Management By Necessity

Interview with one CEO and the steps behind his $80 million, no venture capital, computer software company.

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How Philippe Kahn built an $80-million growth company without even knowing how to write a business plan

Blessed with the cherubic countenance of a natural mischief maker, Borland International Inc.'s Philippe R. Kahn has had an easy time living up to his reputation as the brash bad boy of his industry. To rattle the chains of the in crowd, it doesn't hurt also to flaunt standards of conduct, capital, and market, then become, at $82 million in sales for fiscal 1988, one of the largest microcomputer software manufacturers in the country -- totally without venture backing. This from a French math teacher who came to the United States in 1983 at age 31 not to start a business, he insists, but merely to cadge a good job in Silicon Valley. Or failing that, at least to interest some local money maven in the proprietary programming tool he had developed. Kahn failed on both scores, and the rest is, as they say, histoire.

Borland International was incorporated in May 1983, and its flamboyant founder began peddling his lone product, Turbo Pascal, joined shortly by a second, a desktop organizer called SideKick. Dispensed largely via mail order (or 800 number, the coupon's modern equivalent), both retailed for under $100 -- a margin-squeezing price point eschewed by competitors, but exploited by Borland to grab quick market share. Five years later not only had more than a million copies of each been sold, largely through Kahn-authored magazine ads, but two other publishers -- Analytica Software and Ansa Software -- had been swallowed by Borland. For Kahn, still ahead lay such stalwarts as Lotus Development Corp., whose long-lived spreadsheet he explicitly has challenged with his own Quattro. And -- who knows? -- IBM, with which he has forged a product-development affiliation.

INC. senior editor Nancy J. Lyons and senior writer Robert A. Mamis talked with the intrepid yachtsman in his office at Borland's newly sprawling facilities in Scotts Valley, Calif., several months after a jolting second-quarter loss and a subsequent reorganization. By then, Borland had returned to profitability, the turmoil had settled down, and they found the captain as reflective as a windless sea.

INC.: For various reasons -- aggressive pricing on the one hand, a glib tongue on the other -- you became known as software's enfant terrible. When you started out in '83, was thumbing your nose at corporate convention a philosophy?

KAHN: No, it was a necessity. I couldn't afford to be corporate. I was looking for a job, not trying to start a company. All I had in mind was how to pay the rent. I didn't even know how to write a business plan.

INC.: You did have a highly salable product, as it was to prove. Yet you attracted no capital, no investment interest whatsoever?

KAHN: People who see Borland today -- even employees -- have a hard time imagining that six years ago there was really nothing, that the company never had venture capital, never borrowed money. Everybody advised me to try for venture capital, but no venture capitalist would put in a dollar. In '83 and '84, they were looking for companies based on a Lotus model, founded by someone who had done it before.

INC.: So it was to rankle them that you did things that companies like Lotus explicitly chose not to do, such as your shunning copy protection?

KAHN: That view presupposes I had a choice -- I didn't. I was forced to be different. I was new to the country, I was not part of the network, no one knew who I was, and I certainly didn't know anyone. People wouldn't even return my phone calls. I felt there would be demand for the product, but I didn't have the money to create that demand, so I had to be inventive. It wasn't to get under Lotus's skin. I hated copy-protected software and decided the company would make it a battlehorse.

INC.: The story goes that Borland was launched by a single ad, without which we wouldn't be sitting here talking about the company. How much of that is apocryphal?

KAHN: It's true: one full-page ad in the November 1983 issue of Byte magazine got the company running. If it had failed, I would have had nowhere else to go.

INC.: If you were so broke, how did you pay for the ad?

KAHN: Let's put it that we convinced the salesman to give us terms. We wanted to appear only in Byte -- not any of the other microcomputer magazines -- because Byte is for programmers, and that's who we wanted to reach. But we couldn't afford it. We figured the only way was somehow to convince them to extend us credit terms.

INC.: And they did?

KAHN: Well, they didn't offer. What we did was, before the ad salesman came in -- we existed in two small rooms, but I had hired extra people so we would look like a busy, venture-backed company -- we prepared a chart with what we pretended was our media plan for the computer magazines. On the chart we had Byte crossed out. When the salesman arrived, we made sure the phones were ringing and the extras were scurrying around. Here was this chart he thought he wasn't supposed to see, so I pushed it out of the way. He said, "Hold on, can we get you in Byte?" I said, "We don't really want to be in your book, it's not the right audience for us." "You've got to try," he pleaded. I said, "Frankly, our media plan is done, and we can't afford it." So he offered good terms, if only we'd let him run it just once. We expected we'd sell maybe $20,000 worth of software and at least pay for the ad. We sold $150,000 worth. Looking back now, it's a funny story; then, it was a big risk.

INC.: Yet millions of dollars later, you haven't changed your style.

KAHN: True, for a long time the company was not perceived as a serious corporate entity. I resisted that for a long time.

INC.: Resisted what, exactly?

KAHN: Normal corporate things, like how big your office is as an indication of where you stand in the hierarchy.

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