John MacEachron gave Xerox a proprietary product for an affluent and eager market. Xerox gave it back
John D. MacEachron, 45 years old, didn't want to be an entrepreneur. He never sat behind a lemonade stand when he was growing up in Ithaca, N.Y. Never had a newspaper route. Never sold class rings in college. "None of that," he says, "ever had an appeal." And it didn't become any more attractive once he was done with school.
After earning an M.B.A. from Cornell University, MacEachron interviewed only with big companies and commercial banks. He picked Xerox Corp., where in 21 years he held 17 jobs, in everything from training to finance, and by all accounts he did them well. Steadily he marched up the corporate ladder, the paychecks getting larger at every rung. By last spring he was making close to $70,000 in salary and had developed a bit of a reputation. "Yeah, MacEachron, he's the guy who saved us $100,000 a year in computer charges, right?"
Right. And his most notable achievement, ironically, is the reason that John D. MacEachron -- the perfect "man in the gray flannel suit" -- is now president and sole employee of The Advantage Group Inc., in Westport, Conn., instead of bucking for a Xerox corner office in Stamford, a few miles to the southwest. The quintessential company man is now on his own.
The story of how that happened goes far toward explaining why you see a lot less gray flannel than you used to. And it is one example of what "corporate downsizing" might mean in practice rather than theory.
In MacEachron's case, the process began shortly after he became assistant controller for Xerox's real estate division back in 1983. His new job required keeping track of the 750 properties that Xerox owned or leased worldwide. It wasn't easy. There were rooms full of files, and you'd have to slog through a 50- or 60-page document to find out if you could subdivide or sublet a property. MacEachron's predecessors had tried to computerize the information, but the results were a sort of good news/bad news joke. The good news? The information was easier to come by. He bad news? It was costing $100,000 a year in computer time-sharing costs just to get at it.
One day MacEachron stared long and hard at a new Xerox product -- the company's first personal computer. As he examined the machine, he got an idea. "It could store about 10 megabytes of information," MacEachron recalls. "That was about the space our software guys had told me the real estate information would take up. We were in business. It just makes more sense to put the information on a disk that could go in a PC on your desk than to continually look through files or rack up those time-sharing charges."
So MacEachron managed development of a program that not only would list Xerox's real estate holdings but also would provide more than 250 separate pieces of information about each property -- including its size, cost of upkeep, and fair market value. And he made sure the information could be put together any way he wanted -- for example, it takes just a few keystrokes to get a list of the locations for every Xerox sales office. Suddenly, his life was much simpler.
That might have been the end of it -- and MacEachron might still be at Xerox -- if it weren't for a couple of chance conversations at real estate conventions. "Other real estate managers would ask, 'How in heck are you keeping track of all your properties?' When I told them about the program, they'd say, 'Gee, that sounds pretty good. I'd be interested in buying a copy if it's for sale."
MacEachron had never thought about selling his program. He had only created LeaseAd, as he calls his creation, to make his life easier. But if he could make Xerox a couple of dollars, why not? National Gypsum Co. bought a copy for about $1,500. So did Hewlett-Packard Co. In mid-1985, MacEachron found himself spending part of his day running a tiny business within Xerox.
At this point, if MacEachron were a different man, he might have left Xerox and started his own company using LeaseAd as his base. After all, he had what every entrepreneur prays for: a proprietary product designed for a market that is not only affluent, but eager to buy. But MacEachron was a company man, not an entrepreneur. He's loyal, and Xerox was his life. "I just didn't see where I could ethically take the product outside. I had developed it on company time." Still, LeaseAd represented a potentially huge opportunity. In a long closed-door meeting with his boss, he asked to sell LeaseAd full-time, for Xerox.
MacEachron thought he had made a compelling argument. There were, he figured, at least 500 large companies that needed LeaseAd. And at up to $7,500 a pop -- LeaseAd's current cost -- that could mean as much as $3.75 million in revenues for Xerox and much of that in profit, since the development costs had already been paid and Xerox's sales force could handle the marketing. Sure, $3.75 million wasn't much to a company that had earned $475 million on $9 billion in revenues that year. But wasn't Xerox's top management -- who had watched net income drop 21% since 1981 -- constantly talking about how the company had to become "intrapreneurial" to survive? Surely, this might help -- if only a little.
MacEachron's boss said no.
It is hard to get Xerox's side of the story. MacEachron says he was turned down by his division head, M. Norton Rosner. Rosner, vice-president for real estate and general services, seems vaguely to remember MacEachron's working for him, but refers all questions to Richard Gray -- who was for a time MacEachron's immediate boss. Gray says it is his impression that LeaseAd "didn't fit into the bigger scheme at Xerox," but adds, "I wasn't at the meetings where John discussed how he thought the company should pursue it."
Of course, you don't work at a company for 21 years without understanding its point of view, and MacEachron seems genuinely upset when a visitor suggests that Xerox erred in not letting him run LeaseAd as a profit center. "LeaseAd was never going to mean that much to Xerox," he says. "It is never going to do $10 million a year, so it just wasn't that big a deal for them." But it was for MacEachron.
Even that parental pride, however, wouldn't have mattered much if all this had happened back in 1955 when The Man in the Gray Flannel Suit was published and passed into myth. MacEachron's feelings still would have been hurt by his boss's rejection, but odds are he would have swallowed hard, been happy his idea saved the company a few dollars, and stuck around to pick up his gold watch.
But MacEachron created LeaseAd in the 1980s, not the '50s, and the gold watch was no longer automatic. Big companies such as Xerox had taken to lopping off thousands of employees at a time in an effort to remain competitive. And they weren't just firing folks on the assembly line. Hundreds of loyal, hardworking M.B.A.s -- just like John D. MacEachron -- were getting the ax.
MacEachron had always understood the new order. That was one reason he had accepted the transfer to Stamford, from Rochester, N.Y., in 1976, even though after nearly 13 years in Rochester he and his family considered it home. Layoffs had just started, and he knew that being Xerox's manager of international capital in Stamford was a lot safer than running headquarters financial planning for the business-products group in Rochester.
Once in Stamford, he felt secure. Sure, the Japanese were beating up on the copier division, but MacEachron was over in real estate, and it was doing fine. Surely, he wouldn't be affected by company cost cutting. "You always think the bullet will be for someone else," he says.
But now, even being in Stamford was no longer enough. The layoffs kept coming, and MacEachron began to have his doubts. He went back with a second proposal. He would work on LeaseAd full-time, without a salary. "I'd get paid out of whatever LeaseAd generated, and Xerox would get a percentage to cover my overhead," he explains. He was turned down again.
It was then, in the spring of 1986, that MacEachron did what no company man would have dreamed of 30 years ago. He quit and went off to develop LeaseAd on his own. He became an entrepreneur, albeit a reluctant one. "I figured I had a 50/50 chance of being hit by the bullet if I stayed, and 50/50 if I left. At some point, your number is going to be up."
When MacEachron announced he wanted to leave and take LeaseAd with him, Xerox made virtually no claims on the product -- even though it was developed on company time, using company money. Xerox officials, who again declined to be interviewed, did not require him to buy the rights to LeaseAd, or pay back the $100,000 in development costs, or even give Xerox a royalty on future sales. Xerox, in essence, paid all of MacEachron's product-development costs -- and then some. Not only did it treat his leaving as early retirement, which meant he was entitled to six months' pay, but it had for 21 years given him a close-up look at how -- and how not -- to run a company.
Xerox is known for servicing what it sells, as is The Advantage Group. There are toll-free numbers to call for service and a new disk, if necessary, is sent overnight. Xerox is also known, like most big firms, for being overstaffed. "They've let go thousands of employees," MacEachron says, "and still the copiers get shipped on time. What did all those people do?"
That's a question he never wants asked of his company. MacEachron has no employees besides himself. Everything is subcontracted. The person who programmed the LeaseAd prototype is paid for each custom program he writes. The toll-free line is staffed by a company that gets paid per call, and LeaseAd is sold by independent reps -- including the Xerox sales force. Being organized this way is a key reason why MacEachron should net close to 20% of sales, once start-up costs are behind him. So far he has sold 50 disks, to customers such as American Express Co. and major insurance companies. Cash flow has turned positive. And MacEachron is already marketing a second product: software designed to help managers and owners of apartments and condominiums track their holdings.
That's not too bad for a reluctant entrepreneur.
Oh yes: Xerox, for its part, reported first-quarter sales of $3.3 billion, up 17% over 1986.