Synnovation Success Stories

SOFT ON CHOCOLATE
As seen in Wisconsin State Journal, January 12, 1989

For winter blahs, this treat can't be beat
By Sandra Kallio, Assistant features editor

Espionage, bribery and cutthroat competition are accepted and even encouraged at Persoft, a West Side software developer and employer of 75 chocoholics.

The dirty deeds, all related to Persoft's chocolate festival, happen right under the nose of the chief executive officer, Ed Harris. And he has a discriminating nose.

"I am the main chocoholic who got this going," he said. The Chocolate Fest began three years ago as a new competitive attempt to beat the winter blahs, with the staff bringing in chocolate treats every day for a week or so.

"The amateur chocoholics in the company burned out on that," Harris said. The second year, they only binged once a week for several weeks in a row. "This year we decided to go whole hog."

"Whole hog" means having a contest from November through January, with each department assigned a Friday afternoon to bring in the best chocolate treats those staff members can make to impress three bribe-loving judges.

"You have to be corrupt to be a judge," said judge Don Giacchetti, who also happens to be president of the company.

Another corrupt judge who encourages competitors to leave fudge or chocolate cookies on her desk or electronic mail messages complimenting her is Tracy Shinnick, project coordinator for Persoft. Tacked to the wall of her office is an award from one of the two research and development groups in the contest. It includes a chocolate smudge, an emblem of two people shaking hands and the words: "Working to promote hyperactivity . . . and tooth decay for six weeks."

Another co-worker, just for fun (this is an offbeat group of people) tested Shinnick’s blood sugar level before and after she consumed the massive amount of chocolate required of the judge last Friday. Her insulin level shot up to compensate for the indulgence and her blood sugar level dropped.

Of the entries Shinnick has judged, the "most outrageous" so far was made by Richard Kraus and Susan Whitford on the executive team. They built an 18-inch-high, 2-foot-by-3-foot volcano out of chocolate-dipped popcorn with chocolate lava flowing out of it and chocolate dipped potato chips around the bottom.

Then there was the Egyptian pyramid made out of a mound of chocolate cakes baked by a research and development group; product development's multimedia event including "Willy Wonka and the Chocolate Factory" playing on a videocassette recorder and the members' recipes flashing on a computer screen; and a research and development group's La Brea chocolate pit featuring stamped dinosaurs in melted chocolate.

Last Friday, it was the sales departments’ turn to turn out the chocolate. Their strategy, probably reported in advance around the building by spies, was to present a festive New Year’s scene. Decked out in tuxedos and playing classical music on a boom box, they decorated the employees' lunchroom with colorful streamers, linen cloths and candles. As they put the finishing touches on the scene, a competitor peeked in the doorway, calling the sales people "slime bags."

Shinnick turned him away, since she and the other two judges had to fill their plates disgustingly full of chocolate before the desserts would be available for public consumption. "Then the horde descends," she said.

The "horde" on Friday had quite the choice with 15 desserts lined up for their indulgence. Ulrich Henes had baked Oma's marmorkuchen, a marble cake recipe from his grandmother in Germany; Pat Ackley had made French silk pie and fudge-bottom brownies; Dave Winter cooked his Uncle Bobs fudge recipe and used blocks of fudge to spell IZE, the name of the Persoft program on which the staff is saving the recipes for later publication for employees. Then there was the chocolate egg nog, fondue, truffles, turtles, pecan pie and more.

Judge Giacchetti was impressed with this group's presentation: "It's almost off the Richter scale."

After the last department puts its best chocolate desserts on the line Jan. 20, he, Shinnick and the third judge, Jackie Koeppl, a technical support specialist, will decide which departments gets unspecified awards for categories such as: most unusual but still edible, largest, chewiest, most chocolatey and most caloric.

But Matt Erlandson of the sales group wasn't concerned about the prizes. "It's a matter of pride," he said.

FINANCING

AFTER BOOTSTRAPPING ITS FIRST LINE, PERSOFT LOOKS FOR
VENTURE CAPITAL TO LAUNCH A SECOND

As seen in Venture Magazine, December 1988

Will Outside Capital Disrupt the Family?
By Doug Garr

The Persoft Building on Science Drive in Madison, Wis., has all the earmarks of a small successful computer software company. Looking at the 26, 000 sq.-ft. two-story structure modem, with atrium you would never guess that the company cofounder, Ed Harris, 41, packaged and shipped the first products from a basement, or that he conscripted his 12-year-old son into illustrating the instruction manuals.

But now Persoft is six years old, and Harris faces a couple of age-old question. After bootstrapping his first products, he decided to look for outside financing to launch a new line. How much of his company's soul was he willing to sell to outside investors to expand and launch a new product? What would it be like to invite a stepfather into his home? Harris is finding out that the answers aren't simple.

Persoft Inc. was formed late in 1982 almost by accident when Harris, then 34 and a busy computer consultant, noticed a void in the marketplace. Microcomputers had just begun to multiply in the business community, and Harris saw a need to design PC software to emulate the terminals that communicated with the bigger and faster minicomputers made by Digital Equipment Corp. and Data General Corp. The result was a highly popular series of products called SmarTerm.

The company was a typically spare computer software start-up: $4,000 in cash and two IBM PCs. But then Harris never expected to become an entrepreneur. Though he had been in computers for 18 years, he was just looking to earn extra money to finance a career change. "Then it became fun," he says.

Tom Wolfe, 41, joined Harris and cofounder Robert Janoski, 45, later. Wolfe, tall, skinny, and sporting a long beard, looks more like a lumberjack than the executive vice president of research and design. He has an eclectic background: nonpracticing lawyer, soil tester, computer consultant, and real estate broker. "This is the first real job I've ever had," Wolfe confesses. Harris talked him into working half time. "What I didn't know was that half time was 12 hours a day," he says. (Wolfe and Harris bought out Janoski, whose vision of the company clashed with theirs, in 1986.)

Persoft has enjoyed rapid growth. Sales for its first fiscal year, 1983, were $169,000. Last year it did sales of $4.2 million and earned a record profit of $158,000, Harris notes. This year Harris expects to ship $7 million and projects sales for 1989 in the $12 million to $15 million range.

The company, which now has 90 employees, is staffed predominantly by youth; there's nary a suit and tie in the executive offices. In fact Ed Harris occasionally wears a Pink Floyd T-shirt to work. When Sandy Plisch, employee number one, reached her first anniversary, management bought her a McDonald's wristwatch. The employee newsletter, which is usually well written and fun to read, features stories on Persoft's inner machinations but also extols the pleasures of eating chocolate. Ed Harris and Tom Wolfe, of course, are incurable chocolate addicts. "We tend toward a Ben & Jerry's Style of management," says Harris.

Persoft recently decided to launch a new product fine, a new piece of software called IZE. Designed by Harris's first cousin, Paul Kleinberger, IZE is part of a new generation of text-based office management programs. IZE can pull together research reports and search volumes of text using a powerful and sophisticated word search rather than a complicated pathway, dictated by the program, that a user must learn. Early reviews have been enthusiastic. But text-based programs on PCs are so new that no one can predict their potential market size with any accuracy. Persoft says it may take a year for text-based programs to catch on and establish a market.

To finance that year of marketing, Ed Harris began looking for money about a year and a half ago, spending a quarter to a third of his time on the search. Midwest banks weren't interested because, according to Harris, they wanted to finance only familiar kinds of businesses. Harris and Wolfe knew this route was a bad one when the banks asked for second mortgages on their homes.

The decision to seek outside financing hadn't come easily. "We knew we needed to diversify because our products have a limited life span," Harris says. "In the past, whenever we had asked ourselves whether we wanted venture capital, we always said no. We didn't want to give up control."

Meanwhile, word of mouth intervened in their search. In 1987, through Persoft's ad agency in Chicago, a venture capital firm named Frontenac Co. heard Persoft was looking for investors.

Dave Dullum, a Frontenac general partner, liked what he saw. "We were impressed that the company was started from scratch and that it had a good customer base," Dullum says. "And we liked the work ethic up in Madison. Also, we felt that IZE could become a generic product in a potentially large market." Meanwhile, Harris made about five reference checks on Frontenac with companies the venture firm had funded. Frontenac wouldn't jump ship when the seas got rough, several told Harris.

Frontenac offered $2 million for 25% ownership in the company. Harris and Wolfe would each retain 37.5% of the remaining stock.

"It was very fair in reference to what the average venture capital deal was," says Harris about the pricing. The other terms that Frontenac's lawyers wanted to include in the deal were a different matter. "There were a number of boilerplate clauses that we didn't like," says Wolfe, who read over the fine print. Things like if a monthly financial report was a day late, Frontenac could bring people in and take over the company. Or the venture capitalists could sell off the bulk of their investment and, with only a small percent of the stock, still retain veto power in certain decisions. "We knew this was going to be a marriage, and though Frontenac assured us such agreements were standard, we couldn't live with it," Wolfe says. "We decided to walk away from the deal last December."

Then fate took the proverbial hand. On Dec. 14, 1987, Newsweek published a one-page piece on the new breed of textbased software for computers. Persoft and IZE were prominently mentioned. When Frontenac saw the piece, the firm decided to rekindle the deal. Harris and Wolfe conferred and suggested that Persoft rewrite the contract. They eliminated the objectionable clauses, and Frontenac thought an agreement was possible. "They knew we wanted their money, but they knew that we didn't need it," Wolfe chuckles. The parties agreed in February.

Persoft, of course, had to make some standard concessions. The first was that the company would form a five-person board of directors, now comprised of Wolfe, Harris, Dullum, George Tesar (a consultant to Persoft and a University of Wisconsin business professor), and Marv Goldschmitt (a former vice president at Lotus).

Also, Persoft agreed to make an active outside search for a new company chief operating officer to oversee day-to-day activities. This will allow Harris to do more long-range planning and function as a chief executive officer. "I don't have management skills except what I've picked up seat of the pants in the last six years," says Harris. "So I'm going to have to change."

The company, too, will change. Already there is talk about regularly scheduled budget planning meetings and operating reviews. The corporate culture, according to human resources manager Bonnie McMulfin-Lawton, will logically shift from an informal family to a more serious, structured business atmosphere. "Upper management will have to team to delegate more," she says.

Changing the culture without destroying it will be a challenge. Though most key Persoft personnel could be earning 30% to 40% more money in Silicon Valley or on Route 128 in Massachusetts, they were attracted to the company by its unique family feeling and the relaxed college-town atmosphere of Madison. Scott Sklare, the 34-year-old director of marketing, who for months resisted going to work sans tie, says, "I'd be less than candid if I didn't admit to some uncertainty brewing in my stomach." Sandy Plisch, 35, says, "In this business, you're either growing or you're dying. We're growing, so that must mean we're doing okay, right?"

So far, yes. But Persoft is at a critical juncture in its short, happy history. It is wagering a substantial amount of its net worth on one product. Of the $2 million put up by Frontenac, Persoft expects to spend $750,000 to $1 million to launch IZE. If IZE is a winner, and Persoft's growth follows Harris's predictions, a public offering will be a logical step in 1990 or 1991. Already he's prepared for that. "You'll notice we have very professionally produced annual reports," Harris says. "Even though we're a private company with a couple of shareholders we always did an annual report. Outside investors are impressed with that." Indeed.