In the Company of Giants

by Rama Dev Jager

  One hundred years ago people were saying, “I don’t see why anyone would want a telephone.” It actually took several decades before the adoption curve rose. The same thing happened with fax machines in the late ’70s and early ’80s. Now interactive services are experienc-ing the same evolution pattern.

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  STEVE CASE

  We believe that the majority of people will use these services because online interactive services can fundamentally enhance people’s lives. Back in 1985, we were alone with the view that the killer applications for consumers were going to be interactive services. We felt that not that many people used typewriters. Very few consumers needed a database, but everybody buys products and services and everybody is interested in meeting other people, and everybody is interested in being informed or watching television.

  Those are the things that can be done more effectively through interactive services. So, it may take a while, but it will be mainstream. We’ve been at this for more than a decade, and we’ll be at it for a lot longer. We’re still pretty young.

  In the future, do you foresee developing applications? In that sense, will we see AOL word processors and spreadsheets and the like?

  Not really. It depends on what you mean by that. We do believe that, if we do our job right, more consumers will use AOL in a more offi-cial way. We want AOL to be their primary dashboard, not just in the world of services, but in other things, so in that sense we do want to enhance the functionality within the AOL environment as much as possible. For example, our view is that for people who are interested in paying bills it would be better to have a bill-paying application sitting within AOL, instead of having to close AOL and load Quicken.

  At the same time, I don’t see any particular value in an AOL

  spreadsheet. We have spreadsheet and graphic technology built into AOL but it’s concentric. For example, if you go into our personal finance area and you look at a stock’s historical quotes, you can instantly have that graphed. Essentially, that graphic function is built into AOL in order to bring content to life.

  Of the executives that we are interviewing, you and Scott Cook are the only ones without backgrounds in technology. Has this been a hindrance to you?

  I don’t consider it a hindrance. It may even be helpful because—and Scott Cook [the founder of Intuit, developer of Quicken] is similar in that both of us worked at Procter & Gamble—we’re both essentially trying to build mainstream consumer services. To steal from the Clinton campaign a few years ago: It’s the consumer, stupid. That’s all that matters and everything else is a means to an end.

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  So, there was never a point when you thought, “Maybe if I had better understood this emerging technology, the company might have been more successful.”

  I don’t think so. We have extraordinarily bright people here, so we are not often surprised. We usually have the ability to see around the corners—that’s one of the benefits of being a market leader. You tend to be a magnet for ideas and people that come knocking on your door as opposed to being surprised when they’re formally introduced.

  You started AOL at a pretty early age. What are your weaknesses as a manager, entrepreneur, and CEO, and how do you compensate?

  The main one is focusing more on getting to the promised land and less on the steps that need to be taken to get there. The details of running a big company do not excite me. But it’s part of the game you have to play. What excites me is the opportunity to reach out and touch the lives of tens of millions of consumers and establish AOL as the preeminent brand. I just don’t find many of the day-to-day activities all that riveting.

  The other related weakness is impatience. I want stuff to happen now. I don’t want to have an endless meeting to talk about things, or a task force to consider them. I want action now, and, in general, that’s appropriate. But in some cases, structure is helpful—particularly if things are changing rapidly and you have 5,000 employees and you need to make sure a clear message is being articulated.

  These things are easy to balance by bringing in a world-class executive team. It really is a balancing act, and we’ve done that quite successfully in the past few years. Our most effective recruitment strategy in terms of executive talent has been acquiring companies led by terrific CEOs who then play strong leadership roles within the company.

  Let’s talk a little bit about AOL’s social responsibility. I have a teenage cousin who logged on to AOL and was able to access some of the chat rooms that contained adult material. How do you handle that?

  Our approach has been to err on the side of diversity and freedom of expression, while empowering each of our members—especially parents—to customize and control the experience for their households.

  For example, we have parental controls on AOL so parents can

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  STEVE CASE

  decide what parts of AOL and/or the internet they do or don’t want their kids to see. They can actually customize this for each child. So, if parents want to block access to all chat rooms or some chat rooms or all web sites or some web sites they have the capability to do that.

  We don’t feel that our role in life is to play God and decide what is or isn’t appropriate for different families or different communities or even different countries. We have to recognize that one of the more important attributes of this new medium is that it is interactive and participatory and everyone can participate as opposed to traditional media where a small group of editors or producers basically decided what everybody read and watched.

  But we don’t believe that the anything-goes, wild-west atmosphere is appropriate either.

  The problem with parental controls is that many of your users are kids, and often, they understand the technology a lot better than their parents do.

  I think that’s fair. But, I think the parents should have the responsibility of what happens in their household. It’s tragic if parents abdicate their responsibility to the school or the government or to a business like AOL. Parents have to be responsible for the upbringing of their kids, because every parent has different guidelines for what they think is appropriate. The only alternative for that is to have broad-based government censorship—other countries have it—where the government decides what you should or shouldn’t see, and that’s foolhardy.

  In society, people have choices. There are laws that people are expected to abide by, and if they don’t there is some punishment associated with it. We have some guidelines at AOL for our members.

  If people do anything we don’t think is appropriate, we take action, including throwing them off AOL. But, we do believe that the primary responsibility must be with our members, particularly the responsibility for how kids access interactive services. We’re not going to become the latch-key parents for tens of millions of kids around the country. That’s not something we are particularly suited to do and it is inappropriate for us to do.

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  Okay. How about your responsibilities as a manager and as a parent?

  Balancing work and family life issues is a pretty big topic these days.

  How do you do it?

  With some difficulty. But I don’t believe the issue is to do all of one thing or all of another. The way I do it is partly by recognizing that I have some control of time and space. Much of what I do, I can do anywhere. I don’t have to physically be here a lot. A lot of what I have to do is done by the telephone. For example, next week I’m going to take my kids to Hawaii, where I was born and raised, and we will be there for about ten days. What I typically do is get up in the morning before they get up and spend an hour or two in the office, make a phone call or two and read some e-mail.

  So how many hours on average do you work per week?

  I don’t really count it that way because the work is always there. It’s not like I’m going to Tahiti and will be completely disconnected from the world. If something is breaking, I’
ll focus on it. If not, I won’t.

  Twenty, forty, eighty?

  Hours are nothing. Sixty to eighty range.

  Has your work ethic changed over the history of the company?

  No, not really. That’s more a function of still being passionate about what you are doing. I’m sure that if someday I get bored without new challenges, then it would be different. I’m doing this because I want to, not because I have to.

  Where do you think are the next new opportunities in technology?

  The big wave will be providing the fuel to drive interactive services into the mainstream market. That’s going to be as important over the next decade as software was for the last decade. In the long run, people who are building original, unique content that leverages this medium in building new brands are going to do well.

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  STEVE CASE

  But thinking that content is king is naïve. It’s only going to be king if it’s truly original and linked to leveraged distribution. The barriers to entry for content creation today are very low, because anybody can create a website and get a big distribution list. And that means there will be millions of websites.

  Consumers don’t want millions of websites. They don’t want to click on “Sports” and have 18 thousand sports websites pop up.

  That’s not the way consumers will use these services. They will rely on people to package and present the services that are going to be of the highest quality and the most relevant to their particular interest—so being plugged into a dashboard is going to be important to distribution—an aspect that I think is underestimated. That will be the big lesson in the next couple of years.

  What kind of advice would you give people who are trying to startup their own interactive service companies?

  Probably the most significant one is to do something you really love, are really passionate about, and that matters to you. Take a long-term view and be really patient. There are going to be bumps in the road—

  there always are—and in this particular market there will probably be more because the set of expectations that have been created won’t be met.

  If you take a long-term view, like the parable of the tortoise and the hare, you have a good chance of being there at the finish line.

  But, if you get caught up in the heat of it and are just looking for the quick hit, whether it be the quick IPO or a quick deal, you’ll hit the wall.

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  SCOTT COOK

  Intuit

  IT’S THE CUSTOMER,

  STUPID. PART II

  Scott Cook’s preparation for life as a computer software founder and chairman was to work in product marketing at Procter & Gamble. Don’t laugh—both Cook and America Online chief Steve Case credit their P&G heritage for giving them the marketing savvy necessary to create leading consumer software products in a rapidly shifting market.

  Cook’s company, Intuit, is best known for its popular Quicken line of personal finance software. The company has also expanded to provide tax preparation software (TurboTax) and has made a huge entry into the online banking business.

  In the ten years since its founding, Intuit boasts yearly revenues in excess of $500M and is perhaps the only company that can claim to have competed head-to-head against mighty Microsoft—and won.

  Cook’s idea for a new software product came while sitting at his dining room table, and subsequent success is the stuff entrepreneurial dreams are made of. One evening, while see-

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  Copyright 1997 Rama D. Jagar and Rafael Ortiz. Click Here for Terms of Use.

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  SCOTT COOK

  ing his wife pay bills, Cook concluded that what the world could really use was a practical, “intuitive” software application that magically ordered the tangled rat’s nest of one’s checking and savings accounts. Inspired, he promptly drew up a business plan and wandered over to Stanford’s engineering department in order to post a notice for students interested in doing some programming for a startup company. Tom Proulx, a computer science student lounging in a courtyard, asked to look at Cook’s notice. A partnership was born.

  Securing funding for the company wasn’t as easy. Cook was shown in—and out—of the offices of dozens of venture capital firms without a single offer of interest. But in a supreme vote of confidence, Cook’s family and friends emptied their savings accounts to fund his young venture.

  The investment proved to be a wise one as Intuit’s product eventually gained market acceptance and has dominated the market ever since, with over 12 million people using Quicken.

  Intuit’s culture of a strong customer focus is rooted in Cook’s marketing background and sets the company apart from most other technology-focused software companies.

  Subsequent to Bill Gates’ decision to acquire its pesky competitor, Intuit became a household name. It also led to a reinvigorated effort by the Department of Justice to control Microsoft for monopolistic size and practices. The specter of an ax-wielding DOJ proved too threatening to Gates, who scuttled the deal with Cook—an initial disappointment that he now claims was best for Intuit.

  Intuit is now focused on extending its hegemony into online banking. It has already made a number of deals with financial institutions around the world and promises to solve the financial headaches of many customers plagued by myste-rious black holes in their checking and savings accounts.

  Intuit’s headquarters are located in Mountain View, California. We conducted our interview on an outdoor bench in the heart of the Intuit Campus.

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  “The scary thing about entrepreneurial companies

  is that they grow up to be reflections of their

  founders.”

  Let’s talk about the early days at Intuit. Legend has it that you approached, and were turned down, by over thirty venture capital firms for funding.

  It was twenty-something.

  Why was it so difficult? It seems that you had good credentials.

  We thought it would be an easy, fun decision for the venture capitalists to fund us because we had done a lot of market research and had really studied the customer. We understood the problems with the existing competing products on the market and had already built our own product. With a well-researched business plan and a working product, we thought it would be easy to get money.

  Boy, were we wrong. One hundred and eighty degrees wrong. We couldn’t even get second meetings with most of the VCs. One reason is that our management team had no industry experience. I was a former fat salesman [Cook marketed Crisco while at P&G] and my partner Tom [Proulx] was still a student. Another reason is that the investors fundamentally didn’t believe in the business. In fact, there were occasional newspaper and magazine articles that recommended against buying computers for managing checkbooks and recipes.

  Another reason is that ours was a consumer product and most VC

  investing at the time was in industrial products. Investors were not comfortable with a business as different as consumer products, which is reasonable; you shouldn’t invest in things you’re not comfortable with. I also think there was a fundamental disbelief that a market existed for computers in the home. Those four reasons are probably enough to sink most good ideas.

  Did you ever start to believe that what they were saying was right?

  No. We had the data and had studied the customer. We knew we were building what customers wanted. We just couldn’t figure out how to get them to buy it since we were supposedly going to use the venture capital money to solve that. It was a real problem.

  The key to business success is knowing your customer cold. We had spent time understanding the customer. We clearly understood

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  SCOTT COOK

  customer behavior and had data showing that our solution was vastly better according to customers’ decision-making criteria. Our big fear was that, without money, our competitors would see what we were doing and recognize that ours was a superior produ
ct and copy it.

  Had any competitor lifted its pinky to compete with us, we would have been history. We were so weak for so long. The competition had retail presence, momentum, money, and brand names. We had none of that.

  Wasn’t it your father who lent you money from his retirement savings?

  It’s a real story of entrepreneurship. Very few entrepreneurs in this country are backed by venture capitalists, perhaps one percent. The other ninety-nine percent could never have gotten venture capital for their business. I used retirement savings from my job, my dad loaned me money, my mom loaned me money, and I used lines of credit.

  Also, banks invented a great thing called line of credit—they don’t ask what the money is for.

  We often worked without money. We started paying salaries and then had to stop. At the suggestion of someone in the company, we tried getting a few people who knew us to invest smaller amounts of money. We got his father-in-law and a former boss to invest. We had asked for $2 million from VCs and we received $151,000 from these smaller investors—much less than what we were looking for. It represented a total change to the business plan, but it kept the doors open for another six months. Without that investment we wouldn’t be here today.

  What advice would you give to entrepreneurs looking for financing?

  Financing is really not the most important issue. If you have a great business, know your customer, and know that what you are doing is superior to what’s on the market—that’s what it takes to win. But if you have a lousy business idea, financing won’t turn it into a good one. Getting money is a necessary requirement, but I really wouldn’t focus on the financing. I would focus on knowing the customer cold.

  In the case of products like Quicken, how do you do great market research?

  It depends on the question you are asking.

  We needed to understand the financial habits and attitudes of

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  households. The only way to find that information out was to talk to households. So I’d make calls and I got my sister-in-law to call households. We asked upper-income consumers—they were the only people buying computers—about their financial lives. We did this to build a real gut knowledge about how real people did their finances: their behaviors, their likes, and their dislikes. We looked at behavioral data as well. It became very clear to us that people wanted a way to take the hassle out of doing their finances. Who likes to pay bills and write in checkbooks?