est and Entrepreneur’s Disease
It was a bunch of people heavily into est.
–Jim Warren, computer publishing pioneer and founder of the West Coast Computer Faire
Millard was busy throughout 1978 creating new companies. IMS Associates, the IMSAI parent company, spawned ComputerLand, Faber’s franchise operation. Millard also went to Luxembourg for several months to set up IMSAI Europe, a separate corporation that would buy computers from the California operation for resale in Europe. As a result of his frequent absences, Millard failed to notice the dramatic tailspin that IMSAI was in.
Overreaching
IMSAI’s high-handed stance regarding customer support was finally starting to hurt the operation, and the company had targeted the wrong market. The prevailing notion was that IMSAI was selling computers to serious business users. However, the quality of the IMSAI machine, like that of every other early microcomputer, was erratic. Someone who bought it for strictly business purposes was likely to be disappointed. The IMSAI 8080 had a distressingly high failure rate, and the instructions that came with the machine, having been written by engineers, were opaque to anyone who tried to use them. Bruce Van Natta’s tongue-in-cheek summation of IMSAI’s attitude toward documentation was, “You got the schematic? Then what’s the problem?”
No software existed for even the simplest business applications when the IMSAI 8080 was first released. The computer was large, unwieldy, and suggestive of nothing so much as a pile of electronic test equipment. It took a huge leap of faith to believe that businesses would rush to install this assemblage in their offices or would entrust their business records to this unproven, unreliable artifact. Therefore, most “business” users were actually hobbyists who only hoped to use the machine in business and tolerated its deficiencies because they were learning how it worked and having fun doing so.
Eventually, IMSAI’s inadequate customer support proved too aggravating even for the most tolerant hobbyists. Word spread fast throughout the hobbyist community, whose opinion IMSAI disdained. Sales soon started falling behind projections, and the gambit of funding current expenses with orders for future products began to wear thin.
When Millard was away, Wes Dean was in charge. Dean was IMSAI’s president, yet he was beginning to feel despair for the company’s future. Looking beyond the day-to-day crises, Dean saw that IMSAI was failing to address critical problems with its support, image, and cash flow that would affect the company in the long term. Dean finally gave up and left and was succeeded by John Carter Scott, who presided over the layoffs that came in early October 1978.
IMSAI’s financial problems reached crisis state in the fall of 1978, and it became clear to Scott that drastic steps were necessary. The company had enough orders for machines and repairs to keep everyone busy, but meeting payroll was impossible. In October, Scott initiated the first in a series of layoffs. Building Two suffered the most. When Todd Fischer, who had moved to a key position in the service department, learned that Nancy Freitas would be cut in the layoffs, he resigned, leaving an unanticipated gap in that already struggling department.
The VDP 80 Mess
For IMSAI, Fischer’s chivalry could not have been more badly timed. The company had started shipping the new and untested VDP 80, and the VDP 80 machines were coming back almost as fast as production could push them out the door. The downsized service department struggled with a variety of defects in the machines, while the sales team sold more and more of the defective products. Because the repairs were done under warranty and were often extensive, the company was making very little, if any, profits on the VDP 80. IMSAI had two options: send the design back to the drawing board and stop selling the computers until the design problems were solved, or continue selling them and repair them all when they came back.
IMSAI chose the latter option.
Releasing the VDP 80 prematurely was a bad decision, but not inexplicable. Except for Killian and the engineering department, the folks in Building One did not believe that the VDP 80 had really serious problems. Expressing such a belief would have been tantamount to an admission of failure. IMSAI’s culture wouldn’t allow that. This attitude and the single-minded focus on “The Goal” eventually caused the company to lose track of who its customers were and the very nature of the market. And the relentless positive thinking that had blinded management contributed to the decision to release the VDP 80 too quickly.
Meanwhile, the numbers were heading in the wrong direction. In April 1979, the company took in $20,000 more than it paid out; the following month it took in $12,000 less than it paid out. By June 1979, Millard was looking for investors, but by then it was too late. No one was willing to sink money into his struggling company.
Earlier, when IMSAI was more financially healthy, Millard had turned down several investment offers. He was not alone in his reluctance to take on investment capital. Many early microcomputer executives feared that selling even a part of their companies would cause them to lose control of their organizations. They abhorred the prospect. That thinking came to be called “entrepreneur’s disease,” a company founder’s determination to never release any corporate control to anyone for any price. As he neared the end of his reign at IMSAI, Millard began to have regrets and wished he had accepted a little investment money. The $2 million offered by one would-be investor who hoped to turn a profit would have come in handy in 1978.
Charles Tandy, among others, had made a foray into investing in IMSAI. Tandy was head of the nationwide chain of Radio Shack electronic-equipment stores. He didn’t want his company, essentially an electronics-distribution firm, to venture into building microcomputers, but he was interested in carrying them in his stores. Tandy could either buy computers from another company or buy an entire computer company outright. IMSAI was the biggest seller in the field and seemed the logical choice. The day that Bill Lohse observed Tandy walking into Millard’s office he knew immediately that the discussion going on inside would be crucial to IMSAI’s financial state. It distressed him to learn that Tandy had wasted his time in talking to Millard and that the companies would not do business together.
Millard now thought IMSAI’s cash-flow problem was serious enough that it required his presence in San Leandro. Soon, Bill Lohse was packing for Luxembourg to oversee IMSAI Europe.