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FAILURE IN SILICON VALLEY

February 12, 1997 from All Things Considered

ROBERT SIEGEL, HOST: Stories about entrepreneurs tend to fall into two categories -- those who have been successful, and those who have been extremely successful. You don't hear much about the ones who have an idea, write a business plan, raise the money, and then work round the clock only to fail. But people who study entrepreneurs say that many don't succeed on their first try. And that while failure may be harsh, it's also a good teacher.

NPR's Chris Arnold has this profile of the Silicon Valley entrepreneur whose first business ended in disaster.

CHRIS ARNOLD, NPR REPORTER: Bill Passman grew up thinking that if you were smart and worked hard, you'd succeed in life. But life is often more complicated than that.

And it's certainly more complicated when what you choose to do is start a business in Silicon Valley. As it turns out, today Passman has a successful business. And in part because of that, he's willing to talk about his first company, the one that failed miserably after consuming five years of his life and losing more than $10 million over other people's money.

In the beginning, though, things looked promising enough for Bill Passman. As a young programmer out of MIT, he got hired on early at software-maker Daisy Systems. He got stock options, which became very valuable when the company took off.

BILL PASSMAN, SILICON VALLEY BUSINESS OWNER: So I worked at Daisy for about four years. And I was very proud of myself. I made about -- I made $1 million off the stock before I was 30. And I was pretty cocky, and deservedly so.

ARNOLD: But while Passman made some good money, he didn't make near what the founders were making. And they didn't seem any smarter than he was, so why not start his own company?

PASSMAN: It seemed like it was a pretty easy thing to do. And it was a lot of fun.

And also, I'd seen my father do a couple of these things. And I figured that I could take a shot at it, too.

ARNOLD: Passman convinced two vice presidents at Daisy to break away and start a new business, Atherton (ph) Technology. They did some quick research and found programmers in the defense industry said they really needed better programming tools to help streamline the process of designing computer software.

So Passman and his team decided to tackle that problem. Getting money was pretty easy.

They were top people coming out of a hot computer company looking to start another one. Within three months, several venture capital groups had invested $3 million in Atherton.

PASSMAN: We had a party. We invited all the venture capitalists and all the initial team there. And we had shrimp and all sorts of wonderful stuff. And it -- it -- it felt very good. So we felt like we were a member of the, you know, the Silicon Valley elite, gods-to-be, and -- and ready to go on and conquer the world.

ARNOLD: But behind all this promise of success, there were problems developing. From the very beginning, the programmers the company hired were having trouble working together and were missing deadlines. Bill Unger, a partner at the Mayfield Fund which invested in Passman's company, remembers sensing problems early on.

BILL UNGER, PARTNER, MAYFIELD FUND: There were a couple of interesting warning signs. Number one: they weren't spending much time with customers. That was scary.

And the second piece was that even though they were building products to do software engineering to sell to their customers, they weren't actually using them in the company. You know, kind of the shoemaker's children, in this case, weren't using the product.

ARNOLD: This is one of the potential pitfalls of any new business, especially one that's got lots of startup money. You can lose track of the basic business 101 concept: the customer.

And that's just what was happening. Military downsizing was underway. Needs were changing in the defense industry.

And Passman wasn't keeping a pulse on any of that. When Atherton finally started to come out with its products, it turned out the industry didn't really want them anymore.

But at this point, only a year or so had gone by. And it all could have ended right there. In retrospect, Passman says it should have.

PASSMAN: In some sense, we deserved to die. I mean, it would have been better to go on and just kind of blow up within the first few months and then save everybody five years worth of effort, as opposed to going on and being on life support for -- for five years and hope at the end we're going to come out of the coma. OK, and as it was, we didn't come out.

ARNOLD: Looking back, not everyone shares Passman's pessimism. The Mayfield Fund's Bill Unger says the company might have been saved if Passman was willing to listen to the venture capitalists and other advisers who had more marketing and sales experience and were trying to get him to develop a product people wanted to buy instead of a product Passman wanted to sell.

UNGER: And I think Bill felt that we honestly cared about the company. But my perception of him was that he acted as if, if I just think harder about this, people will see the validity of my position.

So it wasn't so much an issue of him listening to what somebody said. It was more of, I can out-argue you. I can out-think you. I can outsmart you.

If only you'd see what I'm talking about, all these problems would go away. And it -- it just wasn't -- that wasn't a successful dynamic.

ARNOLD: Passman kept working to save his company. But the products still weren't selling. And as time went on, all of his original partners were cutting their losses and quitting their jobs.

As things got worse and worse, infighting within the company grew. Passman remembers one day an office worker came up to him a little concerned and told him, "You know, Bill, you just don't look that happy anymore."

PASSMAN: I said, well, you know, I'm not all that happy. I mean, I don't have a single friend left in this company. And at that point I'd had no support from any of the engineering department, the -- or from the president or from the marketing people, or from the consulting group, or from anyone.

I was completely isolated. And that didn't feel very good.

ARNOLD: After five years of hard work, the investors told Passman they were pulling the plug on Atherton. The Mayfield Fund's Bill Unger admits that the investors and the entrepreneurs all made mistakes.

In particular, he says the vice president of sales made far worse errors than Bill Passman did. But he doesn't want to dwell on all that.

UNGER: There's no use in resurrecting that. I mean, I think the greatest benefit out of that was whatever learning all of the investors and employees learned there, and how it changed Bill.

PASSMAN: This is being done over the World Wide Web.

(SOUND OF COMPUTER PROGRAM PLAYING MUSIC)

ARNOLD: At his headquarters in Silicon Valley, Bill Passman is demonstrating a program under development at his new very successful company Calico Technologies. Calico designs software that helps other companies sell their products, in this case, bicycles.

FEMALE VOICE ON COMPUTER PROGRAM: Welcome to the Acme Bicycle Interactive Buying System. This system will guide you...

ARNOLD: Unlike his last company, Passman spends a lot of time working with customers to see what their needs are and to make sure he's making products that address those needs. One of his big breakthroughs came last year when his head marketing person Bart O'Bryan (ph) lined up a presentation with the Silicon Valley giant Sisco Systems.

PASSMAN: We had put together a demo that allowed people to actually buy stuff unassisted over the web. And then Bart was showing this demo. And he had a -- is drawing a picture of how it works.

And then the CIO of Sisco steps up and takes the pointer away from Bart and starts conducting the presentation saying, oh, look, Sisco can do this, and Sisco can do that. And then Bart tries to go out and pull the pen back from him.

And I said, Bart, sit down! Sit down!

(LAUGHTER)

Let the CIO go on and sell the people on to us doing business with them.

And in that situation, the thing that I'd really pretty much learned up to that point is if the customer wants to show how he's going to use the product, especially if you've got vice presidents sitting around the table at that point, let him have the pointer, OK?

(LAUGHTER)

Don't take it away from him.

ARNOLD: Today, Sisco is one of Calico's biggest clients. Bill Unger says this story is a good illustration of a fundamental change in Bill Passman, one that has made him a much better businessperson.

He says Passman was always very smart, one of the best programmers in the valley, and worked very hard. But these days he treats other people differently.

UNGER: Nobody gets out of a meeting, out of a cocktail party, or a meeting, or a conference without Bill Passman going up to every one of them finding out what is that person doing, and what is that person doing that might relate to Bill's company's potential for success?

And he listens far more than he talks. And that's 180 degrees different than -- than the Bill Passman who used to go around telling everybody how great everything he was doing, and not really caring that much what other people had to say to him. So the big story in Bill is the reinvention of himself.

ARNOLD: In San Francisco, I'm Chris Arnold reporting.

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