STRATEGY

The Long Good-bye

When four friends started Inc. 500 company IRIS (#192), they decided to sell the company ASAP. Eight years later, they've finally succeeded.
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Exit Strategy

When four friends started IRIS on a lark, they did it their way. They never appointed a CEO. And they agreed to sell the company -- the sooner the better. Eight years, 50 employees, and four attempts later, they've finally succeeded

If you were a Hollywood scriptwriter working on a plot about four young friends who go into business together, you'd want to drive about 45 minutes outside L.A. to visit a little software company started by, well, four young friends. The story of Maggie Etheridge, Eddie Ureno, Dan Woolley, and Greg Robertson -- the founders of IRIS (#192) -- is a drama replete with office romance, heroic leading men and women, supernatural acts, a Justice Department investigation, jealousy, a multimillion-dollar stock deal, and maybe, just maybe, a happy ending. Even the "characters" seem made for the big screen. Maggie is the emotional, smoky-voiced "soul" of the company. (Demi Moore?) Dan is the affable technology whiz. (Kevin Costner?) Eddie is the silent but strong operations chief. (Andy Garcia?) And Greg, the larger-than-life sales star at IRIS, says he wants to play himself. Even without a movie deal, one thing's for sure: there's been no lack of conflict at IRIS -- starting with the four founders themselves. From their business philosophies to their religious beliefs (which range from fervent Christian to agnostic) to their temperaments, they are about as different as four people can be. Different but equal. To this day, the four partners are equal in every way: pay, equity, rank. No one is CEO. No one has the last word. The unusual arrangement has been their greatest strength and at times their undoing. So contentious are they that they sometimes come across more like a jury than a management team.

They have, however, always agreed on their exit strategy: sell the company. At least three of them have always agreed on that -- or so they say. Greg, the gung-ho salesman, was the lone holdout. In fact, he was against the plan as late as April, when IRIS, based in Anaheim Hills, Calif., began a second round of talks with a competitor that looked to be the perfect parent. "My attitude was always, We've got to make this company happen ourselves," Greg says. That's because, he admits, "I never thought anyone would ever buy us."

The first suitor came knocking a few years after the company had been founded -- or more accurately, after the company just sort of happened. In 1992, Maggie and Eddie were dating. One night they had a long conversation about Maggie's mom, a real estate agent. Mom was having software problems with a new multiple listings system (MLS). Anyone who's bought a house knows that real estate agents depend on their MLS for printouts of properties for sale. Hundreds of different multiple listings systems exist across the country; each one has its own access software to master. The two Maggie's mom was using in southern California were no romp on the beach.

Being the dutiful daughter she was, Maggie wanted to help her mother by writing a better MLS access program. Eddie, who was crazy about Maggie, jumped at the chance to help her. "She didn't want to start a business; she just wanted to do it for her mom," he says. But he was more pragmatic. "I said, 'No, we're not just going to write it for your mom.' " Besides, starting a company meant he and Maggie could spend more time together. Maggie quickly recruited their friend Dan the programmer.

Providence provided their start-up funds. Maggie, Eddie, and Dan were all working for the same court-reporting-software firm in Irvine, Calif. A customer commissioned them to do a software project on the side. The freelance job paid $7,000 -- enough to buy them equipment and time.

The software that they eventually designed for Maggie's mom would do for real estate agents what browsers do for Web surfers. But back then they had no idea whether the program would sell. Or even how to sell it. They thought about the people they knew. Eddie remembered his old college buddy Greg Robertson, who'd gone into sales. Over beers at a Newport Beach bar, Eddie made his case to Greg. But Greg remained skeptical until April 21, 1992 -- the night everyone met for dinner at Maggie's house. "Maggie's a dreamer," notes Eddie. And her dream sounded good to three young people disillusioned with work. The guys were all 24. Maggie was the oldest at 27.

They thought of themselves as "four punks" who were "up against the man" -- the large MLS companies that controlled access to their listings. Dan gleefully set out to crack the code. He remembers the eerie feeling he had when, after operating in stealth mode for a year, the four unveiled their first product, Lightning, at a trade show in 1993. "I got a chill down my back in the parking lot, and I thought, 'Better watch my back,' " he says.

Management experience? "No one had any," says Dan. They arrived at their job duties "organically." Maggie, who saw her mother in every customer, was the natural choice to head up training and customer support. Her easygoing boyfriend, Eddie, agreed to take care of operations, which, at first, consisted of finding his way around Maggie's garage. Dan, the programmer extraordinaire, showed a flair for business strategy. Greg was a one-man selling band. He'd load up his '67 van with product and drive off with instructions not to return until the van was empty. He did what he was told, and it all started to click.

Still, none of the partners thought the company would last more than 18 months. When it did, "we started to think we were golden," says Maggie. "We were unstoppable."

And then bad things started to happen. Maggie recounts the darkest hour: IRIS received a threatening letter from one of the large MLS companies demanding that IRIS stop selling its software. "We were scared," she admits. Then two things happened that Maggie likens to "acts of God." First a phone call came out of the blue from a woman who represented a large group of real estate agents in Omaha. She wanted 100 copies of the software, which then sold for $99.95 a copy. And then, miracle of miracles, a lawyer took pity on the four and worked at a discount to help them with a variety of legal issues, including fending off possible lawsuits.

October 1995: The first attempt to sell the business
A Dallas software company made an offer the foursome couldn't refuse. They were at a crucial crossroads. They had yet to hire a single employee, and they were tired. Clearly, they'd gone as far as they could as a gang of four. Revenues stood at $230,000. The buyout offer would have put less than that in their pockets. Still, says Maggie, "we thought we should take the money and run." Eddie had visions of sailing to the Bahamas. But there was also a catch: the acquirer wanted complete indemnification from intellectual-property suits. Greg was dead set against the sale for many reasons and fought his partners tooth and nail. "Greg wore us down, and rightfully so," says Eddie. The deal collapsed. Greg felt vindicated, but the others were dejected.

Still they hung on. In February 1996 they hired their first employee. As fast as they had one, they had seven. They couldn't hire support staff quickly enough. In the close-knit world of real estate, word of the software spread at one meeting of agents after another. Soon orders were coming from Washington, Texas, and other states. Feeling confident, Maggie and Eddie got married. By 1997 sales had surpassed $1 million, and in 1998 they doubled.

February 1999: The partners' second attempt to sell the company
"We got as far as we could on speed and enthusiasm," says Dan. "The lack of adult supervision was starting to show." The partners hired a consulting company, a matchmaker who made introductions to several real-estate-related dot-coms -- the foursome could see that the future of home selling would be online. But after paying $5,000 for a few leads, they walked away. On their own, they started talking casually to a publicly traded company called HomeSeekers.com, based in Reno, Nev. It was a Web-based MLS seeking to be a one-stop shop for real estate agents, and it had its eye on the more than 50,000 agents using the IRIS access program. The idea of the two companies' coming together seemed like a natural move for both sides.

January 2000: Their third bid to sell
The partners began formal talks with HomeSeekers at a time when dot-com stock prices were still ascending. What was IRIS, with 50 employees and $4 million in 1999 sales, actually worth? The founders did their own calculations, unsure of exactly what they had. They didn't get a precise answer from the complicated stock offer HomeSeekers put forth. Still, the deal was enticing. HomeSeekers was then trading at $23. "All you could see was up, up, up," Maggie says.

And then came March. With HomeSeekers' stock tumbling, the decision to walk away was unanimous. "We pulled out at $12," Maggie relates. Saying no felt good. IRIS finished a record first quarter, with $500,000 in sales in January alone. According to Dan, the partners started to think, "Maybe it's not luck after luck after luck. Maybe we're good at this." However, they also noticed an alarming trend: HomeSeekers' Web-based solution was inadvertently stealing business from IRIS.

April 2000: Their fourth attempt to sell
Maggie, Eddie, Dan, and Greg went back to the negotiating table with HomeSeekers. "The more sour we got on them, the more they decided they needed us," says Maggie. HomeSeekers, whose stock fell as low as $2.50, sweetened the pot by guaranteeing the IRIS founders that they would receive the equivalent of $9 million in stock. Convinced that the dot-com was undervalued, the IRIS partners felt its stock could potentially be worth a whole lot more, provided that HomeSeekers didn't go belly-up before they could cash out.

After penning a letter of intent in early May, both sides dickered relentlessly over the final terms of the acquisition. One of the key sticking points was indemnification. HomeSeekers sought protection from any future lawsuits arising against IRIS. But the IRIS founders balked and eventually reached a compromise. Greg, despite his initial misgivings, emerged as a strong lead negotiator for IRIS. "I wanted to get the deal done but not fast," he says.

July 21, 2000: The final sale
"We exchanged stock in one risky venture for stock in another risky venture," Maggie says. Why did she do it? It's simple, she says. She fell in love. Not with her new parent per se but with her new siblings -- all the other little companies HomeSeekers has acquired. "There's a certain group of people I adore," she says. "The main thing HomeSeekers has given us is this connection to the other companies." On that point her partners agree, and so does John Giaimo, president of HomeSeekers. "IRIS was essentially the last piece of a puzzle we've been building for five years now," he says.

The IRIS owners have suffered some postsale blues as they consider their futures together -- and apart. Giaimo understands. He worked for himself for 15 years before selling his last business to HomeSeekers. "The biggest thing is the fear factor," he says. "What will happen? Will I lose my identity?"

Indeed, Greg has a hard time explaining his initial reticence about the HomeSeekers deal, except to say, "I like being Greg Robertson, software-company owner." When his three-year contract ends, he says, he may start another company in a different industry. Dan says the same. Maggie and Eddie, still married but without kids, are pursuing separate dreams. She talks about going into business with her mother, probably in real estate. But she's also considering an ice-cream-store franchise. Eddie, meanwhile, is planning to sail off into the sunset -- literally. He has his eye on buying a 42-foot cruiser. "I'm serious about sailing, and I think I could do it for a long time," he says.

But for now they are all still fighting the good fight -- this time to gain a foothold against Homestore.com, the #1 Web site in an industry that's currently under investigation by the antitrust division of the U.S. Department of Justice. Whether HomeSeekers and IRIS will make it to the top of their industry is pure speculation. Whether the relationship among the four friends will change -- now that there's a parent to mediate it -- also remains to be seen.

In the weeks before the sale, their bond was tested repeatedly. "Whenever I think, 'Greg is really bugging me today,' I say, 'You know what? It's really important to have one headstrong person,' " said Maggie, talking on the phone during one particularly bad "Greg" day. Shortly after the sale, she reported back in. "We still love each other and hate each other," she said with a laugh.

Susan Greco is a senior writer at Inc.


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Last updated: Oct 15, 2000




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