Like any small-business person trying to keep pace with the rush of technology, Peter Rothschild is facing a dilemma. Now that microcomputer disks hold gigabytes of data and processors run at atom-smashing speeds, it's time to downsize his system -- again. The problem is, the last time he did so, it nearly cost him the company.

In 1972 Rothschild's father, Harvey, founded Featherspring, a Seattle health-device mail-order operation; shortly thereafter, he acquired an IBM computer that ran on vacuum tubes. By 1990 the apparatus was so ancient that when it had problems, the local repair shop "sent out only the senior people, because the new guys had never seen a machine like that." With a database growing by 300,000 names a year, Peter Rothschild decided to switch to a more modern minicomputer and hired a custom software house to write new order-taking and billing applications.

The software contractor wanted to implement the revisions all at once, but a nervous Rothschild vetoed what he calls the "Big Bang" theory of change. Instead, he insisted on running discrete parallel operations despite the extra costs of space and personnel; while the new was tested, the old would back it up phase by phase.

But the rickety machine died short of a complete test, and Rothschild was forced to go with the new. Its first solo task was to invoice customers for $500,000 worth of monthly installment payments. But only about half of the accounts receivable came back. Almost too late, Rothschild discovered that the computer mistakenly had informed the other half they owed nothing. The glitch wiped out the company's already thinned reserves. "We got hammered," recalls Rothschild, still miffed that no customer bothered to point out the error.

Now he's got a set of rules: (1) Oppose Big Bang conversions; implement by segments till the bugs are out. (2) Strike a tight contract. If your programmer isn't willing to virtually indemnify you, shop for someone else. (3) Go for off-the-shelf over custom software. With custom software you're captive, warns Rothschild, who one day found out the software house's key programmer had just quit to pursue a life of windsurfing.

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