The glass wall in the lobby of the Unisys Corp tower at 1,000 Marina Boulevard, Brisbane, California reads ‘USoft Worldwide Headquarters’. It suggests the heart of a global software empire, one strategically centered between San Francisco and Silicon Valley. And if all had gone to plan, inside that HQ several hundred people would be working today for a $100m application development software powerhouse, the proof that entrepreneurial acumen can be seeded, nurtured and matured by a mainframe-era computer systems giant. But within the USoft Headquarters, just 11 people remain, and they have been told they will be gone by March 31. Not even the senior management team is present. It is 3,000 miles away in Blue Bell, Pennsylvania, where Usoft Corp’s owner, Unisys, is presiding over a final, painful chapter of what must be one of the most catastrophic technology adventures in the history of the software industry.
By Kenny MacIver
In 1995 Unisys acquired TopSystems International NV (CI No 2,602), a Dutch developer of client-server software formed in 1987 by ex Oracle employees, with annual sales at the time of some $10m. It renamed the company USoft – actually the name of a TopSystems acquisition from the previous year. But over the following two and a half years, Unisys allowed USoft to burn its way through $70m in free-flowing funding, acquisition payments and the cash it generated. The object was to create a $150m, Wall Street-listed development tools company over three years, but there is now nothing to show for the efforts and the vast expenditure. The story does not begin in 1995 with the founding of USoft, but in 1994 when ailing, computer systems and services giant Unisys started looking for new avenues of growth. At that point, CEO Jim Unruh and his operational number two, Alan Lutz, called in a seasoned software industry executive to help them formulate a plan for grafting entrepreneurial skin onto the tired computer firm. Mike Seashols had been the driving force behind the Oracle sales team during the 1980s, a visionary always able to see where the greatest potential for the company and its products lay. Seashols was given the green light to go shopping for application development software. He focused most of his attention on European products which had a strong reputation in their national markets, but which had yet to make it in the US. After looking at Nat Systems and Four Seasons, among many other companies, Seashols, through a mutual friend, was introduced to Max ten Dam. Over seven years, ten Dam had built TopSystems International into a solid business centred in the Benelux region (Belgium, The Netherlands and Luxembourg), focusing on large corporate customers in need of application development expertise and tools. For Seashols, TopSystems was the ideal vehicle for Unisys. Revenue growth at the Naarden, Netherlands-based company was on a sharp upward curve, growth underpinned by five years of unbroken profitability. It had achieved that through a classic high-end tools strategy. Corporate users of the TopSystems product were required to fully embrace its idiosyncratic, but extremely powerful approach. That meant the software component itself accounted for only a fraction of revenues – around 10% – with the rest coming from related implementation services.
Plan to grow gangbusters
In February 1995, Unisys concluded its deal to buy TopSystems for an initial $9m, with further results-based payments due that could push the total to $20m. Having gone this far in his consultancy role, Seashols could not resist the temptation to take the CEO’s chair, and he threw himself into ramping up the company at astonishing speed. Profitability would be put on hold as the company expanded in the US and elsewhere in Europe. Also key to the agenda was ploughing money into R&D in order to turn what was acknowledged as a consultant’s tool into a product and make it ready for the US market. With its eye on a market forecast to be worth $4.4bn by 1997, Seashols quickly built up a sales force in the US of around 60, and exhibited a confidence in its staying power by signing up long leases on large offices in half a dozen US cities and in countries around Europe. The plans assumed we were going to grow gangbusters, says David Dawson, former US product marketing manager at USoft. By US standards the spending at home was relatively modest. The excesses were in Europe, where little control was exerted. The Dutch management had lived off retained earnings. They had never had VC money, says Seashols. Now they were like kids in a candy store. Sales staff in the UK, Germany, France and in Benelux were hired on high, fixed-income salaries, with top of the line Jaguars, BMWs and Mercedes dispersed freely amon them. There were plenty of other signs that spending was running wild. USoft Germany, for example, with an established 2,000 square feet facility in Frankfurt, suddenly added a second 4,000 square feet office in Dusseldorf, after a newly-appointed country manager decided he preferred to work from his home town. They were spending money like drunken sailors, says Alf Goebel, a former sales manager at the company. Nevertheless, the company was locked on a target of 100% growth for its products. But quickly Seashols realized that the infrastructure phase was not being accompanied by sales. It never even started to take off in the US, says Goebel. The French office was opened then closed over 12 months and the UK and Germany were disappointing. One year in, USoft’s headcount had hit 250 (62 in the US) and the company was burning its way through $9m a quarter without any evidence of success. There are good reasons why venture capitalists give companies a little money at a time and keep a close eye on how they spend it, says Dawson. Unisys was not watching the money.
Pulling the brake
Clearly, someone had to pull the brake on the wild ride. In late 1995, Bob Ney, a former Oracle sales star and CEO of a document imaging systems start-up, was called in by James Unruh for a year in an attempt to fix the USoft problem before it got worse. At the end of that time, he reported back that things had gone too far. He could not find any way to make it work. USoft was like someone with his arm ripped off. You might be able to squash it back on and stop the bleeding, but by then there’s not going to be enough blood left to keep him alive. Ney left the following month, a vote of no confidence that started an outflow of others. His parting advice to Blue Bell: I can’t protect the money – close the whole show down. Then Unisys tried again with its own operational people. They concluded that the business model was wrong. TopSystems was a consulting firm that had software, and the challenge was to make it into a software firm that had consulting, says Dawson. The big issue was that the Europeans wanted to stay with the traditional model and we tried to position it as a software product. It really couldn’t do that. Marcel Smit, formerly head of Usoft Benelux, It definitely could not be sold as a shrink-wrapped product. It was and is a great product but you have to teach companies how to work with it. But Usoft had to be a product company in order to have a chance of getting to the Holy Grail of an initial public offering on Wall Street. There was also the feeling that the Unisys sales force was not dynamic enough to project the hot Silicon Valley start-up image that USoft was trying to cultivate. As Smit says: It was a company run by accountants, but we were a start-up. Combining these cultures was pretty hard, so working closely together was not so successful. Seashols says the company’s total revenues peaked in 1996 at around $25m, where they remain today. The fact they were mostly still coming from Benelux was something that Seashols never tried to hide from the Unisys management. But he did use his consummate salesmanship to keep their faith. His quarterly reports to Blue Bell always resulted in the green light – and more funding. But by 1997, the magic had stopped working. USoft’s main supporter within Unisys, Lutz, had departed for Compaq and without him, Seashols was made to carry the can for his mistakes. Over the year Unisys had grafted on more and more of its own people and corrupted the culture of the start-up. And in July 1997, Seashols was finally forced out of USoft and a caretaker manager from Unisys, Dave Drechsel, appointed in his place.
All that remains
While Drechsel was trying to fathom what had transpired over the previous two years, the European management signaled it had had enough. Behind Unisys’ back, they got together with a venture capital company and proposed a management buy out. Offering $15m to $25m (depending on what assets went with the buy out), the team would wind down the US operation and take the company back to its Benelux roots. Unexpectedly, and to their complete dismay, Unisys snubbed the approach. Why should Unisys walk away from a deal that solved one of its irksome problems? Unisys was just too embarrassed to sell it back to the TopSystems team, says Bob Ney. After all, Unisys had had four adventures in software tools P LINC, Mapper, Ally and USoft – and made a mess of all four. Still, something had to be done to clean it up. Since Drechsel took over as interim and then permanent CEO last year, USoft has been trying to find a path forward. Drechsel has cut costs, closed unused facilities and dropped headcount even further. According to Howard Kearns, USoft marketing VP, the workforce now stands at around 40 in the US and 160 in Europe. But others who have recently left the company refute those numbers, saying the US figure is less than 20 and worldwide it is a little over 100. Drechsel’s changes, however, have gotten USoft close to break even and prepared it for a sell-off. Several US and European software vendors report that the company has contacted them with proposals. But also back on the table is a revived management buy out, and even a remodeling of the company around a new business model and an applications focus. What is unlikely is that the USoft story will end here. Everyone who has ever got close to the company swears that its technology is sensational. That alone may be enough to ensure a sequel.
This article has been adapted from a longer version published in the March 1998 issue of Computer Business Review.
