouble the company’s new chief executive, Jim Barksdale, with his various premonitions of what was about to happen.
To Clark it seemed clear that the Internet browser business would one day be devoured by Microsoft. Microsoft had devoured SGI slowly; it would devour Netscape quickly. Microsoft’s monopoly in the PC operating system gave it two big advantages in the battle for the Internet. The first was billions of dollars in profits; it could outspend any rival. The second was leverage over every company that intended to sell anything to the user of the PC. Netscape already was at Microsoft’s mercy. There was no point in designing newer and better versions of its Internet browser that were not compatible with each subsequent version of Microsoft Windows. And it could not do this without receiving early versions of Windows from Microsoft. Microsoft had done a good job marketing itself as a dynamic young company intent on changing the world. And to many people that is what it was. To Clark it was a force for slowing change, so that change did not disrupt its monopoly. It was bigger than General Motors and, in its way, just as stodgy.
And so Jim Clark set out thinking about how to make himself another billion dollars, to replace the billion he might lose to Bill Gates. That was the starting point for Clark after Netscape: how to make not millions but billions of dollars. Quickly. When he cooked up his plans, it never occurred to him that he was an outsider with no experience in the industry he planned to invade. He felt that pretty much the entire American economy was up for grabs, thanks to the Internet. No, the problem was that any computer-related market that was big enough to enable Clark to become much richer than he already was would be a market Microsoft itself would covet. When he asked himself, “How do I make another billion dollars for myself?” he was really asking, “How do I make another billion dollars for myself before Microsoft notices what I’m up to?” It took him four months to come up with an answer.
In late 1995 Clark was diagnosed with a rare blood disease, hemochromatosis. Essentially, his blood produced more iron than his body needed. The disease required Clark to visit the hospital once every few weeks, where he was subjected to an old medieval panacea, bleeding. It was the first time he’d visited a hospital since he’d crashed his motorcycle and shattered his leg. The blizzard of forms and the bureaucracy was more than any new billionaire could be expected to tolerate. It got him thinking of a solution.
By early 1996 Americans were spending $1.5 trillion a year on their health care and about a third of that was pure waste. Much of the waste could be avoided simply by eliminating the paperwork. Since much of the paperwork seemed designed to prevent the patient from getting what he wanted when he wanted it, eliminating it would please the customer. The Internet was made for such tasks: in effect, the Internet enabled all of the many parties of any health care transaction to be present in the same room. The patient could walk into the office of a doctor he’d never met, supply the doctor with a password, and a few seconds later the doctor would have his medical record and insurance coverage. A few minutes after the patient left, the doctor would bill the insurer over the Internet, and be paid by the insured over the Internet. If the patient needed drugs, those too could be ordered from the screen, right in the doctor’s office. No forms, no papers, no hassle.
Clark sat down with a piece of paper—a piece of paper!—and drew this little diagram:
The way he drew it, it came out a neat little diamond. The Magic Diamond. Clark thought a minute about the spot in the middle (*), which is of course where he assumed any company he would create belonged. Say, there was maybe one-third of a trillion and a half dollars a year of pure waste. Say, he cut out half of that and kept the rest as profit. He’d still be bigger than Microsoft, and Microsoft was on its way to becoming the most highly valued company on the New York Stock Exchange. If he was going to create the most valuable company in America, the company would need a name. He might as well have written in “Jim Clark Enterprises,” for that is what it amounted to. Instead, he wrote “Healthscape.”
Any other human being would have been tossed into an asylum for thinking such grandiose thoughts. Clark had invented Jim Clark, and so he was taken seriously.
7
Throwing Sand in Capitalists’ Eyes
Not long after he drew the Magic Diamond with himself at the center of the U.S. health care industry, Clark drove up to Sand Hill Road to see the venture capitalists. The venture capitalists advertised themselves as the great financial risk takers of the Valley, but you could learn everything you needed to know about their attitudes toward risk, simply by driving up Sand Hill Road. Sand Hill Road was where the venture capitalists clustered together for safety, like ducks in a park waiting for the bread crumbs to fall. Each time Clark made this trip, the ducks came out of it worse than the time before. The price of the crumbs rose; and they had to quack louder for them. When Clark had gone to see the venture capitalists about Netscape, it was with the understanding that he would act as the CEO until the company was up and running. This time he proposed not only that he take home the lion’s share of the stock in the new company but that the venture capitalists do all of the actual work. Clark had no plans to spend even a day in the Healthscape offices. He had ceased to be a businessman and become a conceptual artist. Having articulated the new new thing, Clark intended to return to the important work of teaching his computer to sail his new boat.
Amazingly, the question in his mind was not whether a venture capitalist would accept this deal, but which venture capitalist he would grace with his presence. The venture capitalists had learned a hard lesson from Netscape. Before Netscape went public, a lot of venture capitalists had thought John Doerr and his firm, Kleiner Perkins, had been mad to agree to Clark’s terms. Clark had charged Doerr three times the going rate for start-up capital. Doerr had cleared $500 million or so in eighteen months, or thirty times his original investment, and become the most talked-about venture capitalist on Sand
Hill Road. The other venture capitalists were forced to concede the point: the new, higher price for concepts, and the people who dreamed them up, was obviously worth paying.
Dick Kramlich from New Enterprise Associates (NEA), the Valley’s biggest pile of venture money and health care expertise, made the strongest pitch to Clark. Clark still complained about the way Kramlich had joined forces with Ed McCracken to muscle him aside at Silicon Graphics. But Kramlich was one of those gentle souls who just want everyone to get along, and he was, at least on the surface, willing to subordinate his ego to others. “If there is crow to eat and groveling to do,” says one of his colleagues, “Dick is the first in line to do it.” Kramlich had turned up at one of Netscape’s meetings with investors immediately before the IPO, and told Clark how happy he was for his success. This act of self-abasement—a formal acknowledgment that Clark was too important to ignore—encouraged Clark to rethink his opinion of Kramlich. He still hadn’t forgiven Kramlich for siding with Ed McCracken, and he never would, but he was, let us say, touched by the gesture.
As it happened, Clark had a motive for reconsidering his irritation with Kramlich: he was now even more irritated with John Doerr. Whenever Doerr’s name came up, Clark’s mouth went into full-pucker mode. When Clark had offered Doerr the chance to invest in Netscape, Doerr had been rather down on his luck. Between 1991 and 1993 Doerr had persuaded a lot of people, himself included, that the future of the Valley was in pen computing. Pen computing was a version of the Palm Pilot, ahead of its time. Doerr had burned tens of millions of capital on a dramatic failure to stuff computers into ordinary people’s pockets called GO. After GO, Doerr seized on interactive television. He took to making futuristic speeches the theme of which was that interactive television would transform the world. (He’d give the same speech right through to the end of the decade, simply replacing “interactive television” with “the Internet.”) Clark had rescued Doerr from that particular blind alley, and then helped him to cook up other new Internet companies. One of those companies was @Home. Clark and Doerr shared an obsession with Microsoft. Both felt that the Internet would be too big for Microsoft to ignore. They assumed, further, that a few years down the road the Internet would enter people’s homes through their television cables, which could transmit data much faster than phone lines. Ergo, Microsoft would seek to dominate the cable Internet industry. @Home was designed to secure the cable industry for Silicon Valley.
The important work was in the concepts, so far as Clark was concerned, and the concept for @Home had been at least as much his as Doerr’s. And yet Doerr’s firm, Kleiner Perkins, had denied Clark the chance to buy a piece of @Home, at least at first. Kleiner Perkins hewed to the old venture capital model, which relegated entrepreneurs like Clark to the sidelines of any business they did not explicitly create. They declined to pay Clark at his new conceptual-artist rates. Clark responded by telling Doerr that he planned to go elsewhere with his concepts.
Now he had one: the Magic Diamond. Once again he had put his name on a concept and was off and running down his long, dark tunnel. A few weeks after he saw Kramlich at the Netscape gathering, Clark drove up Sand Hill Road and paid a call on NEA, Kramlich’s venture capital firm. Kramlich finally seemed to understand that the world had changed, and that the engineer with the beautiful concept was its natural ruler. That was a big point in Kramlich’s favor. Kramlich gathered his partners into the conference room. Clark drew the Magic Diamond with Healthscape at the center of America’s only $1.5 trillion industry, the world’s single largest market, and announced he was going to “fix the U.S. health care system.” Of course, no one who actually understood the U.S. health care system would have dared to make such a grandiose statement. And, of course, Clark knew he did not understand it—and knew also, or at least sensed, that his lack of understanding was a psychological advantage. No one who understood the U.S. health care industry would bother to try to fix it.
Kramlich and his partners responded just as Clark assumed they should. They wanted a piece of the action. They asked him to come up and talk to them again. Soon. The failure to land Netscape had already cost Kramlich half a billion dollars. That failure was in part blamed on Alex Slusky, the young Harvard Business School graduate who had been assigned to trail behind Clark after he quit Silicon Graphics. Slusky had been forced to move on from NEA shortly after Netscape went public. (“They ‘fired’ Alex because he didn’t land Jim,” says another former NEA employee. “Fired in this case just means they made Alex’s life so miserable that he left.”)
To handle Clark this time around, Kramlich lined up two senior partners, whom I’ll call Phil and Bill. Phil and Bill were NEA’s health care specialists. Phil and Bill were also pretty much everything Clark hated about venture capitalists. Both were self-consciously “professional” men who knew how to dress down for meetings with engineers and how to dress up for meetings with Wall Street financiers and never said anything in any of these meetings that surprised anyone. They were conventional people who assumed that conventions made the world go round, which, of course, they usually do. In any case, they didn’t really believe in the possibility of change, and so did not bring the passion of revolutionaries to their work. As one of their NEA colleagues explains it, “Phil and Bill were totally unwilling to work nights and weekends, to write a business plan, brainstorm, spend time with Jim during the off hours, etc.” Phil and Bill, even more than Dick Kramlich, viewed Clark as a dangerously volatile, perhaps even mad, character who needed to be “managed.”
Clark looked around Dick Kramlich’s conference table filled with NEA partners and said he wanted nothing to do with Phil and Bill. He wanted Hugh.
Hugh was Hugh Reinhoff, a young doctor with little business experience who had just quit one job at Johns Hopkins and taken another in NEA’s Baltimore office. So far as Phil and Bill were concerned, Hugh was an interloper. So far as Clark was concerned, that was fine. Clark often preferred young, inexperienced people over older, more experienced ones. Even if they didn’t quite know what they were doing, at least they hadn’t learned the wrong things. They hadn’t lost their passion; they hadn’t become Business Bores. And so, in September 1995, at Clark’s fierce insistence, Hugh took over where Alex Slusky left off. He became Clark’s personal minder on the sprint down the long, dark tunnel. “My job,” Hugh later said, “was not to leave Jim’s side—to make sure that NEA got a piece of whatever Jim created.”
Improbably, Clark had been catapulted to the top of the capitalist food chain. Once there, he insisted that the people who had spent their careers there act more like him. He expected the venture capitalists to join him in throwing money at the idea and letting his engineers work out the details. Up until then the businesses funded by Silicon Valley venture capitalists may have been adventurous by the standards of American commerce, but the adventure was well planned. Now the adventure was reckless; Clark was making it up as he went along. Deep in his intuitive soul he thought “business plans” and “business models” and “management structures” were a waste of time. Time was the one commodity you could not waste if you wanted to make a billion dollars from the Internet. Once he had identified the new new thing, all he needed was some really smart, passionate engineers to chase after it and make it happen. After all, the idea was simple: eliminate the paperwork, the waiting around, and the market illogic from the U.S. health care system by bringing all the people in that system together on a single network.
The idea was not nearly as astonishing as Clark’s audacity in putting it across to the venture capitalists. At the same time that he was telling them how to invest their money, and plotting to take over the $1.5 trillion health care industry, Clark was working nearly full-time as a computer programmer. He took on the world’s single largest market as a part-time job. When he woke up in the morning, he wrote code for his boat; when he went to bed at night, he stared at the ceiling and thought about the bugs in the boat’s code. He communicated with the venture capitalists
chiefly by e-mail—which is to say that he rarely actually had to see them anymore.
A chapter could probably be written on the effect of e-mail on the American business imagination. Within about eighteen months it had gone from being exotic to essential. Those businessmen who were uncomfortable with computers cheated and pretended to use e-mail. Netscape’s CEO, Jim Barksdale, for instance, did not actually fetch his own e-mail but had his secretary type it up for him. But all of the people with whom Clark dealt were now available at his fingertips whenever a whim might strike him at three in the morning. He had a lot of whims.
Most of Clark’s early missives betrayed his concern with finding people he liked to run Healthscape. He wanted to hire people he trusted rather than people the venture capitalists recommended. For instance, on October 24, 1995, Clark wrote to Hugh Reinhoff,
“TJ [Clark’s old engineering buddy Tom Jermoluk, now president of Silicon Graphics] could absolutely do the job of CEO [of Healthscape] but I doubt he’s interested because although he’d like to make more money, he’s not risk oriented. I also met with the best software manager at SGI and he is interested…keep this highly confidential, because while he expressed interest in going, I don’t want anyone else to get wind of this.
Clark didn’t want anyone else to “get wind of this,” because it was a breach of his contract. The moment Netscape went public, it started getting résumés from Silicon Graphics’ engineers. Already Clark had received letters from Ed McCracken’s lawyers threatening to sue him if he recruited engineers from Silicon Graphics.
The New New Thing: A Silicon Valley Story Page 11