“You won’t have to do anything. The customer is your enticement.”
Within a few weeks, David Liddle agreed to join our board of directors.
When I returned to the office, the receptionist told me that I had missed a call that sounded important. “It’s from a Norm Vincent.”
“The data processing VP from State Farm?”
“Don’t know.”
“What’s the area code?”
“Three-oh-nine.”
“That’s it, central Illinois!”
I took the rest of the number and dialed Vincent immediately. Luckily, he was in the office. “Jerry, I really liked your presentation to the Research Board, and we’re interested in following up. I’d like you to come out and meet with us, if you’re willing.”
Now I knew who had taken the the keenest interest after I left the Research Board. I was ecstatic.
6
The Proposal
RESEARCHERS who survey such things say that people who live within sight of mountains report being happier, on average, than people who don’t. But whoever made that survey must never have visited Bloomington, Illinois. The easygoing residents of this city are as level-headed and homogeneous as the corn fields that stretch to the horizon in all directions. Through some invisible purity of character, or so it seemed to me, they have managed to tame the relentless forces of social and technological change that have dominated people’s lives in the rest of the world. They share a sense of place and a pace so natural that it seems to spring up from the soil. Work starts at eight and ends at four-fifteen. Saturday is golf and a movie, and Sunday is church. Life appears so orderly that I suspect no one dies in Bloomington without his own consent.
As I flew south from Chicago one day in late March, the farmland looked like a giant checkerboard through the vibrating window of the prop plane. In the absence of natural features to divide the terrain, the early surveyors had simply laid out the roads in perfectly straight lines, a mile or so apart. The flight to Bloomington took only forty minutes, and I was tempted to pass the time by counting the number of squares we traversed as an estimate of the distance.
The fruits of local industry were proudly displayed in the tidy, small airport, including an automobile made at the Diamond Star Motors plant. There was even a bookcase full of donated paperbacks in the waiting room.
In my many years making business trips, this was the first time my host ever met me at the airport. Norm Vincent was accompanied by his wife, Donna, a practical and even-tempered woman thirteen years his junior. Her short brown hair and trim figure suggested an interest in sports. As with everything else in town, they seemed the perfect pair: he looked like a model for Grecian Formula, she looked like an athlete on a Wheaties box.
They took me out to dinner at a local bar called the Lucca Grill. “The usual?” the waitress asked.
“Of course,” Norm responded. She brought Donna a 7-Up, and a beer for Norm. He explained that they come here every Thursday night. I was flattered to be included in their routine.
When our pizza arrived, Norm told me a little about State Farm. “The company was started by a farmer in a nearby town in 1922, but when his insurance business grew, he decided to pursue it full time.” As he spoke, Donna stared at him with wide, adoring eyes, as though she were hearing all of this for the first time. “Eventually, he gave up the farm and moved to the big city.”
I wondered what city he might mean. “Chicago?” I asked.
Donna pursed her lips at my foolishness. “No—Bloomington!”
“Since then, the company has just continued to expand like crazy,” Norm said. “You may not realize just how large State Farm is. We’re nearly twenty percent of the auto insurance business—that’s about thirty million policies—and we insure about fifteen million homes. Handling all those policies, not to mention claims, takes an awful lot of data processing. This year alone we upgraded over fifty of our IBM mainframes.”
This was an astounding amount of computing power, and a single mainframe can cost several million dollars. The infrastructure to support these giants—in terms of peripherals, power, and people—was hard to imagine. And he was only talking about their mainframe equipment, not the midrange computers in agents’ offices. “Surely you’re one of IBM’s largest customers, then,” I said.
“IBM doesn’t tell us, but I think we’re among their top ten commercial customers. Our mainframes and agents’ computers are all blue.” IBM is widely known as Big Blue, after its corporate color. “But in the late seventies, when it came time to put computers in claims offices, we decided to risk going with Hewlett Packard.” To him, it seemed, this fifty-year-old, $12 billion company was a young upstart. I wondered why on earth he would consider dealing with GO.
After dinner, the Vincents dropped me off at my hotel, Jumer’s Chateau. As I stepped from their new Dodge minivan, I couldn’t believe my eyes. Sitting in the middle of a corn field was what appeared to be a European castle of questionable ancestry. Turrets topped a red-brick façade; medieval pennants flapped in the breeze; the doormen were dressed as royal pages. The lobby offered no reprieve: it was filled with a hodgepodge of imported artifacts and counterfeit antiques. A confessional functioned as a phone booth; a brass elevator car from France served as a planter. In the absence of a local historical tradition of any significance, Jumer’s had accepted the challenge of bringing a touch of class to plain old Bloomington, and for only $65 a night.
The next morning, Norm picked me up at the hotel at eight A.M. for the short ride over to State Farm headquarters. It was a square complex of four-story buildings with a twelve-story tower near the center, planted in a sea of cars. Inside, a large atrium served as a sanctuary against the extremes of winter cold and summer heat. The place looked like a 1950s suburban high school, with flags, little reminders and aphorisms pinned to corkboards, and a large sign painted with “State Farm Welcomes . . .” followed by a space for the names of important visitors. We rode escalators up to the fourth floor, where Norm walked me through a maze of unoccupied space to get to his office. “This area is vacant because we don’t have enough parking around the building for everyone,” he explained. “We’re working to correct the problem.” It seemed that competing for spaces in an overcrowded parking lot had caused more discord than State Farm employees were expected to bear.
At precisely eight-thirty, we went into a nondescript conference room next to his office. About a dozen people were waiting, midlevel data-processing managers in Norm’s group. Norm introduced me, and I began my presentation.
Yet again I went through my pitch, explaining the technology, the opportunity, and GO. But something was wrong. There was no glimmer of excitement, no moment of epiphany. They simply sat there politely, listening to what I was saying as though it were an algebra class. The higher I turned up the volume, the chillier they seemed to get. Finally I realized what the problem might be: here I was, a guy in a fancy suit from California, with a Jewish name, talking passionately about a crazy new idea in a place where conformity is prized. I toned it down and completed my presentation in as deadpan a manner as I could manage. This seemed to warm them up a bit.
At noontime, Norm took me to an executive dining room with two of his most senior people. The room looked like a coffee shop at a Holiday Inn: round laminated-wood tables, woven plastic placemats, and amber cafeteria-style glasses with ribs to ensure a solid grip. Across from my seat, a grinning multicolored cardboard Easter bunny was attached to the wall with double-sided tape.
When it was his turn to order, Norm asked for an iced tea. Everyone at the table stopped cold and stared. “In twenty years you’ve never ordered an iced tea!” the waitress said. “It must be spring if Norm is cutting loose like that,” remarked one of his colleagues.
As we chatted, I noticed that the grinning bunny was starting to tilt, ever so slowly. I was so fascinated with its silent movement that I had difficulty concentrating on the conversation. It continued this grac
eful maneuver at an imperceptible pace throughout the meal, so that by dessert it was nearly horizontal. Finally, when the bunny could linger no longer, it fluttered to the ground like an errant leaf in a lazy summer breeze. The waitress quickly snatched it up and stuck it back in its proper place.
After lunch, Norm took me back to the airport. I could no longer contain my curiosity. “So, Norm, what do you really want to see happen here?”
“I sincerely believe you’re on to something important, and it can make a real difference to State Farm. So here’s the plan. We’re going to put out an RFP for the auto claims estimating application.” RFP is contractual lingo for a Request for Proposal, which usually contains the written specifications of a complex system that suppliers can then bid on.
“May I ask who else you intend to circulate the RFP to?”
“We’re only sending it to four companies. IBM, HP, Wang, and GO.”
I was stunned. The other bidders were thousands of times our size and had battalions of people who did nothing but respond to RFPs. IBM would no doubt be pushing their own home-grown solution. HP was rumored to have some handwriting-recognition work in their labs and was already at war with IBM for the State Farm account. Wang was a surprise: this ailing Massachusetts company had demonstrated a simple pen-based attachment to a personal computer, but it didn’t seem well suited for Norm’s application. The question in my mind was whether GO would be taken seriously in this process or whether we had just awakened State Farm’s interest, only to have the business stolen by one of its regular suppliers. The only way to find out was to give it a try.
“OK, we’ll be happy to bid. Send us the RFP as soon as it’s ready.” We picked a date in late June for me to return and present our proposal.
As I came to understand over the next few years, Norm led a double life. He was a man whose intelligence and insight exceeded those of his colleagues. He was highly educated, widely traveled, and secretly passionate about technology. But to survive and prosper in Bloomington, he had learned to adopt a veneer of conformity. And his influence stretched far beyond Bloomington, as I was about to learn.
In the real world, management is an art, not a science. The formal techniques for decision analysis that business schools teach are fool’s gold, a vain and misguided attempt to systematize the chaotic. The mere existence of these methods betrays a darker truth: we harbor a desperate desire to believe that the world is ultimately predictable. But anyone who has managed a startup knows that predictability is an illusion. In this environment, you are faced with an endless stream of arbitrary challenges that bear down on you with the relentlessness of an automatic pitching machine. There’s no time to think. The trick is to know when to swing and when to duck. But I suspect that each arbitrary decision is like smoking a pack of cigarettes—somehow, somewhere, it shortens your life.
After many months of phone calls and discussions, we were at last ready to start a relationship with Microsoft. After the meeting with Gates, Jeff Raikes—a VP in Microsoft’s applications group—had called to begin exploring the possibility of building applications for our system. We negotiated a cooperation agreement in which he was to supply people who would study our technology and evaluate the opportunity for Microsoft, and we would train them and provide technical support.
Predictably, the sticking point had concerned protection of our intellectual property. The final language read: “Each party agrees . . . to use [the other party’s confidential] Information only for the purpose of furthering this joint project . . . The participation of Microsoft and GO staff in joint design and implementation efforts will not create an interest or ownership on behalf of either party in the other’s proprietary, confidential, or trade secret information.” In order to reassure me on this point, Raikes reiterated a policy that I was familiar with from my Lotus days, that Microsoft would maintain a “Chinese wall” between its two divisions, so I needn’t worry about GO’s confidential information jumping from the applications group to the operating systems group—which we saw as a potential competitor. The agreement called for Microsoft to assign personnel and for us to provide them with “temporary office space, access to proprietary design documentation and related information, and technical cooperation.” Finally, we got a draft with Raikes’s signature for us to countersign.
Since this was really a software cooperation agreement, Robert was to sign it. He checked with me one last time. “OK now, you’re comfortable that we can go ahead?”
“I don’t know that ‘comfortable’ is the right word,” I said. “This is a calculated risk. But I don’t think we’ll get any further information by waiting that will sway us one way or the other.” I reread the signature copies, just to be sure. “The language seems quite clear to me. I don’t see how they can steal our stuff without blatantly violating the agreement.”
“OK then, I’ll execute it and we’ll get under way,” Robert said. He signed both copies.
A few weeks later, Celeste Baranski returned from lunch looking pale and worried. She had just learned from a friend at another startup that Yamaha’s electronics division had changed the specs on its EGA controller chip, which manages the display of information on computer screens.
“So?” I asked.
She looked at me as if I were some kind of a dolt. “We’re using the same controller chip that they are!”
Kevin dropped his pen. “Shit, and we just gave the go-ahead for fabricating our prototypes. Celeste, you better get the changes in process ASAP.”
Later, I talked to Kevin privately. “A few weeks ago we had to beg to get some experimental SRAMs from the Japanese. Now Yamaha screws us on the EGA controller. What the hell’s going on?”
He was unperturbed. “That isn’t the worst of it. Our electronic pen and sensor supplier in Tokyo isn’t being responsive either. We don’t have the parts they promised us, and they’ve been vague about the specs.” In contrast to SRAMs and EGA chips, for which we had other suppliers if worse came to worst, the pen and sensor were nearly unique, and these critical parts were central to our hardware design.
I was furious. “Why are our suppliers trying to put us out of business?”
“The problem is face,” Kevin said.
“What?”
“Actually, lack of face. In Japan, if you’re out of sight, you’re out of mind. They just don’t think the way we do here. We aren’t real if we aren’t there.”
“But you’ve been going over there regularly!”
“True. But you haven’t, and you’re the CEO. In Japan, hierarchy is everything.”
I thought for a moment, then said, “Let’s go.”
Within a week, we were on a flight to Tokyo on Japan Air Lines. The seats were not designed for the comfort of Westerners, so my knees pressed against the seatback in front of me. The passengers were mostly returning Japanese businessmen, which meant that they all smoked. Having been rudely deprived by San Francisco’s draconian no-smoking laws, they all lit up as soon as we were safely airborne.
Eleven hours later we pried ourselves out of our seats and, after waiting an hour, piled into an equally cramped bus bound for our hotel in downtown Tokyo. Taking a cab was out of the question—it would have cost upward of $150, since the airport is nowhere near the city. Under normal conditions, the trip would have taken an hour and a half, but it was rush hour, and drizzling, so it took an extra hour. When we approached the Tokyo Hilton, a loud chime warned us of our impending arrival, and a relaxed and refreshed recorded female voice cheerfully announced the destination in both Japanese and English, a stark contrast to the mood of the passengers.
The next morning, a bright yellow sun burned through the urban smog. Our liaison from the pen supplier met us at the hotel with a car and driver for the hour-long ride to company headquarters. This common Japanese practice is not just a courtesy, it is a practical response to the difficulty most foreigners have in getting around. In many places, street addresses are numbered not in physical order but acc
ording to when the structures were built.
Arriving at the company’s building, we exchanged our street shoes for slippers. The offices bustled with young, enthusiastic engineers, all wearing identical gray smocks over their clothes. We met the team assigned to our project in a conference room. They promptly set to work, poring over Kevin’s diagrams as though they had just unearthed a lost religious text. In the course of the day, we discovered the reason for their intense interest: they knew of a problem with our design that they had been too embarrassed to point out via fax or phone, presumably for fear of offending us. I waited patiently while the group worked out a solution. The process took several hours, so I had plenty of time to look around.
While the room appeared plain and orderly, there was one thing that seemed out of place: mounted high on a wall was a photograph of a man, a woman, and a boy. During a break, I noticed the same picture in the next room, and the next. I pointed this out to Kevin when we were momentarily left alone in the conference room. “Who do you suppose that is?” I asked as quietly as I could, pointing to the picture.
Kevin turned white. “Oh my God.”
“What is it? Are you OK?”
“It’s the Reverend Sun Myung Moon and his family.”
At first I thought he was joking, but then I took a closer look. “Holy shit, they’re Moonies! Christ, Kevin, don’t tell me our project is dependent on people who pass out flowers in airports.”
“Look, all I know is that these guys are great engineers. Their pen technology is the best I’ve seen.”
“Yes, but for all we know, they might require us to include leaflets with our products.”
He just shrugged.
In the middle of the rush to get ready for State Farm’s RFP, we hosted our first visit from Microsoft. Jeff Raikes had assigned two people to work with us: an inquisitive young woman from his marketing department and a talented young engineer named Lloyd Frink, who looked and acted like a junior Bill Gates. I instructed our staff to provide them with the marketing information they would need to evaluate opportunities for applications and with the technical information required to do development—but no more. Specifically, they didn’t need to know about State Farm.
Startup: A Silicon Valley Adventure Page 12