Excelan was by and large a technology supplier to OEMs. These OEMs were tbuilding super-microcomputers using a plethora of Micro-processors and busses. Most of them ran a version UNIX, many of them were packaged as engineering workstation with CAD applications bundled in. By the time I became CEO in March of 1985, Excelan had signed 30+ such OEMs. We had every body but Sun Micro-system, the eventual winner, as our OEM. These OEMs were to bundle our TCP/IP and Ethernet boards to network enable their boxes but none of them was generating any volume for us. With money running out and no certainty that any of them will break loose any time soon, I took the drastic action of packaging networking solutions for end-users so I could bypass these OEMs. There was a three month crash program to effect this change.

There were eventually four OEMs that came on line and took significant volume. They included NCR, Sperry, Siemens and Masscomp. I had actually stopped focusing on this business, when we got a call from NCR saying that they were ready to take volume. We had a very elaborate contract with them. They were getting 60% discount on the hardware and software. They were to buy boards in lots of 200, they were to give us a 90 heads up for an order so we could secure parts and a firm order 60 days before the shipment date. I took a chance and built 200 boards in anticipation. It was a risky move as it cost about $60,000 just to buy parts. 90 days passed but no firm order came. I was feeling very foolish for spending the cash to build the inventory.  Then out of the blue, 2 days before the end of May they sent us an expedited order to ship 200 boards by federal express. As per our agreement, they were supposed to pay us expediting charges and fedex shipment charges. When I reminded the buyer that our deal required then to pay these additional charges, he threatened to cancel the order if I insisted on that. I was in no position to do that as this order alone was to make our month. I sucked-up and expedited the shipment. Anticipating that they may need boards again in June, I went ahead and built boards again. Again no firm order till two days before the end of the month. I had to suck up again and make the expedited shipment.

By July, our end user business had taken off.  I had gone ahead and built another two hundred boards for NCR in anticipation of the month-end order. Order came two days before the end of the month but this time I refused to ship without expediting charges and extra charges for fedex. The buyer on the phone blustered about cancelling the order on me. I was unmoved and told him to go ahead and do it. We had enough end-user business to make our monthly numbers. Buyer was stunned to hear this and pleaded with me to ship as I had done previous two months. I told him that I was not going to ship without extra charges as stipulated in our contract. Later I got a phone call from a senior manager at NCR asking me if there was a problem. Why were we not shipping the boards as they are a big customer. I told him that I appreciated them as a customer but we had a contract and they were not living up to it. He was surprised to hear that. After understanding what was going on, he apologized and agreed to pay the extra charges as required by the contract. I released the shipment. NCR started giving me two months notice of firm orders and we never had any problem with them any more.

I had come to realize that every business relationship has a power balance. One has to know which side of the power equation one is on. When I needed the business in May and June, I was in no position to enforce my rights. In July, I could have lived without the NCR business and it was a perfect time to enforce the contract. I knew that they have to ship two hundred system to make their numbers and I could stop them from making their numbers.

My management team and Excelan board watched in awe how I played the game. I had become a hard-nosed CEO playing the game as it should be played. . We were making our numbers and business was growing nicely month on month.

We had done $5 million in revenue and had lost $2.5 million in 1984. We finished 1985 with $10 million in revenue and about $250K in profits. It was a great turn around and we were on our way. Further, all the talk of me being an interim CEO also muted down.

As I took over as the Interim CEO in March of 1985, we were hemorrhaging cash badly. We were selling Ethernet boards at a list price of about $2000, though average selling price after discounts was about $800.. Cost of the manufacturing boards at volume was about $350. So hardware was fairly priced and had a healthy gross margin of 56%. Software was priced at about $60 per copy after discounts., It seemed as a healthy price because it had almost no associated manufacturing cost. We had revenue of about $5 million in 1984 and cost and expenses had added to about $7.5 million. We had lost about $2.5 million in the previous year. We were still losing about $150K a month when I took over and had about a million dollar in the bank. Situation was pretty dire , with roughly about six months of runway. VCs had told us in no uncertain terms that we should not expect any more money from them. As I mentioned before I immediately cut the expenses by one third, thereby extending runway to about 9 months.

After I simplified the business and put a very sharp focus on our goals, I had time to reflect on things. We had a plan to sell about about 10,000 units of hardware and software in 1985. we were going to barely break even with that plan. Software was going to produce a revenue of $300K while hardware was going to have $8 million in revenue. I had 12 software and three hardware engineers. It dawned on me that even if I sold 20,000 units, software business was not going to be profitable. Software had been priced to help sell hardware.

We already had quality problem with our software and most of the incoming customer support calls were for software. I realized that it was not possible to do quality job and provide quality support for our customers at those prices. Situation just did not make sense to me at all. I remember from my childhood a saying ” Mehenga roye ek baar; Sasta roye baar baar ( expensive stuff makes you cry once but cheap one makes you cry over and over)”.  I decided to raise software prices 10 fold over night. Every body, including my board thought I was crazy. But I felt I had to do it to provide quality that customers deserved. New prices stuck, though some customers whined about them no body dropped out. Very soon I was able to improve quality  of the software and also improved the customer support substantially. couple of months later every body felt good about it; we were seen as a quality vendor and we were being paid to be a quality vendor.

Our business had also been transformed from OEM to end-users. End users were buying from us directly to connect their PCs to their UNIX boxes and DEC minicomputers. It just did not make sense to price software equally for all those machines. PC’s were priced at about $2000, Unix machines about $15,000 and DEC minicomputers around $75,000. I noticed DEC was charging about $30,000 for the DECnet connections as against our price of about $2,600. Functionality and utility was same. I had my answer. If DEC users were willing to pay $30,000, why can I not charge them $15,000? So instead of selling components I bundled networking connections in to a box and put a single price on it. Customers will buy a box that will include every thing they needed: Hardware, software, transceivers, mounting plates, cables etc. I also upped the guarantee to full money back if the customer was not satisfied. These boxes were sold at $2,500 for PCs, $5,000 for UNIX and $15,000 for minicomputers.

It simplified the business further, improved the margins, increased customer satisfaction. In process, I had increased software prices almost 100 fold.  Every body, including myself and my board, was feeling like a winner.

The main lesson I learnt was that price has nothing to do with the cost. It is the value pricing that wins the business and value is in the eyes of customer!

In March of 1985 I had the battlefield promotion to become CEO, actually interim CEO, of Excelan. My co-founder Inder Mohan Singh had just quit. Till then I was the VP of engineering and  a true hard core Silicon Valley techie.

Excelan was founded in April of 1982 to provide networking for a plethora of computers. Old established order of mainframes and minicomputers was giving way to desk-top computers and back-end servers. IBM PC was announced in September of 1981. Sun Micro-system was formed in February of 1982. UNIX operating system was coming on its own and there were about 50 start-ups building super computers around various powerful micro-processors and standard busses that were being announced on a regular basis. In fact UNIX itself had not standardized yet, there were several versions of it around then. Networking standards for both hardware and software had not quite emerged yet. There were various topologies that were being pushed: Token Ring (IBM),  Token Bus, CSMA-CD (Ethernet); also, base-band and broad-band at he physical layer. Standards for protocol software also had not firmed up yet. IBM was pushing SNA, DEC had its DECnet; Apple announced its Apple-Talk; DARPA’s TCP/IP was built into BSD UNIX that Sun Micro-System had adopted; Xerox was pushing XNS. Various industry groups were also pushing OSI protocols. As for as busses were concerned, we had Multibus by Intel, VME bus by Motorola, Unibus and Q-bus by DEC, PC bus by IBM and many more!

It was truly wild west out there. Inder was unable/unwilling to chose between various options. Excelan quickly got bogged down doing too many things; meaning doing nothing useful for customers. Even though, we had done Ethernet boards for Multibus, VME bus, Unibus, Q-bus and PC bus, we had no software and drivers for these boards. So we were pedaling raw hardware that end users were unable to use. Many OEMs signed up with us to design our boards in their systems. It was very hard to support them as they had various operating systems and needs. We got very busy but company had no focus and no story for the market place. Revenues were very slow to materialize. Company was very under-resourced for the job it was trying to do.

To make things even more interesting, Inder also had decided to do a network analyzer that Excelan was ill prepared to handle. Network Analyzer was seen by Inder as easy money and he had spent about a million dollars to buy inventory to build about 100 units. Company got in financial trouble as it had burnt through most of the capital it had raised by early 1985. We were still burning about about $150K/month and had a little less than a million in the bank when Inder was let go. I was told by the board to conserve cash while they went looking for a CEO to replace Inder. It was very clear that we were not going to last more than six months unless some thing drastic was done.

As my first day as interim CEO, I decided to let go about a third of the company go extend my runway to about 9 months. I also decided to sharply focus company the company, decided not to do any more hardware; just stay with what we already had and focus on software. I hired contractors to port publicly available TCP/IP software to our boards and decided to narrow down the various other options to just support networking IBM PC’s to couple of standard UNIX machines and to DEC minicomputers. This narrow focus reduced complexity by almost 99%. We were going to connect your PC (which were selling almost 100,000 a day by then); to your UNIX Machines that were selling about 10,000 a month; to your DEC mini-computers that were selling about 3000 a month. All this using Ethernet and TCP-IP! We had narrowed our bet and market but had a sharp story to tell this market place.  I also, put Network Analyzer on fire sale to clear out the inventory. All this had to be done in 90 days, so as to have enough time for marketing and sales.

90 days later we opened up an ad campaign, spending $50K per month.  It was a risky bet again as this additional cash burn was to shorten the runway. But , it was an almost instant hit. Revenues started to grow rapidly and within three months we were profitable and cash flow positive! The board which had no faith in me was now looking with amazement as to what had been achieved.

Here is the ad that ran!