Stanford Technology Ventures Program (STVP) STVP-1998-003 September 29, 1998 This case was prepared by Natasha Evans-Beauchamp under the supervision of Thomas J. Kosnik, Consulting Professor, Stanford School of Engineering, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1998 by Stanford University. To order copies or request permission to reproduce materials, call 1-650-723-2973, or email Professor Tom Kosnik, Director of Case Development, Stanford Technology Ventures Program, at [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Stanford Technology Ventures Program. 1 Visio Corporation A Visual Adventure “There are some people who do not draw. They don't see a need for visuals, and we could tell whom they were when we were pitching our plan - their eyes actually glazed over when we spoke. Then there were the people who could see the power of visuals in presentations, and we had them from the beginning.” - Jeremy Jaech In February of 1992, Visio had been in business for little more than a year. Visio’s founders, Jeremy Jaech and Ted Johnson, had just completed a prototype of the first product, called Mainline™. Their goal was to make a Windows-based drawing program that allowed seamless integration of business and technical graphics with popular business-communications programs, such as spreadsheets and word processors. With the prototype successfully completed, it was time to obtain the next round of funding, which would enable them to complete their product and take it to market. Visio was not the first software graphics firm that Ted and Jeremy had founded. They had worked together for five years at Aldus, the pioneering desktop publishing software company that they helped Paul Brainard launch in the mid-1980s. Due to the impact of Aldus PageMaker, Ted and Jeremy had created a successful business with Aldus. It was time to tackle a new challenge: how to radically expand the market for drawing software for business professionals. Jeremy and Ted wanted Visio to create the industry standard for do-it-yourself business graphics software. If a manager or business professional wanted to illustrate a memo with a graph or picture, Visio wanted to help her to do that easily, without having to rely on a graphics department or specialist for support.STVP-1998-003 Visio Corporation 2 The Market Environment for Visio's Products In 1992, graphics production departments ran a variety of disparate programs. The output from these programs needed to be combined to make the final version of reports and presentations. For example, in many organizations, Aldus PageMaker was used to do page layouts. AutoCAD was used for engineering drawings. Microsoft Excel or Lotus 1-2-3 was used to make graphs, and Microsoft Word or WordPerfect was used to create text. Whatever could not be done with these programs was done the old-fashioned, inexpensive way, via pencil and paper. Most graphics production departments were staffed by people specifically employed for their skills either running these specialized programs or creating these documents by hand. The Visio drawing program introduced drag-and-drop drawing building blocks, which enabled a user to click on an image with a mouse and then put the image in place on the page. No other program gave users the freedom to draw so intuitively. Visio's competitors required users to learn to draw "their way" before being able to produce simple graphics. For more details about competing software programs, see the Visio Corporation Business Plan, January 31, 1992, in the Exhibit. Designing Visio Products to be Compatible with Microsoft Windows At the time Visio was created, office PCs were fairly evenly divided between those running DOS with Windows and those running DOS without Windows. Visio was betting that because of its ease-of-use, Windows would become the dominant operating system. Accordingly, Visio’s products were designed to be compatible with Microsoft’s Windows operating environment. Visio did not compete with any products Microsoft was offering in 1992. Ted Johnson perceived Microsoft as an informal ally: “We want our products to fit on top of Microsoft's products. We want to be collaborators with Microsoft. We believe our physical proximity to Redmond and our positive attitude will enable this type of collaborative relationship.” Making the Case for More Money In 1991, TVI, a venture capital firm, invested $800,000 in Visio. That was Visio’s first official round of financing - the company’s seed capital of $120,000 came directly from the founders in 1990. After TVI invested in Visio, John Johnston, a TVI partner, became their advisor in the quest for a second round of financing from venture capitalists. Before going to Silicon Valley, Johnston scheduled several luncheons with prominent Seattle investors for Jeremy and Ted. He wanted the Visio founders to hone their pitch at these informal, local luncheons and learn what kinds of questions to anticipate from the Sand Hill Road venture capitalists (VCs) they were courting. Johnston wanted to be sure the business plan was bullet proof and that the pitch contained all the appropriate information about Ted and Jeremy’s vision of the future of business computing.Visio Corporation STVP-1998-003 3 The weeks prior to Ted and Jeremy’s appointments with potential VC investors were spent revising the business plan and rehearsing the presentation. One week before heading down to Sand Hill Road, Ted and Jeremy went through a dry run of their presentation with John Johnston. John watched intently, listening for any rough spots in the pitch that needed to be smoothed over, or any loophole in their logic that needed to be closed. The presentation had to convince the VCs that Ted and Jeremy had accurately defined a high-potential market, designed a product with a clear advantage over competitors, and formed a team that could exploit the market opportunity. Their presentation was smooth and well timed, each co-founder playing off of the other's delivery. Ted was an energetic technical wizard who knew what every line of code should look like; Jeremy, a thoughtful tactician who