A blogging maelstrom..

An interesting thing happened over the weekend in the blogosphere.  I periodically read Robert Scoble's blog.  Not because I'm some salivating wolf looking for that guy to hang himself.  However, I will once or twice a week click the little link to his blog just to see if there is anything interesting.  In case you haven't heard, it looks like the press, bloggers, MS employees... are all up-in-arms at Microsoft's announcement to delay the consumer version of Windows Vista until 2007.  There was some, shall we say, slightly outlandish reports saying that some 60% of the user layer will be rewritten before Vista ships... huh?  Scoble went on to out right attack the author, editor and the whole publication.  This started what looked to be a maelstrom of points and counter points, finger pointing, and posturing.  Scoble himself summarized the whole thing.  Scoble seems to have realized that he stepped into quite a fresh pile.  Now the knee-jerk reactions are flying all across the blogosphere. Even Scoble is getting into the act by asking folks to flame him...  I doubt that's going to fix anything.  Now he is being held up as a reason corporations should start having tighter controls over their bloggers with some set of seven rules for corporate bloggers.  Is it just me, or have folks just gone off the deep end?  Was anybody actually surprised that Microsoft delayed Vista?  What is interesting is that it appeared that the ones most surprised were the folks inside Microsoft!

Move on folks... nothing to see here... 

Talent Highlights...

While I've been in the midst of various planning and meetings surrounding the spin-out of the Borland IDE/Database products, the rest of the Delphi team has been moving ahead in a “business as usual” fashion.  Steve Trefethen has been posting some very useful items.  Mark Edington has posted an excellent article about using AQTime to help in debugging some dicey drag-n-drop issues.  David Lock has been posting some interesting information about game development with Delphi and SDL and SDL.NET.  Hopefully I'll be able to return to the regularly scheduled programming at some point. Until then, please encourage these other folks to continue posting more bits of useful information.

At some point, I will also start rolling out information on upcoming Delphi language changes to support .NET 2.0.  There's a lot of development happening on this front.  As soon as the implementations solidify and stabilize (they still need some tuning), I'll be posting some more info.

"DevCo" - Ping...

It's Friday.  It's been a full week.  The BDS2006 update is nearing completion.  The team is adopting some more agile processes and continuing on Highlander (the codename for the next BDS release) as we peel folks away from the update.  We had some “proof-of-concept“ demos in a meeting this morning that seems to have sparked some real interest among the team.  The small email storm that followed was a good sign...

We had a new compiler engineer start this week!  Yet, there's still some more open req's for the Delphi/C++Builder. We're looking to fill some of those positions now.  This is a good opportunity for someone (or more) to get on board before the spin out.

So, I've already outlined most of the major events this week in this post.  I'll be keeping you all up to date on the events as they occur.

"DevCo" - 5 weeks after spin off announcement

This post is either early or late depending upon your point of view.  I have a lot to cover here.  First off, I'd like to mention that “DevCo” now has a General Manager.  Actually we've had this particular general manager on board for nearly a month, but have only recently gotten the final approvals to go ahead and publicly talk about it.  Basically, the delay was because you just don't go public with certain management changes before you've told the affected teams.

Effective April 1, 2006, Nigel Brown, Borland's current vice president of EMEA, will take the helm as general manager of Borland's IDE products. In this capacity, Brown will lead Borland's IDE product lines with support from a world wide team of engineering, marketing, services, sales, and G&A professionals from within Borland. He will play a key role in preparing the structure, team and plans for the divestiture of these product lines, and in managing this business once the sale is complete.

Brown has played an integral role at Borland for nearly a decade, and is credited with helping to grow the company's European operations to the $100M business that it is today. Brown has over 21 years of experience working within the IT sector and expertise in running global business operations. Matthew Thompson, Borland's senior vice president of worldwide sales, will serve as head of the EMEA region for Borland until a replacement is named.

Nigel Brown Background Information

Nigel Brown Vice-President and General Manager EMEA

Nigel has spent 21 years in the IT sector. He comes from a strong international sales and marketing background and has been with Borland for more than 9 years. Prior to this he was International Vice-President at Uniplex, joining from Lotus where he held positions of UK Corporate Sales Director and International Marketing Director.

Before being appointed to his current position Nigel was Managing Director of Borland’s UK operations and director of global accounts.

During the last 6 years Nigel has been running Borland’s business operations across Europe, Africa and the Middle-East. In addition to running offices in UK, France and Germany he also established new offices and companies in Sweden, Finland, Spain and Italy and expanded a partner operation across East Europe and the Middle-East. He has been personally involved in negotiating many of Borland’s largest customer contracts over the years with for example Ericsson, Nokia, Siemens, British Telecom, UBS, Barclays Capital, etc. Whilst being responsible for growing Borland’s direct ALM business in EMEA, he has also been Borland’s most successful region in selling the IDE products through an indirect business model.

Nigel has a BSc Honours degree in Management Sciences and a Diploma in Industrial Studies from Loughborough University UK, along with a Diploma in Marketing from the UK Institute of Marketing.

Meeting with Bear-Stearns

In other news, we had a long meeting this morning with a bunch of folks from Bear-Stearns, who has been retained by Borland to broker the spin-out.  This was our chance to finalize and walk through the financial models and plans with someone outside the company.  While Bear-Stearns has been heavily involved throughout this process, I got to finally meet with these folks face-to-face.  They played the part of the grumpy investor and ask a bunch of leading and probing questions.  Most of the questions were centered around how we arrived at certain numbers, what assumptions were made, and how the whole back-story plays into the financial model.  After dodging arrows for a while and taking copious notes, the Bear-Stearns guys indicated that it all looks really good.  We still have to tweak a few details here and there, but overall the models are holding together.

We also were able to get an idea of all the various steps that are typical of a transaction like this.  So here's a quick list of those steps as I was able to understand.  No time frames are laid out mainly because they are dependent on so many uncontrolled variables, that it would be silly to even speculate.  The ordering of some items may also be suspect since I'm filling in a few holes with what I see as common sense.

1. Determine high-level feasibility of doing a spin out and decide to do it.
2. Initiate internal process of gathering specific financial data on products (revenue, costs, profits, etc...)
3. Publicly announce intention to spin out.
4. Continue internal process of gathering financial numbers and creating business models while concurrently gathering interested parties.  Get Non-Disclosure Agreements in place.
5. Send out investment memorandum that is the results of steps 2 and 4.  This contains an overview of the business along with current and projected revenues, costs, and profit or loss (P&L statements, balance sheet, etc).
6. Recipients begin validating and mulling over the memorandum.  They also begin to formulate an initial offer or bid.
7. Investors that are ready to move to “the next level” provide some real statement of intent along with an initial bid.
8. At this point, some more heavy due-diligence can begin.  This is where more of the “virtual data room” is opened up.  Borland will be looking at the investors' offers under more scrutiny.  Like where are they getting the money, do they actually have what they said, etc... 
9. At this stage, presentations to the individual investors will begin.  These presentations serve to allow the investors to pick our brain and basically “get comfortable” with the team, the business, and the opportunity.
10. Once the presentations are done, the bids are finalized and the Borland exec team will select an investor.
11. Final documents outlining the terms of the sale are then drawn up.
12. Sale is publicly announced.
13. The final bits of due-diligence and work needed to actually close the deal is done at this stage.
14. The deal closes and “DevCo” is separated from Borland.  It will either be an independent concern or part of some other company (strategic investor).

Those are very high-level steps, and certainly don't convey the effort and work that is involved with each one.  Where are we in the process above?  Don't know if I can really say except that it is someplace near the top of that list.  For only 5 weeks of real work, we are doing quite well.

As we enter the 2nd quarter beginning April 1st, the spin-out products, teams, and management will be operating as a quasi-separated business.  We'll still be part of Borland.  We will continue to be responsible for generating revenue for Borland just like they are responsible to be carrying the costs of the business on their books.  The good thing is that it is beginning to look and feel like a separate business.  I can already begin to see some changes in the attitudes and excitement among the dev team members.  Folks are also starting to see this new company taking shape within Borland.  I can certainly start going down the path of comparing it to the gestation of a child within it's mother's womb...  But I won't and leave that to you... :-)

UPDATE: There seems to be some confusion regarding the outlined steps above, both internally and externally.  For reasons of confidentiality I did not intend to imply that these steps are what is being strictly adhered to.  They were merely outlined as “typical of a transaction like this.”  Some steps may be in different orders and some may be skipped altogether.  Also, there are some things I'm simply not privy to so I cannot even comment.  The way I see it is that most folks who do these kinds of things already have an idea, at a macro level, of what steps are involved.  Just like the process of buying or selling a home, most folks are aware of the various steps, yet the ordering and timing of those steps will vary, sometimes drastically, from transaction to transaction.

Things you always wanted to know..

But didn't know who to ask...

Saturday, March 11th, was an interesting day for the “DevCo” leadership team.  That morning we had a chance to sit down with one of the “board” members.  This particular member has been involved with many different companies doing exactly what Borland is currently trying to do with its IDE/Dev-tool business.  This person has many contacts in the Valley and has helped Borland and many other companies with acquisitions and/or divestitures.  In other words, this guy “has been around the block” more than a few times.  Since I'm not sure he wants his identity revealed, I'll simply refer to him has “Ed.“

I have to say that I probably share far more in common with the folks that read this blog than with this “business builder” guy.  Ed's from a different world with a very unique perspective.  In reading a lot of the various comments folks have made to this blog, I have to say that in many ways I share some of their concerns.  However, in light of all these concerns, issues, and “unknowns” I still choose to be positive.  So part of this Saturday meeting was also a chance to actually get the straight story on a couple of burning questions I know many of you have had. I have had those same questions on my mind as well.  There are several main questions folks have been asking surrounding the whole spin-off idea.  I'll try and articulate what this person said as best as I can.

“Why did Borland announce the plans to spin-off its IDE/Dev-tool business before it had a buyer?”

I know you've all had this question on your mind.  Ed's response was that it was simply a matter of practicality and Borland needing to steer clear of running afoul of anything within the new Sarbanes-Oxley (SOX) rules that govern public corporations.  Then on the practical side, trying to do something this big and involving this many people (that's hundreds of people) in secrecy is just a recipe for disaster.  The mis-information, leaks, speculation, and overall exposure to the SOX rules was too great a risk.  In other words, it was far less risky to announce the intentions and work on the details, more or less, out in the open, than trying to keep it out of the press.  Imagine trying to explain both internally and externally why the management is having people work on drawing arbitrary lines between different parts of the business and identifying dependencies.  How do you do that without raising all kinds of embarrassing questions? 

The corollary to the above question is “I've never heard of things being done this way before.  Isn't this unprecedented?”  Ed's answer was a little more vehement .  Of course not!  This kind of thing is done all the time!  There's been a lot of companies that have pre-announced their intention to divest or spin-out a portion of their business.  This kind of thing has been done in the railroad company sector, and other kinds of shipping companies.  The consumer commodities sector is another place where this is also done.  In the tech sector, one such example is expedia.com.  Here's an example of a company, Crown Media Holdings, Inc., owner of the Hallmark cable channel, doing exactly what Borland is doing right now.

“What if there are no buyers?  I've heard that there is no interest.”

Ed's response was even more concise than for the previous question.  Quite simply, if the exec team had not thought there was any value in this business and that it just needed some focused investment, they'd have never even tried to do this.  As far as there being no interest in the business, that was just not true.  There are a number of investors currently going through the NDA signing process as we speak.

“How can you possibly justify accepting anything other than the highest bidder?”

Here is where Ed used selling one's house as an example.  Suppose you have several bona-fide bids in your house.  Say two of those bids were slightly above asking price and one was slightly below.  However, the first two bids had several contingencies in the proposed contract (things like securing financing, escrow periods, sale of another home, etc...) and the lowest bid was a cash offer with no contingencies.  Which one would you take?  If you could afford to wait and weren't needing to sell the home ASAP, you might take one of the first two.  However, you are also taking a risk that the deal may not close and by then the third cash buyer may have moved on and bought another property.  Suppose you wanted the deal to close with minimum hiccups?  You may take the lower bid because of the much firmer chance of the deal actually closing.

A corollary to this question is “How would a lower bid be in Borland's best interest?”  Ed also put this in economical terms;  What if Borland were to retain a minority stake in this new venture?  Wouldn't it now be in Borland's best interest as well to ensure that the absolute best match be found and the proper investments made to better guarantee its chance of success?  Ed also said that he can easily make the case that given the proper buyer and investments along with the retention of a minority stake, Borland could stand to gain more in a few years than with the initial sale!

Those were very frank questions and very frank answers.  Sure, Ed is a financial guy, which is exactly why we need him.  We need someone to help us put together the best business plan and make the best pitch to the investors.  The best way to do that is to consult with someone who knows their stuff.  As an engineer, I tend to not be easily impressed, but I must say that when Ed was explaining all of this to us, I immediately became aware of how little I actually knew.  I was also equally surprised by how much I actually did know!  Much of it is simply common sense.  I was also far more comfortable about this deal because there were folks involved that did know what they were doing.  There are always going to be horror stories and folks who've been damaged by unscrupulous investors.  Generalities will be made.  However, from my purely analytical point of view is that, if the idea of using venture capital or equity investments were, in general, so bad, why is it done so much?  I mean, there has to be an overriding upside to counter all the negatives, right?  Focusing on the negative and fringe horror stories is just like saying that childbirth is a potential deadly and dangerous thing, yet there are millions of successful births every year.  Likewise, jumping in your car and driving to work could be the deadliest thing you ever do, yet millions do it every day.  So, for every failed investment there has to be some larger number of successful ones.  If investing was that risky why do we even have an economy built around creating and obtaining wealth both through hard work and supporting investment?

"DevCo" - One month after spin off announcement

This has been an interesting week in the ongoing saga that is “DevCo.”  In many ways things are picking up speed.  We've gotten approval for many budget items, and are still wrestling with others.  The development teams are becoming engaged in some of the early stages of planning and brainstorming.  We're simply going through the process to vet all the various ideas.  Not only are we looking at what each product needs to do in its respective markets, but also looking into what this new company or venture is going to do as a whole.  As hinted at in my previous post, Tod Nielsen was very interested in some of the major growth ideas we had presented.  So much so, that he actually invited the DevCo leadership team to meet with him independent of the board so he could begin to help us refine the ideas into something that is presentable to the investors.

In this week's “board meeting” we went over all the action-items from the previous meeting and to also pour through all the financial models.  The really good thing is that we're getting to the point where we're able to have credible answers to any of the questions we get from the board.  In cases where they were concerned about certain numbers in a particular model, we already had ideas and plans to mitigate those issues.  In many cases those plans simply hadn't been fully fleshed out or just simply were not plugged into the model by the time we had the meeting.

Within the next few weeks, it looks like they're actually going to be bringing in some “coaches” and “test investors” in order for us to sharpen up and refine the pitch we have to make to the real investors.  In the grand scheme of things, it is getting closer.  I mean that point is close enough for us to begin sweating.., but far enough off that by putting in a solid effort, we'll make it.

As hinted at in the first paragraph, I organized a meeting with all the dev teams that will be coming to DevCo for a “brainstorming” kick-off meeting.  We were able to present much of the areas around which we think there could be significant growth.  Everything from modest, yet solid growth, all the way to way out there high yeild, high risk ideas were discussed and presented.  Everything is fair game... the only thing I tried to stress is that it needs to be in keeping with what the DevCo focus is going to be; All about developers.  Once we were able to present these initial ideas merely as a springboard for more, everyone has been given permission to think big and and about the “what.” Do not worry about the “how.”  We'll be getting back together to allow the individual teams to present their ideas.  I'm pretty certain that we'll find that many ideas overlap, along with several new “wow” ideas.

Stay tuned as we continue to roll out more news and status.

From my perspective, a lot has happened in the past week since my last post.  Yesterday, I finished with the second “Board meeting” this week.  The first meeting was centered around fleshing out the DevCo operating organization, from development through marketing and sales.  We also discussed budgets and expenses.  Throughout a lot of these meetings you hear terms about “R&D spend,” “revenue/expense models,”  “growth strategies,” and several others.  I just sit and listen to the discussions that ensue around these various “terms.”  There was also some discussion about the team that would take on marketing and manage sales.  There’s a couple of terms you may recognize… although they may be strange in the “Delphi” context ;-).

 

The second meeting was far more interesting.  In this meeting we began to present and articulate the overall DevCo growth strategy.  It was actually rather interesting to watch the DevCo board throughout this presentation.  The first part was simply laying out ideas to further invigorate the Delphi, C++Builder, JBuilder, and Interbase markets.  While these were showing solid growth numbers, the board seemed a little apprehensive. 

They were saying, “That looks good, but to really attract the type of investor you’d like, we need to see some growth strategies.  You need to be solid and confident as you present these to the investors.” 

We, the DevCo leadership, smiled. 

Michael then said, “It’s coming.  You’ll see it on the next slide.”  

That was when Tod began looking ahead in the copy of the presentation and exclaimed with excitement in his voice, “How do you get to that number?!”

As we proceeded to present the ideas, the board began to perk up.  They shifted in their chairs, leaned forward and immediately the tone of the meeting began to brighten.  Suddenly, ideas on how to better organize and present these ideas began to take shape as the board started to provide even more feedback.

One board member said, “One of my buddies heads up company XXXX, and you guys should really talk with him for some advice.”

Then other board members chimed in and said things like, “You should also look at company XXXX since they did something very similar in the XXXX space!”

It continued like this throughout the rest of the meeting.  Once the formal part of the meeting was over, we had some lunch served since the meeting was over the lunch hour.   As we were sitting down to eat, Tod comes over to Michael and myself and says, “One of the things we did at XXXX was….  You might want to think about incorporating that kind of model into this.”

It was great to see that we'd engaged the execs at that level.  We now need to continue to define and refine the ideas to present as compelling of a story to the investors as possible.  Listening to the advice and guidance from the DevCo BoD will be critical in making this all happen.

 

Just to re-iterrate that one of my intentions is to keep the community informed that we're still running full tilt to make this work.  Another reason is to continue to highlight that and express that the existing Borland management is committed to make sure this is a win-win scenario.  Of course Borland wants to maximize their return in this.  I want folks to understand that in order to do that we have to make this business as attractive as possible for the type of investor we're looking for.  I think that is a key point.  It is in the best interest of all involved that we get the right buyer, in whatever form they take.