Because we were...
Because we were not GE or Microsoft, we were not a place where a
great businessman rationally would have wanted to work.
We did get one good guy, Cesar Brea, who had done a lot of software consulting
at Bain. He came by the house to check us out because he had heard
about us from a friend of a friend and was looking to work at a company instead
of being a consultant. What sold him on us was that, when he came to talk,
there was a check for $500,000 from HP on the coffee table that we hadn’t
bothered to deposit yet. He knew that if we could leave a check lying around for
a few days, then we must have been doing OK.
The other thing was that the original sales pitch that I made to employees
was, “Come work here. You’ll make $150,000, maybe $200,000 a year if you do
a great job and you make your customer really happy. We can just do that forever,
making the customers happy, not spending too much. We’ll pocket the
profits, we’ll have fun offices, a beach and ski house that everyone can go enjoy
and go there for a week and do some writing. We’ll collaboratively have this
great lifestyle.”
But they felt like they were dumb because every day they were reading the
newspaper about people who had worked for 6 months at some company and
now they were worth $20 million because of an IPO. They’d ask me, “Why
aren’t we doing an IPO?” And I’d say, “Because we have profits.”
But due to a couple forces—customers and recruiting—we began to think,
“Well, maybe we should hand out stock options and tell people this is going to
be part of their compensation and try to go public.” We did have more revenue
and profits ($20 million and $3–$4 million, respectively) than almost any technology
company that was then going public. Despite all of our growth, we were
cash-flow positive, and we had all this profit that we had to pay taxes on. I think
once we prepaid a year of rent just so we wouldn’t have to pay tax. The company
was growing 500 percent a year and generating so much cash that we had to
find ways to spend it before the IRS got it.
So we talked to some underwriters—we were big enough that we were
actually able to get meetings. They were very candid with us and said, “Look,
we’re not going to take you public.”
We said, “Why? We’ve got more revenue than any company you’ve taken
public in the last 6 months.”
They said, “We get paid a percentage of the deal. The more deals we do, the
more money we get paid. If we want to take you public, we’d have to waste a lot
of time doing due diligence. We would have to look at your accounting and talk
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