The Two-year, Three-product, Nine-million-dollar Turnaround

 

STORY PROPOSAL

Bill Sadleir made enough mistakes to sink several companies. He was naive, had the wrong product, and spent several million dollars with almost nothing to show for it. Most reasonable people in his situation would have read the handwriting on the wall and accepted the consequences. But not Sadleir. Against overwhelming odds, he scrambled like nobody I have ever seen.

Sadleir's steadfast refusal to surrender makes me wonder. Was he crazy, or do most people give up too soon?

B. G. P.

BY THE STANDARDS OF MOST TRADE SHOWS, THE SEMI-annual MacWorld Expo is a showcase of entrepreneurship, with more start-ups per square foot than just about any other place on earth. The organizers estimate that fewer than half of the 400-odd exhibitors have been in business more than a year -- which is not surprising when you consider that their common link is the Apple Macintosh, itself less than five years old. So if you had attended last January's MacWorld in San Francisco, and had happened upon the display of Dayna Communications Inc., you might well have supposed it was just another young high-tech start-up, long on ambition and short on experience.

Dayna does indeed look like a business that is just getting under way, and, in one sense, it is. Its product, DaynaFile, came out only a year ago. The device, which allows users to share data between Macs and IBM personal computers, has won glowing reviews in trade publications and shared Product of the Year honors with the Macintosh II at MacWorld. Monthly sales have been brisk, passing the $92,000 mark in March, far ahead of schedule. For William Sadleir, the 34-year-old founder and chairman of the small Salt Lake City company, all this is most encouraging. Then again, he's been here before.

Three years ago, Dayna had another hot product, the MacCharlie. It, too, won raves from reviewers, some of whom called it Product of the Year. The MacCharlie hit the market with a splash, and prospective customers came pouring in. But six months later, it was dead in the water, and the company was gasping for air.

Sadleir rolls his eyes when he recalls that debacle. "It's incredible how naive I was back then." It was a classic case of wishful thinking, inexperience, and bad timing. The product, which allowed users to run PC software on a Mac, seemed like a good idea when it first appeared, but it became obsolete faster than you could say squandered his $1.6 million of start-up capital. First, there was the lavish advertising campaign that ended weeks before the product was ready for shipment. The campaign generated a flood of queries, which encouraged Sadleir to go overboard on parts inventory, buying materials for 15,000 units before a single sale was closed. When the product finally did become available, he discovered that he couldn't convert the queries into sales. Meanwhile, he had run out of money to do additional advertising. In the end, Dayna sold barely a tenth of the units for which it had parts.

But perhaps Sadleir's biggest mistake was his total misreading of the market. He had thought that people would buy MacCharlie to run Lotus 1-2-3, WordPerfect, and other popular MS-DOS programs on their Macintoshes. In fact, most of those who did buy the product wanted it for an altogether different purpose, namely to transfer files between a PC and a Mac. The evidence was right there in Dayna's own customer surveys, but for months Sadleir ignored it, perhaps because he didn't want to face the implications.

Whatever the cause of his obstinacy, he remained blind to the problem even as Dayna's troubles multiplied. By the end of January 1986, its situation was desperate. Dayna had little cash and a warehouse full of parts for machines it couldn't sell. Its initial investors had lost faith, and its employees were owed back pay. Its trade debt ran upward of $6 million, much of it personally guaranteed by Sadleir. All that was needed to force the company into Chapter 11 were 3 disgruntled creditors with claims of $5,000 each, and Dayna had more than 50. Worst of all, it had the wrong product, with the wrong features, the wrong price, and the wrong positioning.

To be sure, Sadleir was hardly the first entrepreneur to get into such a pickle. Most of the others soon realize that there is a simple -- if not painless -- way to get out of it. They file for protection from creditors under the federal bankruptcy code. But for some reason, Bill Sadleir was unwilling to take that route.

"In my mind, declaring bankruptcy was like cheating," he says. "It was a walking admission of failure." Maybe his reluctance reflected the Eagle Scout in him. (He had been an Eagle Scout.) Maybe it was the Mormon missionary. (He had been that, too.) Maybe his background in government played a role. (He had been President Reagan's special assistant for appointments and scheduling from 1981 to 1983.) Or maybe he just didn't know better.

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