There are two ingredients to success for a high-tech start-up: an understanding of the customer's problems and needs, and an understanding of the technology. Many new companies -- and Clarity is definitely in this category -- focus too much on the latter and don't pay enough attention to the former. That is, they're not customer driven. In a way, it was unfortunate that Smith was so well funded, because it enabled him to throw a good deal of his money into engineering. Had he been forced to bootstrap a bit more, he probably would be more customer driven now.
Smith's background is with hardware companies, so he took a hardware approach to building software. Essentially, Rapport was created by pasting together a bunch of different applications. And the product's value is in that collectiveness. The problem is that, taken singly, none of those applications is as good as other stuff on the market.
Smith had two choices for his marketing strategy: sell Rapport as a productivity program that integrates a bunch of disparate applications for Unix, or sell it as a communications program -- the first real E-mail package for Unix. In my view, the clear value in Clarity's product is as an E-mail program. But Smith chose the productivity angle. That was a mistake because by the time Clarity came along, there were already several products on the market that offered that. That marketing miscue, and not the recession, is the reason for Clarity's low initial sales.
There's still time for Clarity to reposition its product. The window of opportunity is not as small as Smith might believe. Clarity's market is real, but it's too small a niche to interest competitors like Microsoft or Lotus, which are used to selling hundreds of thousands of units per month. So Clarity's niche is there, but it must learn to listen to its customers. If it does that, nothing will be able to put it out of business.
FINANCIER
GEOFFREY YANG
A partner at Institutional Venture Partners, a $400-million investment fund. Yang focuses on software and communication-hardware ventures
Overall, Smith has a good idea. This is definitely an emerging market. Typically, people bought Unix machines for a single application -- not for overall productivity -- in science environments. Smith is coming in and saying people need group-ware -- productivity tools for multiple users. But there's a question of whether people will buy a software product that horizontally integrates several applications, none of which is the best quality available on the market. Second, Rapport is trying to communicate, and coming up with the converters for that is no small task.
The big issue here is sales and marketing. From a technical point of view, you understand why someone would use the product, but figuring out how to sell it is difficult. There are no established distribution channels. There are no retailers and few value-added resellers for Unix.
Selling through Sun and other vendors makes sense, but those guys are really more interested in selling hardware. Besides, they themselves still don't quite know how to crack the code and get into the commercial market. They probably won't have the knack for another two years. With group-ware, it's tough to find the decision maker and to get a consensus among all users at a company.
You could blame the slowness of early sales on the recession to some extent, but I'd argue that it has had more to do with the one-two punch of trying to pioneer new applications and new distribution channels at the same time. Smith's projections look reasonable, but the sales growth called for is especially aggressive, considering the fact that the average price per unit goes down each year.
This is going to be a make-or-break year for Clarity. It will be too early for it to crank up expenses so it can do further product releases. I don't think it'll have the money to continue to upgrade the product in the short run. I'd advise driving to break-even until it has solved the distribution issue. It would be foolish for Clarity to increase engineering and advertising costs until it has done so.
Finally, the emerging competitive landscape will be a big worry for Smith. If Unix workstations really begin to take hold in the commercial market, Clarity will have a host of competitors. But on the other hand, Microsoft is betting against Unix's taking over, and it's working on technology that will offer Unix capabilities through DOS interfaces. Either way, it'll be tough.
COMPETITOR
JIT SAXENA
President of Applix Inc., a seven-year-old company that sells software applications for workstations
There's definitely an opportunity here. But to succeed, you first and foremost have to introduce a great product that adds value. The end-user has very high expectations. Nobody's buying workstations to get a better word-processing program or a better spreadsheet. Workstation software has to add new tools. I don't see that with Clarity's Rapport. The company will need more time to develop more sophisticated capabilities, and that may mean it will miss its window of opportunity.
Right now I don't think Clarity's numbers are great. There really hasn't been a recession in this market to justify them. Its pricing strategy is similar to ours, and I think it's the right one for the market. But the test will be over the next 18 to 24 months. Again, the key is the product -- if it can be upgraded and is being received well by customers, Clarity has a chance at hitting its 1994 projections.
