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Dave: John, you have served as VP sales, general manager, CEO, chairman, at several companies: Network General, Network Associates, and Wyse. Lately you've played a board role with companies both public and private. Would you say you're primarily a sales guy, a technology businessman, an entrepreneur, or an operating guy?
John: People would classify me as the operating executive in a company, with a sales and marketing background.  And in business, I stay close to the areas that I'm weakest in.  Because I can see sales and marketing activities, as they say, with one eye closed, I spend an inordinate amount of time with product-line marketing, engineering and finance.

Dave: How would you describe your management style?
John: What I've learned is there are so many good ideas in the Valley; my style is to create collaboration, evaluate alternatives, and make a decision. On the execution side, I believe people should always have an objective, and then never miss it. So I like people to start with defining their objectives and goals well. My execs, hopefully, follow the same kind of discipline, creating collaboration for various inputs, and then making a decision at the 80-20 level. You can generally fix the remaining 20%, but procrastination is a killer!. ?

Dave: You were at Wyse Technology, in various roles, starting as GM/SVP of worldwide sales and marketing and soon became president, during which you made a number of acquisitions. Why did you make the decision to acquire Netier in 2000?
John: When I joined Wyse, it was on pause or hold in terms of their growth, and without a go-forward plan. They had very dedicated loyal employees that needed to reinvent the company.  These are common denominators with every company I join.  They needed to move from the '80s in technology and distribution channel, and into the new millennium or they could not take the next steps up the biz ladder. I saw that as an opportunity, and Netier had a key element of software "intelligence" we needed to further promote thin-client computing.

Dave: Did the Netier acquisition work out the way you hoped it would?
John: Better.  
I'll tell you an interesting story. Prior to the acquisition, I was meeting with their entire staff of about 50 people, and no one was responding to anything that I was saying. One guy finally raised his hands and said, "You don't understand. No one really wants to talk to you because, in essence, you're the evil empire". I represented the evil empire?
So we had to identify where they were coming from to make sure that the people accepted this acquisition. Instead of focusing on the product, we had to make sure we appreciated the people and get them over on the Wyse team.

Dave: How was that crust broken through, so to speak?
John: To move an organization through this new formation, you have to have a common language. Once you can communicate, you start building trust and learning people.
Quite literally, we first left them as a standalone entity, but allowed their sales force to sell our hardware products. Then we educated our sales force in how to sell their software products, as we got to know them.  And we started at that base level, to understand who they were and share who we were.
It turned out we were very much the same. We even picked our own evil empire, and decided we'd go knock them down together.  

Dave: Obviously, before the M&A, they're looking to present their best face to you. Then, after the M&A, you work with the reality. How big was the reality shift for you in this deal?
John: I think we had done a fairly good job in assessing people, products and markets, as well as customers' response and support for that company. Someone else might say you need to be 51 percent, and that's successful, because so many acquisitions fail. Hindsight says both sides were probably 80-percent accurate in this one.

Dave: A successful acquisition.  A few years later, on the other hand, in 2005, Wyse was bought out by a private equity group. Now you were on the other side. You were CEO.
John: After the ’01 meltdown, the market was not recognizing the value of our 20% annual growth at Wyse, so I brought in a PE partner to help us privatize and reorganize.  As is typical, once we consummated the deal, they wanted their own CEO. To the PE firm's credit, that was in the early discussion.  The surprise was their bringing in a whole new team at the top. Then, they got to work fixing things that weren’t broken!  One big example is moving manufacturing from China to Selectron in Mexico.  They learned that, instead of being a big client of a smaller Chinese ODM, they became an extremely small client of a huge company, and they lost all leverage.  In terms of product strategy and market strategy, they didn't make one change from what the old team had designed from a three-year plan.  But in terms of operations, they made so many – shifting our software from SAP to Oracle, shifting manufacturing, changing sales managers, and changing engineering execs. To do all that ever so quickly - they just had too much change and that created confusion.  

Dave: At the strategic level, were there cultural factors that drove some of this?
John: The new team had a more by-the-numbers mentality, versus selecting the solution. It was like whip the slaves until the attitude improves. And they had too much top-down decision-making, set off against the Wyse culture where lower management had tons of items they were responsible for, and the authority to go with it.  Moving the top is slow and bureaucratic, so you build up resentment. The new people were smart, they just - there's an old saying, "Are you doing things right, or are you doing the right things?" They were doing things right by their definition, but they were making changes based on what they knew, not based on what they saw.

Dave: How did the culture change affect success?
John: I think changes are good, but the style of how you implement change has a dramatic impact on your execution, and people's motivation and achievement of goals. It's hard in Silicon Valley to have an esprit de corps among employees when they're being constantly changed. It's hard for individual employees to feel motivated when their ideas are criticized quickly or publicly in meetings. That causes people to quit offering their ideas.

Dave: That makes it hard for the new layer of execs to find the right solution.
John: Dave, I'll tell you, that first tier regime that came in to replace my group, they've been replaced, and the company has an effective team in now, with a new CEO, recapitalization and spirit -- they're back on the right track.

Dave: The successful Netier acquisition by Wyse was done for strategic reasons, while the tumultuous PE acquisition of Wyse was initiated for financial reasons.  Do you see any connection?   
John: Either acquisition should have the same objective… to improve a firm beyond what it can do by itself. I suggest identifying and then stacking acquisition problems in a pyramid fashion or using a Pareto diagram and not trying to fix everything in the first 100 days. Your employees aren’t stupid, listen to them.  And leaders better lead by serving their employees and customers.]   

Dave: Let’s switch gears to your recent work on a private M&A transaction that ultimately failed. It started well enough, with your group winning an LOI commitment, but then . . . ?   
John: I think others may share this philosophy, but mine on M&A is that you fail quick and you fail cheap. And in this particular deal it wasn't quick and consequently not cheap.  

Dave: You were the frog boiling in the water slowly!  
John: Yeah. We could handle any temperature increase or speed bump, but when you look back in some incremental time you'd say it sure is hot. There's not a big value on red frogs; they're all green.
As we all know, when deals get extended in time there's new awareness, there's new dynamics. In this case the sellers’ financials were starting to change, which changed the valuation that the buyers put on the acquisition. This changes the amount of money that the sellers actually cash out with. This was a private company with two founders and the deal started falling apart as we needed to explain to them how the valuation was both backward looking on trailing revenue and forward looking. The question is: how do you convey that message and still have the sellers want to do business with you? Because most sellers, if they're selling a company for the first time, they're focused on how they built the company and the operation of the company. They're not transaction people that go through the same valuation process that PE’s are so skilled in. We started losing credibility because we were not communicating in a way that allowed them to trust us. And trust is based on two things: honesty, which we all think of, but also, can you trust that one has the acumen and ability to do what they say? We were not explaining our acumen and ability to the seller. When we explained the difference in the valuation, or what we wanted to do moving forward, they didn’t like it.

Dave: Sellers don’t like to see their valuation shifting away from what’s in the LOI.  Maintaining trust while reducing valuation sounds like a really tough sell no matter how good your soft skills are.
John: There's an inherent conflict between a seller and a buyer. One wants to pay a little bit and one wants to receive a lot. The responsibility of the buyer is to do the deal or don't spend the time on it. Another responsibility of the buyer is to manage expectations. You have to communicate in a way that you can manage expectations - either on dollar amounts, organization, forward strategy, retention of employees and team. I think that that was weak on our team.

Dave: You had to compete to a high price to win the LOI in the first place.  That’s the first expectation already set up front, and it’s the hardest one to change.    
John: They wanted to see a commitment of money, cash, and total funding before they would allow us to go through due diligence with customers. They certainly didn't want to tell their clients that they were on the block in the event the deal fell through. You get a little chicken-and-egg situation going, and it's hard to get a commitment for money if you don't know that your forward-looking revenue is going to be there. Those discussions caused us to have strong differences in process. We had to make certain assumptions based more on hearsay about clients than we would like.  When you put all the assumptions into financial model, a deal can become expensive, creating buyer’s risk.  Then you start challenging and at some point in time it goes back to trust again. That we couldn't convince the seller to let us talk to clients before the money was committed was a lack of trust on their part. And we couldn't explain to the money, why doesn't the seller trust us enough to let us talk to their customers?

Dave: With the benefit of hindsight, was there anything you could have done that might have shifted the deadlock?   
John: The representative of the seller should have let them know that we're at loggerheads unless we can talk to clients [and we should have insisted.]  Having sold some companies, being on the seller side, I know it's extremely difficult for the CEO and the top management to focus on the sale of the company and continue to drive the company's growth up and to the right. And as soon as your numbers dip down, then your valuation drops, and you're wishing you probably hadn't sold your company. In my own experience with selling a growing company, I too tended to involve as few executives in the sales process as possible, because we had to keep the up-and-to-the-right growth.
However, the people that this seller had hired to represent them in the transaction communicated from a point of separation. A lot can be lost in translation, plus each speaker is representing his or her respective side. That's not good enough. Management has to be actively involved in selling their company.  I think the seller in this case could have done things very differently, but they chose not to, because of the difficulties of running the company.  

Dave: Was there ever a point in the deal where the outcome might have been changed by the buyers saying "Let’s just lower our expectation for financial return by X% and close the deal anyway"?  Was there something else, other than purely financial that ultimately soured the deal?   
John: It’s never only one cause just as in this case. The founders/sellers were split on their plan, each had different personal motivations. Both wanted to leave, one had to stay. They and their representative could not manage the selling side issues and we couldn’t reach in to do it either.

Dave: Looking back on this situation, what would you have done differently if you had the benefit of hindsight?
John: I think I would follow my previous advice, "Fail early and fail cheap.  This deal was simple in transaction terms, made strong business sense, but was very difficult to impossible when triangulating an effective buy with the sellers.