Pat Sullivan Interview

If succeeding as an entrepreneur is hard, then succeeding as an entrepreneur multiple times is even harder. Few entrepreneurs are able to repeat or improve upon their prior success.

One exception is Pat Sullivan, former CEO of Interact Commerce Corporation.

To date, Pat has created two successful products and companies - Act and SalesLogix. Act is the product that created the Contact Manager category and is the leading brand in the category, with over 3 million users. SalesLogix is a leading middle market sales automation solution, with over 3,000 customers, and was recently sold to Sage Software for $250 million.

I have known Pat for 10 years and, in my conversations with him over the years, have heard Pat make numerous references to "pain" when he explained how he generated, evaluated, and communicated ideas for new products and services. As a result, I decided to have a frank discussion with Pat about both his successes and his failures.

Chris: Tell me the story of Act. How did you come up with the idea? Was there an event that led you to come up with the idea for the product? What were you doing at the time that you came up with the idea for the product?

Pat: I had no intention of creating Act! I was a computer salesman. Selling computers every day. Selling Lotus 1-2-3 and dBase and software along with it.
     I had, in the process of selling, lots of problems. I had pain. That's the best way to say it.
     Somebody would come in to the retail store and say "I want to get a quotation on a computer" and they wanted to see it 3 or 4 different ways. They would say "I want it with an Okidata printer, I want it with an Epson printer, I want it with color, I want it without color, I want it with 640 KB of memory." So there were lots of different options.
     Trying to respond to those requests manually was impossible, and it would eat into the time that I had to sell. It would just be an enormous amount of work. Hours and hours spent pulling together  quotes.
     So the first thing that I did was to start to fool around with Lotus 1-2-3 and try to figure out if I could come up with a way to do quotes - build a quotation system. And over a period of a couple of months fooled around with it and found that I could come up with a way that would work for me where I could, with a couple of clicks of keys, enter what it was that the customer was looking for, hit a button that would produce a quote for me telling me exactly what my margins would be, that would allow me to discount and know what my margin would be after discount, play all kinds of what if games as to how I was going to price it. What if it included this? What if it included that? What if it didn't include that? Play all the what if games. And then print, on letterhead, something that I could give to a customer. That was actually over a period of several months that it took me to get to something that was truly useful.
     Now, as part of that I obviously learned how to use Lotus. Actually I was using Lotus Symphony at the time because it had come out and had a more powerful language. It allowed me to do more.
     One of the last things that I did was to put in something that could help me track who my contacts were and what I last said to them and when I need to call them back and what is it that they are interested in. It was contact management. Act really came out of a need that I had that was actually secondary to the quotation thing.
     The thing is though, that Act and the contact management part is very generic. That pain was pain that everybody felt. The quotation thing is something that was not. Everybody's method of quoting their products or their services is not generic. So there was no way to create a generic quotation product.
     That's still true today. If you look at the configurator market there's just no way to produce a generic quotation package. But, the thing that was generic was this whole notion of tracking contacts and knowing what it is that we talked about, what is important to them, and what to do next - scheduling my activities. It was that really that started me on the idea. When people started to see what I had they would start to say "Wow. You could make this into a product."
     Of course, you really couldn't because it was just a Symphony template. I tried to figure out whether I could sell this as a Symphony template, but Symphony had all kinds of problems with it and templates just don't go over. It had to be a saleable product.
     So basically what happened was out of my trying to make my own pain go away I ended up with something that served as a prototype of what eventually became Act. What we did was utilize that as a prototype, went out and raised $100,000, and hired a couple of real programmers to begin to rewrite this prototype thing that I did but doing it using a very commercial language in a very commercial way.
     Some 10 months later we shipped the first version of Act. But the first thing I did was not contact management.

Was there a moment that the idea hit you for this or was it more of a building up of frustration process?

It was a very gradual thing. I started out kind of with a feeling of "I'm selling these computers to people and I don't have a real reason to use them." And I thought to myself "I wonder if there is software for salespeople?" I actually went out and tried to look around and find some and found that there actually were. There were a couple of programs that were kind of early forerunners of Act - very early forerunners - a lot of it dBase stuff. But I would look at it and then I'd say "Oh, this is awful. This is terrible." This was just not any way that I visualized how I would want to use something. It just wasn't productive.

What was so bad about it?

I think mainly it was dBase. DBase imposes a user interface and there are really only a few ways that you can build an application using dBase as the tool. They generally were very unusable. They were not user-friendly. They were a menu. 1 - Find Customers. 2 - Send a Mailing to Customers. There was no sense of a production system that you could use while you were sitting at a phone making phone calls and looking up things and then say "Write a letter" and then boom out comes a letter. There just was no usefulness. It just wasn't useful. It didn't make the pain go away.

Can you talk a little bit more about how you made the transition from having this tool for yourself to thinking about it as a product. Was there an insight that you had or did someone else goad you to take the next step?

Well, the process was gradual. I had no intention of building a product or building a company. I was really just kind of messing around and seeing if I could learn how to program. Could I use this for something useful? I knew I had a lot of routine things that I hated to do and so it just started that way and then, once I got into it, it became really an obsession. I became obsessed with trying to figure out how to use the computer to make routine things that I hated to do go away. Make them be a non-issue. Make myself far more productive than I had been before. I hate routine. Filling out an order. Getting out another order sheet. Filling out the order for the ninth time that is essentially the same kind of order that I filled out the eighth time.
     I just hated doing that. So making it became an obsession.
     Once it became an obsession I began to say "OK, this works pretty well, but how can I make it better? How can I make so that it's even faster?" And then other salespeople that I worked with began to see what I was using and what I was doing and they asked "Can I use that?" I said "Sure, why not. Here." They would begin to say "Hey, it would be neat if it could do this and it would be great if it could do that".
     It was over a period of about 2 years that this prototype developed that was not only being used by me but by about eight or nine other sales reps that I worked with.
     It was during that period of time that my boss, who was a good friend, called me into his office and said "Sullivan, I know what you're doing. One of these days you are going to walk into my office and say 'I quit. I'm going to start a software company'." That actually was the very first time that it occurred to me that I might be able to do this. He actually planted the idea that "Gosh, maybe this could be a product. Maybe I could sell this and make a living." But it was really almost a year later, after almost constant refinement and development - and that's when the contact management stuff came - that I walked into his office and I said "Tom. Remember a year or so ago you said that I was going to walk in here and tell that I was going to quit and create a software company? Well, I'm going to do it." And he said "Well, I've been waiting for you." So I left in good graces with him and he was a big fan - in fact is still a big fan. He and I are good friends today. But he planted the first seed.
     I was a young guy. I had young kids. I had no real idea of how you start a company or anything. I knew how to sell. General management was certainly not in my background at all. So that's really how it kind of went from the germ of an idea and eventually it became a product and a company.

Why do you think people invested in the idea? What do you think they saw that made them think there was something there?

I'll never know why the first guy who put in $100,000 did so, because he did so without a business plan. We didn't know him personally. He was a friend of a friend whom I sat down and met with and spent a day, day and a half with demoing what the Symphony template could do. Just talking through some of the plans and what we thought we were going to be able to do. Basically, he and I came to an agreement of where "If I put in $100,000 how much of the company will I get." I had no clue what that should be but, as it turned out, it was a fair amount. It was a fair amount for him. It was a good deal. It was really on the strength of spending a day and a half with him, showing him the stuff. He became convinced that we had something, though we weren't sure. We weren't sure what it was we had.

How did you get the idea out there? How did you sell it? How did you market the product? Did you use lots of advertising? What tactics and strategies did you use?

Once we got the product build, we raised additional money as we were building the product for marketing purposes. As the product was coming together it was easier to show it to people and then say "Hey, this thing could be big. This could be good." So once we were ready to launch, we still didn't have a lot of money. We did not have the kind of money necessary to do a massive advertising campaign, so what chose to do was to advertise minimally. As much as we could, but it was a very minimal amount.
     What we did was we totally focused all of our energies, all of our resources on the retail salespeople. In other words, computer retail stores. At the time, if you were going to buy a computer or software, you were going to walk into a retail store. There was no mail-order. There was no Dell. There was no Web. The only place that you shopped for a computer was the local ComputerLand, the local Entrée dealer, the Sears Business Systems, on and on and on all over the country. There was a growing network of computer retailers, so what we did was go from dealer to dealer and showed Act to the salespeople and we sold it to them for $50 a copy. It was a $400 product, and rather than giving it to them for free, we believed that unless they spent the money on it they likely wouldn’t use it - if we just gave it away for free. What we did was go from retail store to retail store, we demoed the product, and we got retail salespeople to use it and to be aware of it and every time someone walked through their door and said "I'm looking for something that does this and that." - they used to sell them dBase or something like that so that they could build their own - instead they started selling them Act. We called that the "automate the automators" program.
     We automated the automators.
     It was a hugely successful program and then became even bigger as a program once we finally got big enough to where the distributors - Ingram, Merisel, and SoftSell - started to believe that "Hey this is a product that we should be selling." So they took us on for distribution. They would host what they would call "Soft Teaches". SoftSell would put on a Soft Teach and they go into a region and they would do training for all of the salespeople in that local region for all of the retail stores and they would invite us to go and we would put on one presentation after another for 20, 30, 40 or 50 people at a time and we would sell it for $50 a copy. And salespeople bought it by the hundreds. We would go to these things and we would just sell hundreds of copies and then naturally the salespeople would use it and start selling to their customer and so, over a two-year period, it began to really mushroom and so some 4, 5, or 6 years later we were an overnight success.

That's little different than the dot-com stories where they try to do it in a year.

Oh right. I mean it was hard work. In addition we went to Comdex shows and PC Expos and any place where there was going to be a lot of people who were excited about computers. Obviously they were the really early innovators, and we would sell to them at as a cheap a price as we could, trying to cover our costs for being at Comdex or PC Expo.
     It was word of mouth. In fact, we were very conscious that some 60 to 70 percent of our retail sales came from word of mouth. One person telling another person.

Do you remember how you would sell the product? How you would do the demo? Was there a certain way that you would demo it?

Oh yes, and it really goes to your pain thing really closely. We knew how to demo it in 2 or 3 minutes and get somebody to buy it. I mean literally 2 or 3 minutes and they'd buy it. It was almost tempting to say "Oh, no no you can’t buy it. You haven't seen the whole demo." Because we liked to show the whole product. But there was one point where we knew we had them where we would just simply say "OK, well this is like an index card, and the index card has a front and a back." Because Act had fields on the front and fields on the back of the "card". We used the index card as a metaphor because a lot of salespeople were using index cards. And I would say "Let's say you're talking on the phone with somebody", so you say 'Phone' and it would actually come up and pretend to dial the phone. "Then let's saying you were talking to a guy and the guy says 'Send me a letter about that' and you would look at the guy and say 'Don't you hate it when they say that because you know how much work it's going to be to write a letter. Well, let me show you what we do with Act.'" And we would say "Write a Letter" and boom, there would be a letter, already filled in and the word processor would come up with their name and address and everything already filled in. And all you would say is "Print" and boom, here it is. Here’s your letter. And then it would print the envelope.
     And they would say "How much is this?" It's $395. "OK, great." Or there's a special here at the show. It's $100. "Great here's my credit card." 2 or 3 minutes, that's all it took.

Why do you think Act succeeded relative to GoldMine, Maximizer, and those kinds of products?

I think there were a couple of elements. A lot of it was our real early focus on and determination to dominate retail. And this whole "Automate the Automators" program made Act fanatics out of the retail salespeople. These people just as easily could have been GoldMine fanatics. But once you learn a product it's very hard to pick up something else and the way they do it. We approached contact management differently than the way that GoldMine did, and so once people learned Act it was really hard to change. We were determined to totally dominate the retail shelf, and we did. Everything we could to defend once we were in and once we became the dominant player. Anybody who came we defended to the hilt. No matter who it was or what it was we just defended things to the hilt. I think that was a lot of it. I think the product has a cleaner and kind of does a better job of anticipating what it is that somebody wants to do. I think that is certainly an element. It's simpler than GoldMine. GoldMine just kept globbing features on and they had layers and layers and layers of menus and functionality. It just was very complex. Act kind of stayed the course and stayed a simple product. We added features, but I think that was a lot of it. We also did a good job marketing the product and positioning the product. I think our advertising communicated the message. I can't point to any one reason.
     Actually, Ken Dulaney, who's a Gartner Group analyst who now covers portable devices and PDAs. He used to cover sales automation and contact management at the Gartner Group. I went to visit him after I had sold Act to Symantec and he and I had lunch together. We got talking about what made Act so successful. What really made it take off versus Goldmine, Maximizer, and the other guys. I said "I think it was the user interface. I think it was this. I think it was that." And Ken said "Nah, that's a bunch of crap. It was that damn demo that you guys did over and over and over. Everywhere you went. Every Comdex, every PC Expo you did the same demo, and you just killed everybody with the demo." And I thought "Well, that's an interesting perspective." From his perspective we just kind of out-worked them and I think there may be some truth to that. I really don't know.

Let's switch gears to SalesLogix. Where did you get the sense of that opportunity? How did SalesLogix come into existence?

SalesLogix really was obvious. When I sold Act to Symantec, we knew Act needed to move up-market. We knew that Sales Automation was replacing Contact Management, just from people who were asking us to put more features and functionality in Act. We told Symantec where the product ought to go. It needed to go upstream. It needed to go full-scale Sales Automation. And that's where they said they intended to go. But they really did not have any of the infrastructure and processes in place to create a product like that and to take the product in that direction. At the end of the day Symantec never should have bought Act. The reason they bought Act was that all the rest of their Windows products were late. Their salespeople really didn't have much to sell. So they went out looking for Windows products to sell because they had to keep their salesforce busy. And so even thought it didn't really fit them strategically, they just needed another product to sell.
     And so, after my 2-year non-compete expired, I just kind of went back and went "Well, has Symantec done this? Obviously not. Do I think they are going to? No, I don't think they're going to. Is anybody else doing this?"
     It was just obvious that between Contact Managers and then the new stuff on the block, the call center guys, the customer support guys, and Siebel - who set out to go after enterprise sales automation and went after Brock and Sales Automation Inc. - that were was this big stuff at the upper end and there's contact managers and there's nothing in between there.
     So to me it just appeared that there was a huge hole in the marketplace. And basically what we need to build is a grown-up Act. The same kind of Act ease of use, the same kind of Act functionality, but that could work for a business. That a business could adopt across its entire business and run on a network, obviously, and be true Client/Server. It was just an obvious huge hole to me.
     A lot of that was because I got the dozens and dozens, the hundreds of calls from Act customers when I was CEO of Act. I would get calls all the time from people saying "This is pretty good but I wish it could do this. I wish it could do that." The surprising thing to me was that in 2 years nobody did anything. I assumed that in 2 years that opportunity was going to go away. It was just sitting there plain as day. It wasn't hard to assemble a team who also saw it to go out and raise money from people who also saw it. It was really easy. In hindsight, compared to Act, SalesLogix was easy.

Why was it easy? Why did people invest in SalesLogix so willingly? How did you sell it? How did you spin it?

A certain portion of it was because I had been successful before building up a company and selling it. VCs think that you can do it again. Although I think the track record out there is not so good. For many people in their second or third try it doesn't work. But in this case it was one that I already did. It was easy I think for people to believe that I knew what I was talking about. It was out of real experience. It wasn't market research. Myself and a couple of the other founders of the company had looked at this thing and all they had to do was look us in the eye and see that we were on to something. That's why it was easy.
     But, it's never easy building a product, however. I wouldn't want at all to minimize the difficulty of building a product. Getting from the vision to the product is hard. No matter when you do it. No matter how you do it. It's hard. It's the whole process of managing art and science. The art and science of engineering. It's hard. And it was hard building SalesLogix. But, we had a pretty good idea of what of the whole that we wanted to sell.

Why do you think that you succeeded the second time around when so many other people fail? Tell me about your experience, your approach to the SalesLogix project that led to it to be a success.

I would not want to diminish the team or the effort involved in SalesLogix, but to some degree in this case a lot was in our favor because it was an extension of the success that we had already had. As opposed to a second separate, different success. Had I decided to create a Human Resources package, that I think would not have been an incredible success. Because I know nothing about HR.
     This was really building off of what we knew. We knew this marketplace. But it was still different. We were moving into a different place. But there was a lot of ground that we had gone over before. We had done a lot of scouting in this territory. So, the fact that we would be able to go in and stake a claim and make something work isn't as much of a surprise as it would have been had we gone into a brand-new territory and been successful.
     To a large degree it was knowing where people's pain was. We knew there was a tremendous amount of pain being felt by Act users who want to run it in a company and network and make it all roll up into a single database. We knew there was a tremendous amount of pain.
     We also knew that we likely could build a rather large network of VARs, of resellers who were quite anxious to sell a product much more sophisticated than Act. That was priced much higher than Act. And that would be much more sophisticated technically than Act.
    That didn't exist either, but it wasn't a major leap to imagine that the need was there. That the network was there. That we could grow a network.
     And that was exactly what we did. 

One last thing that I want to talk about is Interact.com. We've said that you had two successes and then there was Interact.com. What happened there? What was the story of Interact.com? How did the idea come about? What made you think that there was something there?

Basically, Siebel had launched Sales.com, Salesforce.com had come out, and Upshot.com had come out. The concept of the ASP, on-line sales automation kind of thing was evident. And there were a number of bets placed by competitors. So we had that data. Also, we had the obvious mania, at least in hindsight a mania, surrounding the whole dot-com world. You weren't cool unless you were dot-com.
     In looking at where is Client/Server going to go, we were very conscious of the dot-com phenomenon. Certainly we were looking at the way that the stock market was valuing dot-com kind of applications. We came to the conclusion that the future really was in the dot-com, Internet-related kind of application. Everybody was saying that that was the way that things were going to go. You couldn’t pick up a paper or magazine or an analyst report. Everywhere you went that was what you read. Everybody would question you "What are you doing in this area?" So there was tremendous pressure.
     And then another catalyst was becoming aware that Symantec was interested in selling Act. At first I had very little interest in acquiring the Act brand and the Act product. Just because I knew it was flat revenue and of course everybody was valuing growth at the time. So we weren't terribly interested in it.
     But the more we thought about it, the more we realized that if we could build an on-line community that provided Contact Management and Sales Automation and integrated it with dot-com kinds of stuff - commerce and travel and related things. The idea of starting with a 3 million person user base - eyeballs as they were called - was very compelling. When you start to value what Symantec wanted for Act and instead turned around and valued it on the basis of eyeballs and users and a subscription-based service, what they were valuing at $70 or $80 million, we believed could have been worth billions of dollars in terms of market capitalization.
     In some ways you could say that the whole dot-com mania seduced us into going after that thing. So we acquired the Act product and attempted to build a product in the dot-com arena and, as we were doing that, the entire dot-com mania was coming to a close. It was collapsing in upon itself. By the time we launched the product, and I would say the product was fair, it wasn't great, in the month, month and a half experience that we had having it live, the dot-coms were just imploding. For a variety of reasons, including our own inability to be able to fund out of profits of the Act or SalesLogix sales or out of monies that we could raise through the public market, which became rapidly non-existent because you couldn't raise money for a dot-com all of a sudden, we made a decision a year ago to shut it down.
     And in hindsight we acted correctly. We acted early. Because I said to the company at the time that I believe that over the next 6 to 8 months we would see carnage. Just total, 100% carnage in the dot-com arena and that was right on. There was no come-back. It was a very quick death to that whole thing.
      Now, I still believe that had we not approached it with the dot-com enthusiasm, had we approached it as just another product that was for a specific target market and solved their problems and we hadn't spent do much money doing it that we jeopardized the company as a whole, that we probably had the makings of a marketable product, although what we went live with was not.
      In my opinion it did not make any pain go away. I knew it about two months or so before it went live. I knew that this wasn't going to make any pain go away. But at the time it still didn't matter because it was dot-com.

People weren't talking about pain.

That's right. They weren't. And frankly, many decisions were made by my management of the Interact.com product that were based upon being dot-com versus solving a real problem. Specifically, solving the problem for an Act user who would likely pay money for your solving that problem.
      What was cool was done. What was practical and of worth and of value was relegated to - well, they didn't do it. They just simply didn't build it because they were building what was cool.
      We shipped something really pretty cool, based on dot-com standards. But based on making Act user's lives better we really missed the mark. We missed the mark big time.

What do you think is going to happen with the whole dot-com thing? The Internet? How do you see that going? How do you see Interact Commerce going forward with 2 strong brands, Act and SalesLogix.

I think the Internet is still an incredibly fabulous tool, but it is still just a network. It's really just a network. The applications that take advantage of that network and solve very significant and serious problems for people are going to be fabulous applications. I believe the Internet has huge growth in front of it, but it is nothing more than a tool. It’s a technology. It is not the end-all be-all. It's not a business. It makes pain go away in a sense because I can connect to that network from anywhere in the world.
     This was made obvious to me when I was in the U.K. when the World Trade Center was hit. I couldn't make a phone call to the States to tell my family that I was OK, but I could log on to a local number in the U.K. and I could get into e-mail and send messages to anybody and since they were on-line we talked over the Internet.
      It’s a fabulous tool, and will continue to be a fabulous tool, but it's not really a business per se. It was impossible for the whole dot-com model of everything's free, everything's free to work.
     And yet many of us convinced ourselves that it could. and that's the amazing, surprising thing about it. We convinced ourselves that it could.

Why do you think people convinced themselves that it could work? Was there a shallower motivation there?

Yeah, the stock market and IPOs and venture capital and the greater fool theory. You know, there's always a greater fool. If you bought it today at $90, there'll be somebody tomorrow who will buy it at $100. And I'll sell it to them.
     It was stock market related. I mean it was definitely stock market related. That's what created the mania, really.