Victory From Adversity

Sometimes what sounds like bad news when talking to customers might be your finest hour.

Hypothesis Testing
As we started E.piphany, we got out of the building to test our hypotheses by talking to potential customers in and around Silicon Valley. On one of our most memorable visits, we met with Joe DiNucci, the VP of Marketing at Silicon Graphics who was generous enough to brainstorm the types of problems corporate marketers had. At the time Silicon Graphics – with 2+ billion dollars in sales of 3d workstations – was one of the hottest hardware companies in Silicon Valley.

The conversation seemed to click as he checked off every one of the issues we thought might define our product:  no closed-loop between expensive marketing activities and results, lack of department and corporate wide visibility to real-time sales and marketing data, browser versus client-server application, etc. We came up with a rough estimate of how much Silicon Graphics could save if they had a way to solve these problems, and together did a back of the napkin ROI (Return on Investment) analysis. Next we started enumerating what form a solution might take and what kind of features a product should have. Amazingly we came up with a feature list that was pretty close to the one we were building.  I was feeling like a genius so I went to the next step and I asked Joe: “It sounds like Silicon Graphics might be interested in working with us to be an early customer?”

My Bubble Burst
The answer was not what I expected.  “No not at all.”  Say, what?  Why?  “We also decided that this was an important problem to solve, and since we couldn’t find any vendor selling it, my director of marketing wrote the software to do it. We’ve built and deployed the product throughout Silicon Graphics. It’s called Mine Your Own Business.”

Talk about feeling your bubble deflate fast. I went from feeling the high of believing that I might have an early customer in an innovative company to the low in realizing that they’d never buy anything from us. And worse, what we had envisioned as a product so unique that no one had thought of it, someone had already built. We wouldn’t be the first. We were doomed.

I left Silicon Graphics feelings discouraged. But on the drive back to E.piphany a few things hit me.

  • A credible customer told me that we had hit on a high-value problem
  • They couldn’t find commercial software to solve this problem.
  • It was an important enough problem that they invested effort to write their own software.
  • It had been deployed inside their company and there were real world users
  • I could now point potential investors and visionary customers to the widespread use of the product inside SGI as a proxy for our product

The more I thought about it, the better I felt. This was a validation of our ideas not a negation.

Take No Prisoners
The next day I called the VP of Marketing back and asked him if I could get a demo of their software. Soon I was in the office of John McCaskey, the director of Silicon Graphics Science Industry Marketing who wrote Mine Your Own Business. As he went through the demo, I realized I was looking at working code for a big part of what we had spec’d as our first release.

I told John he ought to join our startup. “How many of you are there?” he asked. “Three, I said. “Including me. Four if we count you.” John rolled his eyes and tried to change the subject. I said, “We’re three now, but if we do this right we could be selling $100 million dollars a year of your software. Wouldn’t you rather be doing that than working at a big company?” That got his attention. “Well who’s funding you?” My turn to pause, “Well no one yet, but every VC thinks it’s a great idea.”

Watching someone rolling their eyes twice is not a good sign you’re going to close the deal, so I grabbed the phone and called Bill Davidow, a legendary VC whose office I had just left. “Bill, do me a favor,” I asked, “Can you tell this guy how big the enterprise software market can get?”  I don’t know who was more surprised, Bill Davidow in getting a call from me (since he had just told me he wasn’t going to invest in our new company – his firm having funding Rocket Science, the previous company I had just cratered) or John having watched me get the VC on the phone on the first ring (pure and unadulterated luck.) Bill was kind enough to spend a couple of minutes educating John about the opportunities for a startup like ours, and enough of a gentleman not to mention he had passed on our deal.

Thirty days later John became the fourth co-founder of E.piphany.

Sixty days later we convinced Silicon Graphics to license us all of John’s code for a dollar. (During the craziness of the Internet bubble E.piphany’s market cap would be greater than Silicon Graphics.)

John’s boss, Joe DiNucci, the VP of Marketing of Silicon Graphics became E.piphany’s VP of Sales.

Lessons Learned

  • Finding that a potential customer wrote their own software (or hardware) to solve a problem is good news, not bad
  • It’s a strong sign that there’s a high-value problem
  • ABR – Always Be Recruiting

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10 Responses

  1. Epic turn around Steve. I feel a confidence boost when I see other businesses working on related ideas. I haven’t thought to recruit from those companies!

    How’d you work out the dollar licensing fee, reality distortion field?

    You forgot one lesson: making solid friendships that go beyond business deals- Bill Davidow was the lock for sealing that epic deal.

  2. Dear Professor Blank,

    What magic spell did you use to make SGI license their code for just a dollar (after poaching one of their key employees)?

  3. You remind me of an old friend who had absolutely ZERO lack of self-confidence and absolutely ZERO human respect, with these shenanigans.

    (In his case, as a fresh-faced new Merrill-Lynch stockbroker, right out of college, he walked up to Delorean after a failed pitch to a large group at Merrill for his car start-up, and asked if he could take over Delorean’s personal stock account; he did get some business out of it. ;-)

    Great story!

  4. Reminds me of this awesome quote from Sumner Redstone from http://bit.ly/26rukA:

    “Success is not built on success. It’s built on failure. It’s built on frustration. Sometimes it’s built on catastrophe.”

  5. Ah, the halcyon days of The Great Internet Bubble!

    Seems to me these kinds of feats are feasible to pull off only when large companies grow stagnant, while new industries are created without them.

    Hard to imagine anyone pulling this sort of stunt on Google or Cisco :)

  6. Thank you for sharing this. There are a lot of “take-away”s, but here are two that I like:

    1) Getting a potential customer to spend the time to actually run through what it is that they need is invaluable. And very difficult to do. That Joe DiNucci would spend the time and effort to “brainstorm” is amazing. Entrepreneurs need to seek out these opportunities whenever and wherever they can.

    2) It’s important to listen. Entrepreneurs most always have an idea of what it is they want to sell, but what they often need to be doing is listing to what it is that people actually want to buy. (See point #1)

    I look forward to reading more stories like this.

  7. What a great story. First-time entrepreneurs often feel a bit defeated when they find out that someone has already executed their idea. However, E.piphany used this to their advantage which should be a lesson learned for all entrepreneurs out there who are tempted to give up when they find out someone else has beaten them to the punch. Most markets can accommodate more than one player so entrepreneurs should focus on ways to differentiate above their competition in a way that creates additional value for their customers. What an excellent story. Thanks for sharing!

  8. Thanks for the great memories, Steve. Mark Cramer’s comment above reminds me of why I took that meeting in 1997. My admin (remember them?!) had worked with you at Convergent or somewhere, and you asked her to ask me to meet. Lesson 1: Maintain your network! AND since I ended up as a VP at EPNY with several splendid outcomes (experience, money and invaluable friends), I’m really glad I did meet with you. Lesson 2: When someone asks you a favor, do it.

    And I have helped more than a few early stagers grok and execute your Customer Development Sell-Design-Build mantra.

    Great story, and thanks for including me.

    PS: This was no stunt.

  9. Steve,

    As always, great story around a very valid, yet often overlooked aspect of customer development.

    I am in full agreement with Nancy’s comment above. I have seen many entrepreneurs become upset or dejected upon learning that someone has done what SG did: see enough value in a solution that they are willing to put effort into building it.

    I’ve been equally guilty of this same attitude in my earlier days; I think somewhere in business school we get imbued with the idea that “first mover advantage” is necessary and sufficient for success. It certainly bears repeating that there’s no use in being a first mover if there is no market for your product.

  10. This example is not completely uncommon so don’t think of it as a one off. The technology we sell was originally developed by a commercial customer who identified a need and built it in house. They were smart enough to realize that it had broader application but they were not the right ones to commercialize the product as it was not core business, hence our humble beginnings.

    The $1 thing is pure magic though….can’t vouch for that being repeatable!

    ~Paul

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