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The First Cracks Appear

The printer was Novell’s first released product. In the first half of 1981 it sold well and the printer division was the most productive part of Novell’s sales force.

But in the second half of the year the printer business started having a problem that was later to plague the rest of the product line: There were a lot of returns. Most of the returns were DOA (dead on arrival)—the customer had opened the box, plugged in the printer, and it didn’t work.

As printer returns continued at a high level, accusing fingers were pointed at Joe’s Production people. Joe in turn pointed at Engineering, complaining that there were too many revisions to the product and too little pre-production testing. Engineering replied that all the revisions were to fix problems that Production said urgently needed to be fixed or to add product features that Sales said urgently needed to be included.

Top management never broke the circle of finger-pointing. Poor product quality plagued Novell throughout its life as Novell Data Systems.

Summer ’81: The Cracks Widen

Product Delays

In the summer of 1981 reality began to intrude on the Novell vision. It first showed in a classic way: Lack of coordination. By early summer, Larry Edwards had built a sales force to sell the full Novell product line but there was only the printer to sell. The terminal computer was barely released and the terminal was still in development.

Salesmen Start Moving On

When trouble hits a company, it settles first in one of two places. If the trouble is internal, the Chief Financial Officer leaves—usually about six months before the bad news hits the streets. If the trouble is external, it shows up as turmoil in the sales force.

Salespeople are quick on their feet. When they’re on commission, they’re paid to be so. Novell salespeople were paid as is traditional for computer companies: A base plus commission.

Commissions are a compensation tool that sends a specific message to the recipient: “The company is interested in what you produce today, not what you may produce some time in the future.”

So if there are no immediate results, the person should be somewhere else.

Novell’s sales were less than planned. Along with all the other problems low sales causes, that sent a message to the sales force that it was time for them to move on. Andy, first aboard, was first to leave. He did so in May.

The First Waves of Crisis

The Move to Post Office Place

In summer of 1981 Novell outgrew the Industrial Park Drive building they had been using in Orem and moved half the company to Post Office Place—twin buildings just being finished near the center of the city, behind the post office. Engineering, Design, and Manufacturing stayed behind. The administration, Sales, Customer Support, and Marketing moved.

That complex, given up during the Time of Troubles in early 1982, was later taken over by WordPerfect Corp and became the home of WordPerfect Magazine.

George Moves to California, Then Doesn’t

With the expansion into Post Office Place came another signal of impending crisis. George announced that he would run the company from southern California. His wife didn’t like Utah so he was going back and putting up an office there. Jack Davis was made General Manager to handle the Utah operations. It sounded to those of us in the trenches like George was feeling so comfortable about the company that he was no longer needed on the spot.

This plan lasted for about two weeks, then George was back in town on his old schedule. The handoff had been announced but it didn’t happen. There was no new announcement to replace the old one so it added to the confusion. The one clear message: Things weren’t going like they were supposed to go and there would be more changes in the future.

Scrapping the Minicomputer and the Terminal

Because products had been slow coming out, as noted above, by fall of 1981 sales were slower than expected. That led to the first shakeout. It was a slight tremor, hardly more than a premonition. Roger felt it because he was in the Bay area, just about to sign on the dotted line of a lease for a Novell sales office he was going to head in the Bay area, when he got a phone call from Larry saying, “Don’t. And fly back ASAP.”

When he got back they had a meeting. Larry said that due to the slow sales there were some tactical changes: Novell wasn’t going to open the Bay Area sales office and the planned terminal and the minicomputer were officially on the shelf.

That had no great impact on Roger. He was a dyed-in-the-wool personal computer man. However, the Bay Area sales office was to have been Roger’s transition from Novell Customer Support to Sales. He didn’t have to wait long for another opportunity. Two weeks later the head of the Dallas sales office announced he was leaving.

The Consultant Parade

In spring of 1982, another sign of impending crisis was the stream of management consultants parading through George Canova’s office door. When a manager doesn’t have an answer, he or she seeks one out, and a common source for answers is a consultant. The sign of trouble is when there are a lot of consultants.

The consultant activity goes up when the manager isn’t hearing answers he or she likes: Answers that will solve the problem at hand without creating a lot of organizational pain. If the first consultant doesn’t have a good painless answer then it’s time to find another consultant. If the consultant stream is growing and the turnover is high, then trouble is afoot.

The second sign of trouble is when the consultants aren’t experts in the problem area. George’s most frequent consultants, for instance, were old business associates of his with extensive business experience but no more experience in this new technology or market area that was the personal computer industry than George had. They could offer general truisms but not the word on the street—the specifics that made this market different from any other. This showed up in the questions the consultants asked of others in the organization as they did their research and it was soon clear that they didn’t know much.

It was also clear that some carried great influence. One was Jim Walker, the person who recommended the infamous COBOL accounting package.

Jack Gives “The Speech”

Just before leaving for Dallas, Roger listened to Jack give a speech that sent shivers up and down his spine, for the reason explained in his diary:

Jack communicated a lot, but it wasn’t his habit to give group pep talks. But this particular meeting sounded like that was what it was to be. All the employees at the Post Office Place building gathered in the central meeting room, and Jack stood there in front of us.

A quick summary of the speech was as follows:

We aren’t in trouble.

We need to cut expenses.

We can’t sacrifice service while we cut expenses.

The suggestions he gave were: Don’t use Federal Express when mail will do, and use customers’ 800 numbers whenever you call.

I had the impulse to jump up and say, ‘And don’t use shipping boxes when envelopes will do,’ then turn to him and say, ‘That’s what I told my people.’

The déjà vu came from the fact that I had given the same speech to my staff just nine months previous when I was running ComputerLand, and these were the circumstances that led me to make my speech: I had just completed a series of financial projections—using VisiCalc for my first serious spreadsheet project. The results were discouraging: Using a scaled down projection of sales—based on the real sales I’d generated for the six months previously—and a continuation of expenses as they had been for those same six months, I couldn’t see a profit.

For those six months I’d done everything I could think of to boost sales, so I didn’t see any way to make any dramatic improvements in sales volume. I still had to buy product to sell, so I couldn’t reduce inventory expense much. I didn’t feel like there was any “excess baggage” in my staff, so I couldn’t see how to make many cuts there. That left administrative expenses, so I called my staff together one day and gave them “the speech”: “We need to cut expenses but not service, so don’t make long distance calls you don’t need to—but if you need to make a long distance call to generate business why be sure you do!”—and lots of other similarly contradictory directives.

The speech was, in effect, an admission on my part that no action I could think of taking would save my ComputerLand store situation. Only a change in the business climate ComputerLand operated in, something that spontaneously picked up sales, fattened margins, or lowered costs could save the day.

The day I made the speech I started looking for a buyer.

Now, a year later, Jack and George were facing a similar situation at Novell. They were nearing the end of their startup money. Sales were below plan, but without a sales force they would never reach plan, so the sales force couldn’t be cut. (Much more, that is; in fact, the sales force was cutting itself very effectively as salespeople who weren’t making any money left of their own will.)

Development couldn’t be cut much because half the products weren’t out yet and the other half were still buggy or not quite what the market needed.

Manufacturing couldn’t be cut much because products had to be produced to sell and there were a lot of returned goods that needed to be processed and repaired.

In short, Jack finally came to the same course of action I did: First, make a speech about cutting administrative overhead because all the other quick fixes were being done to the limit that they could be done, then plan for some radical change.

As I heard the speech, I knew it signaled a change of heart in Jack, and probably George. Their view of Novell’s potential had changed, and some radical change in the company was forthcoming. What form it would take was still a mystery, but it wasn’t likely to be pleasant for the founders.

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