Richard Holcomb is a serial entrepreneur whose Q+E Software sold for more than $40 million in 1994.
Everyone likes to hear stories about getting lucky and y’all are no different. I got so many questions after my first column that were basically, “What about that $1/copy deal with Microsoft?” that I now see that I need to dig in a little for you and see what lessons we can find.
It was a unique situation – we had built a product that Microsoft really needed and we had a well thought out plan for what we wanted to do with that product (side note - a need is a more powerful motivator than a want). Why did Microsoft need it? To be competitive. These were the early days of MS Windows and the only Windows product with any significant sales was Excel. For Microsoft to be successful with Windows they had to make Excel successful against the industry standard spreadsheet, Lotus 123. Lotus could extract data from Microsoft’s database product, SQL Server, and Excel could not. That is the need we solved. Ours was the only Windows product on the market that could access SQL Server data. Microsoft could have built their own product, but that would have taken time, so buying ours was their only realistic option.
Microsoft offered us a large cash payment to buy the product – more money than any of us had ever seen before. But taking their offer would have meant that we no longer had a product and we would have just been a consulting company again. Since we were not desperate for the money and had decided we wanted to be a product company and not a consulting company, we turned down the cash offer and negotiated a licensing deal of $1/copy instead. This started as a 6 month deal but it turned out to be a five year deal worth millions of dollars over the years. In addition to the $1/copy we also got the ability to mail (snail mail back then, not email) the Excel customer base three times a year. That turned out to be worth more than the $1/copy and was the key to our plan for building a database focused product company in the Microsoft Windows space.
That one deal and the fact that we retained ownership of our initial product and were able to build other products from it to sell in those millions of mailings we sent out each year was the key to our long-term success. We turned down the big one-time payout, got a royalty that covered all our costs so we never needed to raise venture money, and got the co-marketing rights that let us build a large successful and profitable company. That one deal defined our whole existence and we made the most of it. In the 30 years since then, I’ve never been able to replicate it because those exact set of circumstances have never presented themselves again. However, the lessons learned from that deal have proven useful again and again through the years. We had a product that was unique and Microsoft needed it -- not just wanted it. We had a plan and we stuck to it rather than let one deal derail us. And finally, we executed the plan all the way to a successful exit.
In future columns I’ll dig into more these types of lessons learned and hopefully provide some useful advice on how you can apply these lessons in your own business.