Moreover, as important as the equity investment and the increase in business was to Object Design, probably equally important was the psychological impact of the alliance. "At the time, IBM was probably -- no, not probably, definitely -- the most significant of the partnerships," says Marshall. "It was very large, very visible, and kind of a watershed not just for the company but for the industry. It really established object technology and object databases as a real technology that people should stand up and pay attention to."
Now, a year into the association, Marshall is even more sure that beefy relationships with powerhouse companies distinguish the men from the boys in the high-tech world. "I really think, more so than in the past, that these relationships are the key," he says. "Industry just moves so fast, and there are so many megacompanies right now, like Oracle and Microsoft and Computer Associates and Lotus and Novell, that unless you've got big friends, you're always at risk of disappearing."
(Steve McClure, an analyst at International Data Corp. who follows the object-technology market, says that Object Design should give itself more credit. The IBM deal, he says, was important -- but it wasn't the only thing the company was riding on. "The investment from IBM was unique. But I also think the strong financial position Object Design is currently in is due as much to its own direct sales efforts as to the deal with IBM.")
But the company is still vulnerable. The object-database industry continues working on basics: that is, raising the comfort level of potential corporate customers. The marketplace remains a little edgy about the industry's technology, age, and size. Object-database management is still new to potential corporate customers, and the two share awkward embraces, like people who have only recently met. Object Design's biggest threat comes less from other companies also on this new frontier of software than from established companies' inertia, routine, and huge investments in standard relational databases like those sold by the $1.76-billion Oracle and the $426.7-million Sybase.
Object Design plans to spend 33% to 35% of its revenues on research and development this year, and projects sales of $30 million to $40 million. A lot of that money will go toward developing "tools" to make it easier for the non-techno-wiz to use the product. "We joke that we want to cut the average IQ of our customers by 40%," says marketing vice-president Blundon.
The potential spoiler looming on the horizon is Microsoft (another Inc. 500 alum, from the Classes of '84 and '85). "I think everyone in the industry has a certain mixture of fear and loathing regarding Microsoft," says Marshall, "although I'd add a lot of awe and respect, myself, for what it has accomplished." Microsoft has said it will create an object-oriented operating system by 1995, which prompts both love and hate on the part of Object Design. "We kind of go around and around on it," says Marshall. "As a $25-million or a $50-million or even a $100-million company, we don't want to be carrying the flag for objects. We'd like larger companies to do it -- companies like IBM and Microsoft, Oracle and others -- and then we can figure out how to capitalize on the markets they create by adding value around what they are doing." On the other hand, in the back of every software company's mind is the same fear: that "two years after that, Microsoft could decide to sell an object database for $22 that does 85% of what ours does."
That's part of the reason the venture-funded company hasn't yet gone public. Having raised $36.4 million, half of which has gone toward research and marketing, and with plans to pour more of that cash into R&D, marketing, sales, and further alliances, profits like 1993's $650,000 may get leaner this year and next. It's easier on management to be unpredictable in private than in public.
Staying private seems to be fine with investors. "We've exceeded all the targets we originally had for this company," says board member Sperling. "Every now and then you hit a company, like this, where your expectations start to grow. Our expectation is that Object Design could be a very, very successful company. So you adjust your strategic orientation, including potentially delaying a public offering, so that you can realize this potential."
"We're fortunate," says Marshall. "We've got 12 investors, 7 of which are corporate partners, meaning that they're using our technology as well as being investors, so their interest is more in having a good product and a stable company around that product. The venture guys are certainly motivated by return on investment, but because of the IPO market of the past two or three years, a lot of them are floating in cash. The good fortune they've had with other companies has taken some of the pressure off us."
The CEO of last year's number one Inc. 500 company liked to say that it's pressure that makes diamonds. For today, Marshall and his team think they'll stick with the pressure in the marketplace, and save for tomorrow the pressures of the public forum. "We could go public today and hit a home run," Marshall speculates, "or we could let this roll for another couple of years and hit a grand slam."
