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What Every CEO Can Learn from Informix's Failed Acquisitions
By Steve Martin, Author,
As President, CEO, and Chairman of the Board, Phil White and Informix Software were synonymous. At the height of his popularity he was recognized as one of Silicon Valley's most brilliant business leaders. Today, many consider him a black mark upon the software industry and the person responsible for one of the largest securities fraud settlements in Silicon Valley history. In this article we review how Phil White broke his own rules regarding acquisitions and how they contributed to the downfall of Informix.
If you had bought $32,000 worth of Informix stock at its 1991 low you would have made $1 million in just two short years. The incredible success of Informix Software and its growth to $1 billion in sales by the end of 1996 should rightly be credited to Phil White, Informix's President, CEO, and Chairman of the Board. Although White engineered one of the most stunning turnarounds in Silicon Valley history, he was also the person responsible for its shocking collapse in 1997.
In my new book titled The Real Story of Informix Software and Phil White: Lessons in Business and Leadership for the Executive Team, I explain how the two-time recipient of Financial World magazine's "CEO of the Year" and the NASDAQ "Legend in Leadership" award winner wound up in prison. In this article, we'll focus on the important lessons from Informix Software's failed acquisition strategy. Given the merger-mania of today, the story of Informix Software and Phil White has never been more relevant.
The Informix and Innovative Software Merger Nightmare
In 1988, Roger Sippl, the founder of Informix and CEO at the time, merged his Menlo Park, California company with Kansas-based desktop automation publisher Innovative Software. While the merger made Informix the tenth largest publicly owned packaged software company, it was also the catalyst that brought Phil White to Informix. The merger had been far more difficult than expected. Sales and marketing costs skyrocketed, product development was in disarray, and no one knew who was really running the company, California or Kansas.
Innovative Software was the publisher of desktop automation software products Smartware and Wingz. Smartware was an all-in-one word processing, spreadsheet, and database for DOS. Wingz was a state-of-the-art graphical spreadsheet that could access back-end databases via structured query language calls. Informix had high hopes that the merger would provide the company with end-to-end products from the front-end desktop to the back-end database. Ideally, Innovative's retail channel sales strategy would enhance Informix's direct sales strategy. However, this sales dichotomy created far more problems than opportunities in reality.
Unfortunately, Innovative's flagship product, Smartware, was past its prime, and a subsequent release to match Microsoft's and Lotus's product capabilities was more than a year late. Ironically, the sexy 3-D graphical Wingz spreadsheet that so much hope was pinned on was available only on Macintosh systems. Since Windows had become the corporate standard, Wingz was moot from the start. When a port for Windows was finally released more than a year behind schedule, the graphical capabilities of Excel matched those of Wingz.
The merger was a complete clash of cultures and a source of friction as executives from both organizations served their different agendas. As a result, two separate companies were running under the Informix name, a technology-driven UNIX company in Silicon Valley and a PC-focused retail publisher in the farm belt. One former Informix vice president said, "There was a big rift between Lenexa and Menlo Park. You had people in Lenexa who thought the people in Menlo Park were strange because they were Californians. And there were people in California who thought the people in Kansas were country bumpkins." Informix was in chaos and the bottom line was impacted. While sales grew 51 percent in 1988, profit fell 84 percent to its lowest mark in four years. The company also announced a loss for the fourth quarter of $2.6 million.
In 1989, Phil White was brought in as CEO to take action and fix the merger mess. He tried to frame the merger in the best possible light at the time when he said, "Good move, poorly executed, but working out." But no matter how it was spun, the merger cost the company much pain, money, and embarrassment. An article in Software Magazine said of the merger, "Not only did Informix buy a spreadsheet that couldn't compete against Excel and Lotus 1-2-3, but it tried to do a 'friendly" merger with Wingz parent company, based in Kansas. This resulted in a shuttle diplomacy between Informix HQ and the heartland that would have even taxed Henry Kissinger. By the time the hayseed had settled, Informix's stock was in the toilet, its management in disarray, the lawyers were circling like vultures, and its customers and partners were nervous."
It was a critical time for Informix because the company had lost momentum from the merger. On Phil White's second day on the job as president, he cut 15 percent of the company's employees. The majority were from Lenexa or associated with the desktop products. More importantly, he reorganized operations, clearly placing California in control.
White refocused the company back to its UNIX roots. An industry analyst from the investment advisor firm Hambrecht & Quist said, "White has refocused Informix and instilled the sense that Informix is a database company that sells office automation tools, not the other way around." With a renewed single-minded focus on the Unix database market, Informix would exceed its revenue goals for twenty-eight straight quarters.
Phil White Breaks His Own Rules Regarding Mergers
Informix's competitor Sybase had adopted an aggressive acquisition strategy, and the effects of its acquisition of Gain Software in late 1992 sapped the company's focus. Gain was a developer of multimedia application development tools, and the merger's goal was to be able to offer tools that were commensurate to those offered by Informix and Oracle.
When the Gain acquisition proved to be a bust, Sybase purchased Powersoft, the maker of the powerBuilder development tool. On the surface, the Sybase acquisition of Powersoft looked like a winner. A natural synergy seemed to exist between the two companies and there was a high hope that the $943 million marriage, the second-largest software merger at that time, would level the playing field against Oracle. However, the merger actually helped Informix. The Powersoft merger defocused Sybase from its core UNIX database market as it struggled to determine whether it was a database or tools supplier.