In 1982, Ron Gruner, Craig Mundie, and Rich McAndrew founded Alliant
Computer Systems to build parallel supercomputers. Their goal was to build a
machine that used multiprocessing to achieve better performance than the
fastest single-CPU machines, but in a way that was transparent to developers.
In 1985, after 3 years of work, they'd done it, and for the next several years
Alliant was one of the leading players in the turbulent parallel computer industry.
But the company lost its way; Gruner left in 1991 after disagreement about
the company's direction; and a year later Alliant filed for bankruptcy.
Looking for something to do next, Gruner started a new company at the
opposite end of the spectrum: a web-based service business. His experience as
CEO of Alliant had taught him the importance of investor relations. In 1992, he
founded Shareholder.com with the goal of using technology to automate the
process. Shareholder.com pioneered a new, broader approach toward investor
relations. Shareholder.com grew steadily, and in February 2006 was acquired
by NASDAQ.
Livingston: Give me a little background on your career and how you got started
with Alliant.
Gruner: I've really had three jobs in my life, starting with Data General in
1969. I moved up from Oklahoma to Massachusetts to work for Data General,
which got a lot of visibility in the late '60s, even though it was a very small company.
I started as their 43rd employee and saw them grow to over 15,000 when
I left in 1982.
My background was in computer design. My first half at Data General, I
was an engineer doing most of the work myself, and then in the second half
I was managing most of the time.
Data General was a very entrepreneurial--almost Darwinian--kind of
environment. Ed de Castro and the other founders would try hard to hire the
best, most aggressive people they could find, and then let those people go off
and oftentimes compete on their own.
427
Ron Gruner
Cofounder,Alliant Computer
Systems; Founder, Shareholder.com
32
CHAPTER
The book The Soul of a New Machine characterizes that environment fairly
well. It talks about two competing teams--the Eagle Team and the Fountainhead
Team--how they competed internally, and how the Eagle Team eventually won
out because they got to market sooner. I was the head of the Fountainhead
project. Spending 13 years there was a really good background for me to understand
a truly entrepreneurial kind of environment.
I left Data General in the spring of '82 and, with two other cofounders,
Craig Mundie and Rich McAndrew, I started Alliant Computer Systems. Our
mission was to build very high-performance computer systems that provided a
growth path from Digital's Vax line of machines, which were topping out at half
a million dollars.
Our machines provided anywhere from four to ten times the performance
of Digital's largest Vax, for maybe 50 percent more, using parallel processing
technology. But because this was a very complex technology--obviously all
hardware-based; back in those days everything was proprietary hardware--we
had to raise a lot of money. We took the traditional approach of going out and
raising venture capital.
We knew, even then, having watched how Data General financed itself, that
you wanted to generate two things when you're looking for money. One is a
sense of exclusivity, saying, "This is a very special kind of deal and not everybody
is going to get into it." And secondly, a sense of urgency, so you can get
people to make a decision.
A former boss of mine, Carl Carmen at Data General, knew the VC community
pretty well. We brought him in, and another partner of his, Jesse
Aweida, who was the founder of Storage Technology Corporation. We didn't
call them this at the time, but they were angel investors. Together they put in a
couple of hundred thousand to help us get launched and spend 6 months writing
a business plan on how to commercialize parallel processing technology.
We then contacted Kleiner Perkins, who even then were viewed as one of
the premier venture capital firms. We told them that we thought we had a really
interesting idea. We weren't prepared to talk about it, but we would talk about
it in about 6 months. We thought, having been at Data General and knowing
the computer business very well, it could be something even approaching a revolutionary
idea.
One of the big wins Kleiner Perkins had in the '70s was Tandem Computer.
Tandem's gone now, but it was a big hit in the '70s and early '80s. They
rethought computer architecture to build what they called Non-Stop Computing.
They used redundant computers, so if one computer failed, the system kept
running. For transaction processing, it was very reliable.
It was really elegant, sexy technology. We thought that we were doing the
same thing on the performance side through parallel processing. We didn't
want to talk about it until we felt we had it really fleshed out well. So we let
Kleiner Perkins know that we weren't ready to talk, but we'd contact them
when we were.
Livingston: How did they respond?
428 Founders at Work
Gruner: They said "Fine." What they thought, I don't know. But we did go
back to them about 4 months later, when we had a first draft of the business
plan done. We worked very hard on that plan and then went out to San
Francisco and pitched the idea to them. This was John Doerr. He had been
there a few years at the time, but he was just really getting started in his career.
Frank Caufield, Brook Byers, and Tom Perkins--that whole crew.
They liked the idea because they could draw analogies with Tandem
Computer. They looked at our backgrounds, having been in the business, etc.
So we were able to raise money from Kleiner Perkins. The first round, as I
recall, was about $4.7 million, and back in those days, that was a lot of money
for a first round of financing.
They then introduced us to Hambrecht & Quist--Bill Hambrecht--and
Venrock, which was the venture management arm of the Rockefeller family--
Peter Crisp in New York City. We were able to put together that consortium of
three VCs in about 3 months.
We closed in early October of 1982 and set up the board. Tom Perkins came
on the board. Bill Hambrecht did not, but he liked to be able to observe. It all
worked pretty well. We raised three additional rounds with those investors for a
total of about $30 million.
We kept it to those three investors, or some subset of those. As the game
moved on, Hambrecht & Quist, being an investment banking house and,
frankly, hoping to take us public someday, stepped up and took a larger share
than Kleiner Perkins did, but they were all substantial investors.
We announced the initial product in the summer of 1985.
Livingston: Three years later?
Gruner: Yes. It took 3 years. We got financing in the fall of '82. It took 2 1/2 years
to hire a development staff, design the computer, develop the software, and
announce it. We shipped initial systems, which were not beta systems but were
really production systems, in September of '85. So it was approaching 3 years. It
was a complex task. And that consumed the better part of $30 million.
The first year we did approaching $5 million dollars in revenue. Then the
next year, in '86, we did about $30 million in revenue.
Livingston: That's impressive.
Gruner: Because it was hardware. We went public in December of '86.
Morgan Stanley and Hambrecht & Quist took us public.
That was a very positive experience. We found a lot of plain, simple wisdom
from some of the venture capitalists we had--particularly Tom Perkins. Tom
was on our board. Even at that point he was quite wealthy, very successful. And
he made almost every single board meeting. He had to make them in Boston by
taking a red-eye from San Francisco to Boston, coming into a meeting at, say,
9:30 in the morning, going to a 4- to 5-hour typically boring board meeting,
then flying back that night. And he was in his early 50s at that time. He always
had great insights, and always tinged with a nice touch of humor, too.
Ron Gruner 429
We had other great members of the board. We felt that most of the venture
capital community added a lot of value--also in terms of contacts, we were very
positive about that.
We grew very quickly, and at one point we had a market valuation of
approaching half a billion dollars, about $450 to $475 million.
Livingston: Wow.
Gruner: That was back in the '80s. But then we absolutely hit the wall.
Livingston: Why?
Gruner: A couple of things happened. We were significantly late on one of the
next generations of our computers. You would think that high-performance
computers designed out of the most advanced parallel processing technology,
with a number of patents behind it, would be a highly differentiated product. In
reality, it was just the opposite of that.
High-performance computers are the ultimate commodity. The reason is
that the customer comes in and says, "Here's my benchmark; here's my program.
Run this on your computer and tell me how long it takes to run." So they
wind up buying a computer based on performance divided by dollars,
megaflops per dollar. It's just like buying a tank of gas.
When you miss a generation--when you miss a major product cycle or
you're late significantly, and the competition has caught up with you and they're
providing performance that's better or the same as yours--you're at a very significant
loss because that's really all that matters. We were selling engineering
or scientific computers. Ease of use, reliability, and all those things were small
factors. The major factor was, "How fast is your machine and what's it cost?"
The other thing that affected us, that we just simply weren't smart enough
to turn on a dime, was the workstation. It's a market that's disappeared now
completely, but workstations were personal computers that sat on a desk of an
engineer or scientist that they could use for computing rather than having to
send their job to a centralized computer facility, run it, and then get the results
back the next morning. Workstations began to really take off in the mid '80s.
Sun Microsystems and Apollo Computer pioneered that.
As that was coming, the personal computer was getting faster and faster all
the time. So many of our large customers--Bell Labs for example--stopped
buying the large computers like Vaxes and our kinds of machines and started
buying workstations and personal computers.
At the same time that was going on, the Cold War was coming to an end.
Many of our customers were defense-related. Major customers were large
intelligence agencies in the United States, for example, or other defenserelated
applications. So that market dried up. Revenues turned down very
steeply in the late '80s.
Livingston: How did your investors react?
Gruner: We had a situation where a lot could be learned about the pros and
cons of using venture capital. Things were going south quickly and badly. We at
the board level had to make a decision as to what we should do. One part of the
430 Founders at Work
board was saying, "Let's take our time; work this thing through; live with this for
2 or 3 years; get things fixed; transition into another segment, and move in that
direction." Another segment of the board was saying--and I don't mean this in
a derogatory way--"Let's take more risk, roll the dice. If it works, it will work
out big, and, if it doesn't, it disappears and let's move on to the next deal."
One of the things that I think is dogma within venture capital is that you
don't want to manage what they call the "living dead." I don't know what the
numbers are now, but back when I was working with venture capitalists, their
rules of thumb were: typically one out of ten companies is a really big hit;
roughly three out of ten go belly up pretty quickly, and you get rid of them. The
other five to six are what they call the "living dead." They grow nicely, organically,
but don't generate spectacular returns, and they take management time
and energy. Those are the kinds of companies they prefer not to deal with,
because it simply doesn't make sense. They have a fiduciary responsibility to
their limited partners to generate a significant return, so they want to deal with
firms that will tend to do that.
The lesson I learned at Alliant in dealing with venture capitalists was that
they're quite impatient with a difficult situation. They have to be. They have no
choice.
So it came down to making a decision. What were we going to do with the
company and how were we going to transition it? I was in disagreement. I was
saying, "Let's take the slower, more methodical approach over time, and we can
work it out." The other approach was, "No. Let's change the architecture of
the computer, move into the newer technologies quickly, etc." You can argue
either one.
So I left the company. I left the board of directors. I was chief executive for
10 years. I basically got fired when it came down to saying, "I can't live with this
strategy because I think it's wrong." They said, "We understand that; we respect
you; but you can't stay." So I left.
And, unfortunately, it didn't work out. A year later, the company was bankrupt.
Certainly, at the point that I'd left, I'd left a lot of problems for them to
clean up. The company was not healthy; it was headed in the wrong direction.
So I share a good deal of that responsibility.
But then I was at the stage of, "What am I going to do next?" Here I was, in
my early 40s, and clearly the computer designer in hardware development was
a dying breed. Back in the '60s and '70s, there were lots of people designing
computers, mainframes and minicomputers, and all kinds of things--because
they were all built out of parts. But with microprocessors, there's only one Intel
and a few other smaller firms like AMD. You only need a few dozen designers.
So that went away.
I said, "I've got to change careers." I had to think about what I wanted to do.
I had some offers to join venture capital firms, which I thought about. There's
always the role of corporate consultant. But I decided I really enjoyed being an
entrepreneur, and I wanted to go off and do it again.
Livingston: How did you decide what to do?
Ron Gruner 431
Gruner: I had a couple of very clear criteria in my mind. I wanted to build a
business that had a recurring revenue stream. At Data General--and Alliant
even more so, because it sold computers that were in the half million to one
million dollar range to large defense companies, universities, and the government,
who had very sophisticated purchasing agents--we typically generated
80 percent of our revenue the last 2 weeks of the quarter. People don't believe
this today, but it's true.
And we were a public company. So if we had to make $15 million in revenue
in a quarter, we'd be 2 weeks from the end of the quarter and we might have
$3 million on the books. We were fairly confident we'd close the other $12 million,
but it was horrible.
I remember one time we got a call on a Friday, the last day of the quarter.
The call was from a very large defense contractor located in Sunnyvale,
California. It was a purchasing agent saying, "Well, it's 5 o'clock in Boston right
now, isn't it?" I said, "Yes, sir, it sure is." He says, "It's the last day of the quarter,
isn't it?" I said, "Yes, sir, it is." He said, "Well, let's negotiate."
So we went into extended negotiations with this guy for a couple of hours,
until 7 p.m. our time, until he signed the contract and faxed it to us. Having
been through that, I said, "I really want to build a strategy that has a recurring
revenue stream."
The second thing was, having been chief executive at Alliant for 10 years,
about halfway through that process I realized, "As the boss, I'm spending
40 percent of my time on things that don't directly contribute to getting computers
out to customers." In other words, raising money, dealing with investors,
dealing with lawyers, those kinds of issues. So I said, "In the next company I do,
I want to be able to spend 98 percent of my time focused on the customer and
only 2 percent on secondary factors that lead to that."
I said, "I want to start a company that I can bootstrap up from a small
amount of capital that gives us an opportunity of being a big fish in a
small pond. Because I can't be in a big pond if I'm going to take just a small
amount of money. I can only do so much. And then just let the thing grow
organically, just take our time."
I actually made the conscious decision to, rather than put together a 5-year
business plan, put together my basic thoughts on strategy and manage the company
quarter to quarter. Turn quickly if things have to change, but manage it
that way.
The third requirement, having been through Alliant with all people working
in good faith but losing control of the company, I said, "I ain't going to lose
control. I want to be the sole owner. I'm going to be the majority owner of the
company. I want to be the sole founder. It may be harder that way because I
have to do most of it myself, but I've got control."
My notion for the new company was something I would not have expected
when I was at Alliant. It was to go into shareholder communications, which was
a micro-niche. The way I got that idea was two things kind of segued in my
mind. First, when I was at Alliant, we actually had an investor relations person;
we were leading in that in the '80s. She and I spent a great deal of time talking
432 Founders at Work
to investors. We had a policy that we would try extremely hard to be open and
transparent and get back to every single investor.
There were times when the stock took a bad hit and we would get a couple
of hundred phone calls. This was before email, so you did everything by phone.
Conference calls were just getting started. So we literally would return every
phone call. I remember making phone calls at 9 o'clock, 10 o'clock at night to
some mom and pop in Topeka, Kansas. I'd call and say, "My name's Ron Gruner
from Alliant Computer Systems. I'm returning your call about our company."
And the man would call out and say, "Honey, Gruner's on the phone from
Alliant, get on the other telephone." And I'd explain to them what was going on.
Incidentally, that was the decade of class action suits. We never got sued,
and I attribute that partly to the fact that we worked really hard to be open and
transparent with investors. I don't think we gave anybody any room to say they
were misled. But maybe we were just lucky.
Livingston: Did most CEOs call back individual retail investors?
Gruner: I can't say, but we did. So when I thought about what I was going to do
next, I said, "This whole area of shareholder communications, it seems to me
the individual shareholder is an under-served constituency." Institutional
investors got a lot of attention by every company, which makes sense because
they're major shareholders. I felt the middle tier and the small tier were being
ignored, so I thought, "Let me think about starting a company that uses
technology to reach out and communicate with shareholders." That's how we
got started.
I really knew nothing about the industry itself, had no contacts. I was starting
from scratch. I hired several consultants who knew the industry well, who
had been in trade organizations or otherwise had credibility. I had them educate
me about the industry and also take me around to opinion leaders in the
industry. We talked about what they'd like to have and the opportunities they
saw, as well as me talking about my more abstract ideas.
Fairly quickly I hit on the idea that, "OK, here's a specific business opportunity.
We can turn this abstraction into revenues." Back in the early '90s, most
companies were still sending out printed quarterly reports. These were glossies,
typically a trifold piece of paper in an envelope, that were sent out a month to
6 weeks after the release of financial results.
Even back before the Web, back in the early '90s, most investors viewed
that as junk mail, because they could have looked in the newspaper the day
after the earnings were announced and seen what they were. By the time this
thing showed up, it was kind of like yesterday's oatmeal. It was old news.
So I had a concept and I'll tell you how I got it. I had a friend who was a
really good programmer, and he told me in the summer of '92 about a project
he had recently done for the Boston Phoenix, the underground newspaper. That
project was writing a program to do personal ads over the telephone--personal
voicemail ads. People could leave a message saying, "Hi, my name's Ron
Gruner, I'm single, I enjoy this and that, etc." This is before the Web.
Ron Gruner 433
The Boston Phoenix had personal ads in back, but then they moved in this
thing called voicemail ads. When I heard that, I said, "That's kind of an incredible
idea." It generates revenues--people call these numbers and you pay per
minute--but you can also hear the person, you get a feel for what they're like. I
said, "You know, that concept could be applied to companies. Chief financial
officers and executives could communicate to the shareholders using telephone
technology."
Telephone technology in the early '90s was really hot. It seems like ancient
history now, but 800 numbers were coming in--interactive voice response systems,
voicemail was all fairly new technology. The concept was to put together
an 800 line for each company, which was a customized information service, a
hotline for shareholders.
A typical pitch was one we made to IBM, who became a client. We had
done some research. We said, "You guys are spending about a million and a half
dollars on printing quarterly reports. Every survey that's been done, including
your own, shows that most shareholders think of those as junk mail. We propose
to stop sending quarterly reports out. Replace the service with what we call our
Shareholder Direct service, so all your interested shareholders only have to
make a toll-free call to your 800 number and they can then hear the latest quarterly
results, answers to frequently asked questions; and they can hear an
overview of the company. If you choose to, they can hear Lou Gerstner or the
chief financial officer commenting about the quarter.
"Based on our analysis of your shareholder base and the demographics, we
think that will cost you about a quarter million dollars a year. So you're spending
$1.5 million now. You can take $1.25 million and drop that to bottom line in
savings. Spend a quarter million for our service, and the shareholders that are
interested in getting the information can get it much faster and in a more personal
form than they get it now."
That's how we got started. It generated cash immediately, because we
charged what we called a "subscription fee." We didn't want to call it this, but it
was really a retainer fee. We called it a subscription fee, billed in advance every
quarter: $4,000 in advance plus a per-minute charge.
And rather than going off and buying all the telephone systems ourselves,
which would have been my natural inclination as a technology guy, I outsourced
that to a large firm in Omaha called West Interactive. So I had no capital costs.
We turned profitable in the summer of 1994.
Livingston: That's less than 2 years.
Gruner: Yes. We had a seed financing in July of '92.
Livingston: Who were your investors?
Gruner: It was just a small group of about 8 to 10 of my friends and business
associates, who put in about $25,000 each. We raised $276,000. I nursed that
money very carefully, worked without a salary for quite a while. It turned profitable
in the summer of '94, and I just grew the company organically until I sold
it to NASDAQ in January of 2006.
434 Founders at Work
Of course, we had some really good breaks. The Web was a huge one. When
that developed, starting in '95, we jumped right on that. People were saying,
"What are you going to do? You're all telephone-based technology, and here's
this thing called the Internet." So we thought, "It's just another technology."
Having learned from Alliant about not moving quickly enough, we were on it
right away.
Campbell's Soup, for example, was one of our earliest clients, and the first
time they had a corporate website was through us. If you look back at their
annual report in, I think, '95, they said, "If you would like shareholder information,
please call 1-800-XXX-SOUP"--that was their Shareholder Direct line--
"or visit our website at www.shareholder.com/campbell."
So we started the web service and took it a day at a time, built the business
up. We focused very strongly on client satisfaction. We'd do everything it took
to keep a client happy. And we focused on the bigger clients.
Livingston: The Internet was just making a splash in corporate America. Was it
hard to convince big companies to embrace the Internet?
Gruner: It really wasn't too hard. The initial costs were very low. We would go
in and say, "Look, we are investor relations specialists. We know this area very
well and we know you have a web development team. But this is a very specialized
area. If you want to do this well, you need real-time SEC feeds and stock
quotes. When you put up a news release, it needs to be done"--even back
then--"in a few hours. You can't wait a few days to put a news release up." So
that wasn't too hard to sell.
Livingston: They could outsource all these things to Shareholder.com?
Gruner: That's right. In the '80s and early '90s, the investor relations officer
was really an underappreciated asset. They were understaffed and underbudgeted.
So we would go in and say, "Our job is to make your life easier. You send
us the information; we'll take care of it." And we told them discreetly, "If anything
gets screwed up, we take the bullet. We're here to help you."
Then we just kept adding functionality and functionality. And the government
helped us too. We had three big breaks with the SEC.
The first was in the early '90s when the SEC put out a comfort letter saying
alternatives to the printed quarterly report should be considered, including
800-based telephone numbers. That's essentially like the SEC jumping up and
saying, "Go, go, go!" That's about as aggressive as they get. We had asked for a
comfort letter because some of the clients were saying, "We don't even know
what the SEC says about this." And the SEC said, "We won't say "yes' or "no,'
but we think it's an interesting idea."
Regulation FD came along in 2000. It had pros and cons, but, for us, it
opened things up tremendously. And then, of course, Sarbanes-Oxley came out
a few years ago. All of those things basically said that it's much more important
to communicate with shareholders uniformly and democratically. Because,
believe me, even when I was at Alliant, and in the early '90s, it was very
exclusionary--who could attend conference calls, for example.
Ron Gruner 435
Mark Coker, the founder of BestCalls, played a very important part in
breaking that whole thing open. Back before Regulation FD, conference calls
were by invitation only, for institutional investors. Unless you had a significant
share in a company or were a recognized security analyst, you did not get an
invitation to participate in a conference call.
Regulation FD changed all that. Basically it said, if you've got material
information as a public company, you've got to get that out to everybody,
including the individual investor that might have a hundred shares. So that
opened up the conference calls. And because it wasn't possible to have a conference
call with 10,000 people on it, webcasting (fortunately that technology
was becoming available) made that possible. At the same time that some people
may be talking on the telephone, that conversation was being webcast live to
anybody that wanted to listen to it. So that was a major market that opened up
to us.
Livingston: Did you know any of this was going to happen?
Gruner: No, of course not. In the early '90s, I just felt that there was an opportunity
to somehow use technology to find a way to better reach out to shareholders
and save money for companies. That was the basic concept. Just like
10 years before that, when I started Alliant, I said, "There's this whole new
technology, what was called parallel processing. There's been a lot of research
on it. If we can commercialize that, it may be a really good business opportunity."
That was the core concept of Alliant. That's how we left Data General,
how we got started. That's all we knew.
So that's how we got started with Shareholder.com, the notion of commercializing
technology around shareholder communications.
Livingston: Back to when you started Alliant, when the three of you who
worked at Data General decided, "We're going to start our own company..."
Gruner: Two of us left Data General at the same time. The third founder had
left Data General a few years before that, but we had stayed in contact.
Livingston: You said you spent about 4 months putting together a business
plan. What kind of things were you doing in that 4 months? Were you doing any
programming to test any ideas?
Gruner: No.
Livingston: It seems like a long time, by today's standards, I guess.
Gruner: Well, it may be by today's standards, but we worked 7 days a week,
10 hours a day. We spent a huge amount of time at the MIT library doing
research on parallel processing. What we wanted to do was to find a technology
that would allow us to use parallel processing to run existing programs. That
was critical. Let's say, an existing Fortran program from 5 years before: take
that, recompile it, and then have it run faster.
There were a lot of people doing development in that area academically. We
felt the University of Illinois had the best approach. So we then contacted Dr.
David Kuck, the lead professor--called him up out of the blue, explained who
436 Founders at Work
we were, and invited ourselves up to visit him. Then we began to get a feel for
how concrete this technology was. So part of that 4 months was building highlevel
models to test whether or not this could take existing programs and run
them in parallel.
Another part of the time was doing all the competitive analysis in terms of
who the companies were in the marketplace and where they might be going.
We had pretty good contacts with the industry, as well as startups. And then,
being engineers, we probably overengineered the business plan to give it
extremely detailed financials.
At that time, it was just at the point when the personal computer and the
spreadsheet had come out. The first time I saw a spreadsheet, I thought it was
like a miracle. People take it for granted now, but you type a few numbers in the
top left of the spreadsheet, and everything else changes automatically. This is
incredible! This is like giving us a microscope we can study a company with. So
we said, "We can educate ourselves about the financial aspects of a company by
building a P&L, a cash flow, and a balance sheet, and making sure they all tie
together correctly--changing things and see how that affects the company."
At the same time, over those 4 or 5 months, we were networking with
people that we could bring on board as our initial core development team.
Livingston: What were some of the first things you did once you got the
$5 million?
Gruner: The first thing we did was hire the first four key people: two very
strong software people and two very strong hardware people. They were the
architects, along with the founders ourselves, of the computer system.
We wanted to keep expenses as low as possible, so we were initially in a
small office in a shopping center in Acton, Massachusetts. And we began hiring
people to design and build the product. We spent 2 years doing that. We
wanted to be very selective in how we hired people. We had a process we called
"chemistry, mechanics, and religion."
Once again, we wanted to build a sense of exclusivity, but also filter people
very carefully. It typically consisted of at least three interviews. Chemistry was
first. We would bring the person in; we would interview the person on a personal
level, and it had to go both ways. Is he or she the right kind of person for
us? Does he or she have the right kind of work ethic, background, all those
kinds of things. The next step was mechanics. There, we would talk about the
specifics of the job. "Here's the job we have in mind for you. We cannot, by
the way, tell you what we're doing. We can't tell you what our strategy is or
what the project is, but your piece of it is going to be roughly this." At the conclusion,
we would give them a written offer, including compensation, and say,
"Here's your high-level job description, and, if you feel, after having spent this
much time with us, that you would like to join us, you sign the offer letter; and
then we will then tell you what the project is." That was religion.
After they had accepted, we brought them in and told them what the project
was about: it's basically taking parallel processing, which nobody was doing
at the time, and commercializing it. Everybody got really excited about that.
Ron Gruner 437
Livingston: Why were you so secretive? Were you nervous about competitors?
Gruner: We were nervous about competitors; we thought we had a very specific
edge. And we also thought it was a good recruiting technique in terms of
having people focus on three things we thought were important. First of all,
"Let's focus in both directions on the people, on the culture, on the environment,
see if that makes sense to you." Because we asked them some extraordinary
things. We said, "This project is going to take about 2 years, and it's going
to be a lot of work. Furthermore, we are going to institutionalize it by saying,
"We need you to work every other Saturday.'"
Livingston: Really?
Gruner: Yeah. "You gotta be here. It's a regular work day. And the other
Saturdays and Sundays you might have to be here too, but every other Saturday
is a regular work day, gotta be here on time, full day, no monkey business. And
that's for 2 years." We told them that early on. We wanted to get people to focus
on that first, and then get psyched up about the project. We didn't want to
reverse it, where people got really psyched up, "Oh, I want to work on this sexy
technology." We held that to the very end.
During that 2-year period, where we were working very hard, we had virtually
no attrition. At the time we announced, we had, I think, 40 people in the
company, and I think over the 2 years, the attrition was one or two people. It as
very small, because we did a careful job of filtering people. And they didn't
come in saying, "I feel like there was misrepresentation here," or "I
didn't understand what was going on."
Livingston: Do you remember any big turning points as you were building
these parallel processing systems?
Gruner: We were using a technology called gate arrays. These were custom
integrated circuits. In our case, we were using technology by Fujitsu in Japan.
They were very expensive to design, very expensive to tool. They had a very
long development cycle. So in building the design, the computer that would use
the first revision of gate arrays was really critical. If we had to go through revisions,
we had budgeted that, but that would make things a lot more expensive
and more complicated. So when our first gate arrays came back, representing a
total investment at that point of probably $3 million, and essentially worked
almost completely, that was a huge milestone in the project. That was a year
before we announced.
So we had hardware that began to work, and then the next step was the
Fortran compiler. Fortran is a computer programming language, and the compiler
is what took a Fortran program, say, written for a Digital Vax computer,
which at the time was a very successful high-end machine, and converted it to
run on our machine. The key question was, "Can we take these off-the-shelf
Vax programs, recompile them for ours, and actually have them (1) run correctly
and (2) significantly speed up as you add more computers?" When we
demonstrated that to ourselves, that was a huge milestone. At that point we
knew. By early '85, we knew we've got technology that works and is viable. And
if we can execute from that, we've got a viable company.
438 Founders at Work
Livingston: Did you have any competitors at that point?
Gruner: We had one competitor that wasn't using quite the same technology,
but had moved into our same market, had identified the same opportunity, and
that was Convex Computer in Dallas, Texas. They took a completely different
strategy. The leading supercomputer at the time was Cray Research, and they
said, "We're going to build a computer that's compatible with the Cray." It's
ironic in that the lead architect on that project was Steve Wallach, who was the
architect of the Eagle computer at Data General.
The Eagle computer was absolutely compatible with the Eclipse computer,
which I had designed at Data General. He built the Eagle to be compatible
with Eclipse and was very successful. He took that same strategy and did it at
Convex. We took a strategy of saying, "Let's pioneer parallel processing technology."
They were somewhat different strategies in different approaches, but
we were in a horse race with them and they with us.
We announced the product in the summer of 1985, and it was very successful
for about 5 years after that.
Livingston: Do you remember any stories about the things that went wrong?
Times you thought you were dead?
Gruner: At Alliant, we had dozens of people working and we had lots of money,
so once we got past where we could take a program from a Vax and run it on our
computer, we weren't too concerned that there was some bullet that could put
us out of business.
We had done enough work with the marketplace. We had a number of key
customers lined up: Bell Labs is an example. The University of Illinois was
going to use our computers in their future research projects. So we could see,
even in early '85, $10 million of business lined up, and, if we could deliver the
computers, we'd be in good shape. The scares that I had in my career came at
Shareholder.com.
Livingston: OK. Let's jump ahead to Shareholder.com.
Gruner: Shareholder.com was a whole different kind of thing, because the first
few years there were only three or four people, including myself. We were
delivering news for public companies that was very visible, under scrutiny. If
you screwed up, either by being late or by getting the wrong information, you
were in big trouble. We had a couple of things that scared me to death.
I think the one that was probably scariest, that definitely could have put us
out of business, happened in '94 or '95. A very large pharmaceutical company
had decided to go with us. We had everything underway, and they were going to
announce this new service on their annual report. Everything is fine except that
I get a call one afternoon saying, "Ron, we've got a really serious problem. The
annual report has come out and it's got the wrong 800 number on it!"
They were frantic. There were two issues: one, they had printed over a million
annual reports loaded on pallets at the facility, and two, they had a legal
requirement to distribute the reports 30 days before the annual meeting. The
reports and the proxies had to be in the shareholders' hands at least 30 days
Ron Gruner 439
before the annual meeting, so they were really under the gun. As I recall, they
had 5 or 6 days to get those reports in the mail; otherwise they had to reset the
annual meeting, and it would have been a huge disaster. It would have clearly
put us out of business instantly--even though we had told them the right number
and we could prove it by showing them the fax we sent them.
So I called the 800 number and it was going to somebody's pager. Back in
those days, you couldn't leave a voicemail. It just said, "Please leave a number
to call." So we did that. Nobody ever called back. Because we had a good relationship
with AT&T, we identified who owned the 800 number. It was a paging
company down in Dallas, Texas.
We called the paging company and without revealing what the situation was
specifically, we said, "We have a situation here where we got a number mixed
up and your customer will be getting a lot of phone calls he doesn't want to get.
We'd like to make it right by him and by you." The company wouldn't give us
the time of day. They said, "No. Because of privacy issues, we won't contact him
and you certainly cannot contact him. All you can do is leave a message." So we
tried and tried, and worked it up the ladder. They wouldn't budge. They were
just intractable. This consumed about 2 days. Then Josiah Cushing, one of the
college grads I had hired, during our staff meeting said, "Ron, why don't you try
hiring a private detective?"
I said, "Well, let's try this. It's an interesting idea." So I went to the Boston
Yellow Pages, looked under "private investigators," and found an ad that
appealed to me. I called the private investigator and I said, "Here's an 800 number.
It belongs to somebody that has a pager. All I need from you is to know the
name and the personal phone number of this person." He said, "No problem.
It'll cost you $100." And I said, "That's fine. How long will it take?" He said, "It
will probably take about 4 hours." I thought that was pretty impressive.
He calls back 3 or 4 hours later and said, "Ron, I've got good news and bad
news." I said, "Give me the good news first." "The good news is I've got who it
is." "Well, what's the bad news?" "It's going to cost you $200, because when we
got the name of the person, he had an unlisted number, so we had to do two
searches." I said, "Fine. We'll send you a check for $200. It will be in tonight's
mail."
I then call the person up. He is in Dallas, Texas. The whole company was
hinging on this, plus the situation with the pharmaceutical company, and I
was scared to death about how to make this call. So I just thought, "Be as honest
as possible," and I said, "Look, I represent a company that's printed your
number in a document that's going to be very widespread shortly. Otherwise,
they have to republish the whole thing, and it's a real mess. What I'd like to ask
you is: we'd like to acquire your 800 number. Give us the right to that and we'll
do whatever we can do to make it right for you. All you have to do is tell us what
you'd like to have us do." And he said, "I understand. I'll be happy to help you
out. If you could buy me a years' worth of pager subscriptions, that will be fine."
That was like $400. He could have said $100,000, and they would have done it.
He actually said a year, but I said, "No, we'll give you 2 years. We'll be happy to
do that."
440 Founders at Work
So we did that and everything was fine, and then he calls back about an hour
later. I thought to myself, "Oh my God! He has talked to an attorney. This
whole thing is going to get blown off the tracks." And he said, "You know, I was
talking to my wife and she would really like a pager. Could you do the same
thing for her?" I said, "Sure." The long and short of it is, we met a very decent
person. He dealt with us fairly. We bought him $500 or $600 worth of subscriptions
for his pager. We got the number literally within hours because AT&T
expedited it for us, and everything worked out. But that was probably the
scariest incident we had in these 15 years.
Livingston: Were you a hero with the client?
Gruner: Yes, we were, but we didn't fall on the sword too much on that. We
basically told them that we got it worked out. I don't think I even told them we
used a private investigator. We absorbed all the costs. Turns out, there were two
people involved: a client plus a very large stock transfer agent that was working
with the client. Of course, the transfer agent really felt good about that, so they
threw a lot more business in our direction at that point.
One of our take-aways from that was that you can almost always take a negative
situation and turn it to your advantage if you work hard at it. We took
something that was a very negative potential situation and made some real
friends. Anytime we had a client situation that blew up--and those happen in
the business, things go wrong--we would always say, "How do we take this and
turn this into a big opportunity, where the client comes back even more loyal
than they were before?"
Livingston: Shareholder.com was doing a lot of new stuff for the industry at the
time. Do you remember any things that your clients wanted or asked for that
surprised you?
Gruner: Having been in the computer business, particularly the highperformance,
engineering and scientific aspect of it, that's populated by a lot of
early adopters that want the very latest technology, even if it doesn't quite work.
Financial people and investor relations people, and legal people in general, are
very conservative. So we had to do a lot of missionary work to have them feel
comfortable with the technology.
The kinds of things that clients would ask us for were, "How can you make
this easier to use? How can you simplify it? How can you make this such that
my administrative assistant can manage the system?" One of the things we did
early on was to try to make as much of the system self-administrative as possible.
They could go into a private, password-protected site and manage aspects
of their telephone system as well as their website.
As Regulation FD and Sarbanes-Oxley came in and became real factors, the
thing they would come to us for was direction on interpretation. At the time, we
had 500 to 700 clients, and they'd want to know, "What are other companies
doing?"
Ron Gruner 441
They weren't saying, "We're looking for this new feature." That wasn't so
common, whereas that would be very common in the computer business. This
was more interpretation of the regulations, and how to take stress out of their
lives.
Livingston: So you became a source of advice for these companies as well as a
source of new technology?
Gruner: Yes, I would say Shareholder.com played a significant role in the late
'90s and up until now, interpreting both the technology and the regulatory environment.
And from 1995 to 2000, the company and I personally spent a lot of
time going to trade conferences, luncheons that NIRI (National Investor
Relations Institute) would host, talking about "What's the Internet?" and giving
demonstrations, trying to make that less intimidating, explaining it. And then,
starting in 2000, we did a similar thing with Regulation FD and Sarbanes-Oxley.
Not explaining it so much, but showing examples of what other companies were
doing.
Livingston: Did you worry about any competitors?
Gruner: At Shareholder.com we had several competitors. By far our most
serious competitor was also a Boston-based company, called CCBN. CCBN
was a very smart company. They were funded by Thomson Financial, a major
company in a lot of aspects of corporate services, financial services. They were
our arch-competitor.
But at the same time, with the dot-com boom, about a dozen companies
popped up in investor and shareholder communications, funded by venture
capitalists. At one point, by late 1999, I calculated that over $85 million of venture
capital had flowed into this little niche of shareholder communications.
And we were still living on our quarter-million-dollar capitalization and
doing fine. We were offered investments many times by VCs and turned them
down. We just felt growing organically was how we wanted to proceed.
Livingston: You didn't want to give up control.
Gruner: I did not want to give up control. At the time, I owned about twothirds
of the company, and I felt that just makes life so much simpler, particularly
for me. But I think for everybody else, too, because we would sit in a
conference room, talk about something, make a decision, and be going. We
could make important strategic decisions in an afternoon if we chose to.
For example, we had been pricing our Shareholder Direct service at a fixed
cost of $4,000 a quarter, plus telephone fees and other variable charges of the
Internet. That $16,000 was highly, highly profitable. That was one of the things
that allowed us to grow organically all through the '90s. But as these new competitors
are coming in--like I said, about a dozen competitors offering websites,
webcasting, conference calls, and all kinds of services, financed by
$85 million of venture capital--they were going in and just bombing prices and
even giving stuff away for free.
442 Founders at Work
We realized that we would have to adjust prices. So we sat down and talked
about it and, literally in a day, made the decision to completely restructure our
product line and roll that out pretty quickly. That's the kind of thing that would
have been difficult to do in a more complex, let's say, structure.
Livingston: You could be more flexible and move faster.
Gruner: Yes. So we were able to compete with all these startups--almost all of
which went out of business or were acquired. We acquired two, for literally a
penny on the dollar. We acquired one firm that had well over $20 million of
venture capital invested for a few hundred thousand dollars. They just blew up.
Many of these guys got in the business not understanding shareholder communications.
Most importantly, not understanding it's very much a "people"
kind of business and that investor relations officers are typically "people" kind
of people. Their job is to communicate. So coming in and selling technology--
particularly technology as an unknown--was a very hard sell. They had a hard
time breaking into the market, whereas we had worked a company at a time.
We had had consultants early on that educated us, brought us in to companies,
gave us credibility--kind of put their name on the line after they got to know
us well.
CCBN did well because they were backed by Thomson Financial. Their key
founder, Jeff Parker, had great visibility in that community, and credibility. But
everybody else disappeared.
Livingston: Did you get acquisition offers?
Gruner: We had a number. At one point we had an acquisition offer by a dotcom
whose stock price had gone up by a factor of seven in the prior 3 months.
They gave us an offer at the time that was valued in the tens of millions of
dollars. This was a point where we had revenues of about $3 million. It was
denominated in stock. We thought very seriously about it, but basically got cold
feet--because at that point we had been doing it for 7 years. We just felt, if the
stock collapses, we've lost it all.
Nine months later, that stock was worth $205 million! So if we had done the
deal, had I been smart enough to negotiate the deal where we could have
gotten out of the stock, it would have been a $200,000,000 kind of deal.
We had other deals that were a lot less, but we never saw anything that was
the right fit, the right kind of liquidity, and the right kind of chemistry. We
didn't want to sell the company to somebody that was going to disembowel it.
So that's why, when we had an offer from NASDAQ--and we had a couple
of offers from them; I can't talk too specifically about it--we felt that it was the
right strategy. We've known the people for a long time; we've had marketing
relationships with them; they're going into corporate services and they're very
sincere about that. They want to use Shareholder.com as the foundation for
building their corporate services. They're keeping the name. The valuation was
right. It all happened very quickly.
Ron Gruner 443
Livingston: The stars were aligned.
Gruner: Yeah, they were all aligned. Somebody told me a long time ago that
generally companies are bought, not sold. And that's what we did. We didn't
hire an investment bank or anything like that to go off and sell us. We just
waited for the right opportunity.
Livingston: Is there anything you might have done differently with
Shareholder.com?
Gruner: Well, I think that bootstrapping the company on a quarter of a million
dollars made us a little myopic. We became so proud of that fact that we didn't
find the middle ground. I think that in '98, '99, or 2000, we could have taken a
million, $2 million of capital, at a very attractive valuation, and retained control
and grown the company twice or three times as fast as we did. Perhaps that was
a mistake, not doing that. I don't know, because everything worked out fine.
And when you only have so much money, it makes decisions much easier.
Here's an example: back when the whole Internet thing was getting started,
I hired a computer consultant to come in and advise us about what our Internet
infrastructure should be. He was a well-credentialed, Microsoft-accredited
engineer, etc. He came in and said, "You need to buy x number of servers and
this kind of software and all that, and it's a quarter of a million dollars to do it
right."
We said we couldn't even come close to doing that. So I went down to
Barnes & Noble, bought several books, including some of the Dummy series.
And we built our first Internet servers, which lasted us several years, on
Gateway desktop computers, using Microsoft Access as our database system
and using basically off-the-shelf server software. We did that for $3 [thousand]
or 4,000, and it worked great.
Livingston: Did having a background in technology give you an edge? I would
think a lot of financial services companies at the time didn't.
Gruner: Well, in financial services, that may be. But we were kind of a different
breed of cat in financial services. We were a technology company providing
great service to public companies. So we were always viewed as a technologist
kind of company, and many companies liked that. Some didn't like that so
much. But that was our niche. That was our differentiation. We understood
technology better.
Livingston: Who did you learn from? Did you have any mentors?
Gruner: I had several. I tried to learn and listen to them. The whole founding
group at Data General were really smart people. There were four founders
there: Ed de Castro, who was the president, who was an investor in
Shareholder.com, and who remains a friend after 35 years; Henry Burkhardt,
who was the VP of software; Dick Sogge, the VP of engineering; Herb Richman
in marketing. They're all really smart guys, and I learned a lot from watching
and listening to them.
444 Founders at Work
Because de Castro was a hardware engineer like I was, I would view him as
my primary mentor during those years. During the '80s, like I said, we had a
good board of directors. Tom Perkins played a very key role. I think I absorbed
a lot of the wisdom from him by osmosis--just in board meetings, and how he
conducted himself. How he did a good job, I thought, of managing conflict and
disagreements. I have to say I'm surprised, though, by how public he's let the
internal HP board battle become. Seems to me that it's been very costly to HP.
Livingston: Was there ever a time at Shareholder.com when you wanted to
quit?
Gruner: No, not really. I really enjoyed most every day. I enjoyed driving into
work, looked forward to it. Every company has its pros and cons. The nice
aspect of Shareholder.com was that it was indeed a recurring revenue stream.
So we had almost no financial worries. We could predict our quarterly revenues
within a couple of percent the first day of the quarter.
The worries that we had came from the fact that we were basically in the
news business. When earnings season came out, we might be doing 50 earnings
calls and webcasts and news releases on the same day. Every one had to be
done on time and perfectly, because an earnings release, for all intents and purposes,
is a legal document. So where we sweated was just managing that
process. It's like running 50 television stations at the same time.
If you screwed up, it was very visible. On rare occasions we did. We might
get one webcast mixed up with another company. We'd fix it within 3 or 4 minutes,
but it's extremely embarrassing. And, believe me, chief executives don't
like that at all.
I'd be the one to call up and apologize, and that was just part of the job.
Most people were very reasonable, and they would understand--things go
wrong. I would use the analogy of a cell phone (that was when cell phones were
really getting hot). I'd say, "Look, we've all got cell phones or car phones.
Sometimes they just screw up and they go wrong. And this is the same kind of
stuff; this is pretty advanced technology and sometimes things go wrong."
But we did occasionally lose a client that was just irrational, saying, "My
boss told me to fire you because you made this mistake." We'd typically give
them a credit for the whole thing, and we'd say, "If you ever want to come back,
we'd love to have you back." And many did.
Livingston: What advice would you give to someone who had never started a
startup but was thinking about it?
Gruner: I went to an executive conference several years ago in New York. One
of the most interesting sessions had about six chief executives, all of whom were
very successful, and the moderator asked, "If you could describe in one word
the key to success for your company, what would that word be?" Very few
answered in one word. Some of them said integrity, or communications, and
things like that. The last person to talk was Michael Dell, and he said one
simple word: persistence.
Ron Gruner 445
I can relate to that. Things never work out right the first time. You've always
got to do it two or three times to get it right. And things always go wrong. So
persistence is the key to success.
I had seen that in my career. I had seen that in computer design projects. I
had seen that through my whole life. And so that word is the best single advice
I can give to entrepreneurs. The key to success, if you had to sum it up in one
word, is persistence.