An Evening with Paul Grayson

A couple of days ago, I spent an evening with Paul Grayson. I was done with my interview with him earlier in the day. So this was just a chat over a bottle of wine and some exquisite sea food. I knew that before starting Alibre Paul had a company called Micrografx which was sold to Corel. But apart from that I didn’t know anything else about him. By the time we were done with the bottle of wine I was enlightened. By the time you reach the end of this post you will too.

After getting degrees in Computer Science, Paul started his career as a programmer and worked for a number of companies not in any one industry – bridges, accounting, oil, etc. When working for a company (now called KPMG) he was transferred to Dallas in 1982.  But even before that in 1981 he had already drawn up plans for the first product of Micrografx and by 1982 he started developing it along with his brother, George, who was at a different location. The product was a 2D drawing application for the PC aptly called PC-Draw. He finished the first version in late 1982 and his brother moved in with him to Dallas. They started Micrografx in their garage by borrowing $5000 from Paul’s Citibank credit card. In February of 1983 Paul resigned from his job and started working full time on Micrografx.

Paul and George started selling PC-Draw by putting small ads in PC magazines and making telephone calls, building and shipping it out of their garage, just the two of them. They were able to get $250,000 in revenue the first year, increased to $1.2 million in the second year and $2.4 million in the third. They grew very rapidly and made the Inc 500 list for four or five years.

In 1984 they decided to develop for Windows and came up with the first drawing program for Windows called Micrografx Designer in 1986. In fact, Microsoft Designer was released even before Windows 1.0. Microsoft had a runtime version which they used to build their software. From then Micrografx basically ended up riding on Microsoft’s coattail. Autodesk started about the same time Micrografx did and they rapidly grew as well. But they didn’t do Windows. In fact, most of the established software companies back then refused to support Windows probably because they considered it as a competitor in some way. Micrografx saw it as an opportunity. For a couple of years Micrografx was the only company developing graphics applications for Windows. They got a lot of press and a lot of attention because of that. As Windows started gaining momentum, Micrografx really took off.

Microsoft shipped Windows 3.0 in the summer of 1990 and Micrografx went public a month after that. Windows 3.0 was largely viewed as the first successful version of Windows. At that time they were selling around 10 to 15 million dollars a year and had around 150 employees. They got up to about 100 million in sales and about 400 employees around the time of 1993 to 1994.

George left the company in 1993, Paul left in 1996 and Micrografx was merged with Corel a couple of years after Paul left. As regards the reason for leaving, Micrografx was a publicly traded company and it was not growing as fast as the investors wanted it to. That resulted in a some management changes. After a couple of them Paul got fed up and decided that his time could be better spent elsewhere. Paul was the founding CEO and his brother tool over a year after they went public. He lasted about two years before he missed a couple of quarters. The board with Paul’s support decided to bring in a new CEO from the outside. George didn’t like, got mad and quit. That was a difficult time for Paul personally and George as well. The new guy that they hired didn’t work out. He lasted only about a year and then the board asked Paul to step back in. He ran the company of about a couple of years. They did pretty good most of the time. But then Paul missed a quarter and the board decided that they needed a new CEO from the outside.

The problem was that the Micrografx board main comprised of mainstream corporate executives of large companies. They had a strict Wall Street view of things. Either you perform financially for the shareholders of they got someone else who did. Paul joked about having the “Founders Curse” where the founder of a company is not able to stick with the company as it grows. Paul pointed out that Bill Gates was a well known exception. He also noticed that sometimes the investors quickly push the founders into safe spot where they would be able to guide the company but not be held accountable for the performance.

After leaving Micrografx, Paul took the year off. For the first six months he was on serious vacation doing hobby stuff. In the next six months he came up with the idea of Alibre and in late 1997 he had the business plan. He recruited his co-founder, a guy named Steve Emmons, who was one of the lead developers in Micrografx. Steve developed one of the first few versions of Alibre.

Paul put in his own money and invested a million dollars in the first year by the end of which they had 15 employees. Paul then raised two different rounds of financing at the time of the internet bubble when it was a good time to raise money.

SolidWorks came out in 1995 and just like how SolidWorks ran on the Windows platform, Paul thought that the internet could be another platform. The first version of Alibre Design worked in a browser. The idea was to use the internet as a distributed computing platform and there was a server and rich client component. They didn’t have broadband back then so they needed to come up with an architecture that could perform well with the desktop and and still have the benefit of remote computing resources and remote data storage. I asked Paul how this was different from what people are doing with the cloud now. His stuff had three main components –  a client, a design server and an administrative server. The client was a application that used DirectX and was used primarily for graphics and user interface. The server could be on any computer, but it it could also sit on the client. The same went with the administrative server. So you could have all three components on one machine and you did not need to be connected to anything else. You could also have multiple design servers if you wanted to do high end multi-tasking. Alibre got a patent on that.

Alibre was in stealth mode for about two years and then they started talking about what they were doing. The first version was released in 2000. It was really a modeler but was publicized as more of a collaboration tool. They got a product of the year award and a lot of good press. They started to get some traction with some large companies. The business plan was to primarily sell it to larger companies so that they could deploy across the enterprise including to their supply chain to enable collaboration among businesses regardless of where they are located. Their biggest customer was GE power systems. They got a multi-million dollar deal with them including an investment on their second round of funding.

But unfortunately after that 9/11 happened and all the companies retrenched. At the enterprise level people literally stopped what they were doing. GE was selling 450 million dollar power systems a year. They were double booked for years to come and then they suddenly had a hundred extra units. There was a slowdown and then a recession. That was a largest factor in the change in Alibre’s business model and product as well. That led Alibre to reposition the product to the desktop for smaller companies. They had money in the bank, but not an infinite amount. By that time the internet bubble had burst and there was no way they could raise any more money. The idea was to preserve the money that they had a go find some customers. Nobody was putting any money into internet companies.

After some time the economy started improving and Alibre’s sales started improving as well. But Alibre did not go back to the old business model. Suddenly collaboration, which is what Alibre was all about, became the big buzz word and everybody started saying that they are gong to offer it or are already offering it, when actually nobody was. Alibre decided to focus more on the modeling part of the application, a process that is continuing till today.

I have only recently started to closely follow Alibre. I asked Paul if Alibre had a low cost strategy right from the beginning. Paul replied that when they started out the idea was to offer a modeler for about $1000. But they were also thinking of someone like GE buying a thousand seats. So they built the company around that idea. Paul still believes that the low price model will prevail in terms of the largest number of customers. It has definitely not happened as quickly as he thought it would and he says that he could be wrong. He admits that he has been wrong over stuff before. But he still believes that over time Moore’s Law will win out. Charging $5000 for a software product for individual use or a small company use is just unprecedented. Paul asks, “What other industry charges like that. You have five employees and you need to go an spend five times five thousand for just one piece of software. We believe in democratization of design. Big companies charging $5000 a seat is archaic and will not continue forever.

I asked Paul what he thought about the view that anyone who wanted 3D CAD already has it. Paul replied, “Anyone who wanted 3D CAD and had $5000 already has it. That does not say anything about the hundreds of thousands of people who subscribe to Make Magazine and who don’t have $5000. Or people who were recently laid off and cannot afford a $5000 CAD system to start working on their own.

Earlier in the day during my interview with Paul he had told me that the $99 offer was his idea and that he had to fight for it. I asked Paul, “I want to know what made you do it. I mean, I want to know exactly what you were doing when you came up with the idea of reducing the price by a tenth.” Paul replied, “I guess I was praying“. We both laughed. Then Paul said, “Actually I am not kidding. I was doing a lot of soul searching trying to figure out what we could do get through the recession. I was desperately searching for something to do to get people’s attention and sell software and that’s what I came up with.

I enjoy doing this. Spending time with people with great minds who started doing great things while I was still in my nappies. Frankly, I feel overwhelmed. I started my first company ten years ago and still cannot even afford a business class seat on an airplane. Maybe I need to do this differently. Looks like great companies start in garages. Maybe its time I moved SYCODE from my office into my garage. 😉

Here are some pictures that I took that evening. Click the images for larger views.

Wine and sea food always go well together

Windows 1.0 and PC-Draw box and manual that Paul keeps at his home

The Windows 1.0 manual signed by Bill Gates

Paul is a fitness freak. Alibre has a fully equipped gym and Paul keeps a cycle in his office. I took this picture around lunch time that day.