NETO--I like doing historical research on a company, and was interested this weekend to discover this profile of the CEO in Redherring:
<<Entrepreneurs walk a tightrope over the abyss of failure. The tribulations of Samir Arora, CEO of the startup NetObjects, could teach entrepreneurs much about the art of balance.
In his disheveled offices in Redwood City (this publication's first offices, coincidentally), The Herring finds Mr. Arora in a contemplative mood. When asked to talk about his company, Mr. Arora mentions creativity just as often as business or technology. Clearly, NetObjects has been a labor of love as well as a business venture. When he discusses Web site design, for instance, he often compares it to the elaborate task of musical composition; he believes information, like music, is orchestrated and arranged. And although Mr. Arora has tried to weave creativity and business together in his life, he has also learned that passion and commerce sometimes mix like oil and water.
Mr. Arora's tendency to see the world in artistic terms can be attributed, in part, to a childhood in which the theater figured prominently. Born in Delhi, India, in 1965, Mr. Arora appeared in his first play at the age of six. He eventually joined a professional acting troupe that occasionally landed him on Indian television. By Mr. Arora's count, he had been in nearly 30 theatrical productions by the age of 17. He even tried his hand as a composer and playwright, a self-styled "social advocate" whose plays dealt with weighty subjects. In 1982 he authored The Pinnacle, about the dangers of fanaticism, and in 1983 he penned The Vulture Stooped Low, a play about the evils of war.
Music steered Mr. Arora to technology. Electronic instruments and recording systems led him to his first tinkering with audio hardware, which turned into a fascination with computer hardware in general. Though he had contemplated a course of study in architecture, he ultimately chose architecture of a different kind: chip design. He entered the Birla Institute of Technology and Science (BITS) in 1984 to pursue a degree in engineering.
Apple of his eye
Yet Mr. Arora would never actually get his degree--not for lack of effort or interest, but because a major distraction surfaced. Just before starting at BITS, says Mr. Arora, he saw the Macintosh for the first time. "I looked at it and realized it would be the future of computing, that this was what desktops would look like," he recalls with geekish nostalgia. "This was the company I wanted to work for."
Mr. Arora left the institute in 1985 and arrived at Apple the following year, starting as an engineer and, over the next six years, working in product management and development on projects like HyperCard, in business development, and in international marketing. In his first year at Apple, though, he had one of his biggest breaks: he captured the attention of John Sculley, at that time the company's CEO. In late 1986 Mr. Arora presented a white paper to Mr. Sculley titled "Information Navigation: The Future of Computing," in which he ruminated on the ways people would use and structure information as computers and networks matured. Intrigued, Mr. Sculley allowed Mr. Arora to pursue the project and had him report directly to the CEO's office.
Near his desk, Mr. Arora proudly displays the clothbound notebook containing his initial thoughts on the subject of information navigation. Dated August 1986, the notes discuss the interaction of texts, pictures, sounds, and webs--the fundamental elements, he points out, of what we now call a Web site. At the time, he says, "I was wondering, 'What if the user could be an author, a producer, and a distributor of information?'"
Bankable star
In 1992 Mr. Arora left Apple to start Rae Technology, a company that developed "navigation" software products for personal information management and enterprise systems. In 1995 the company was developing special PC client software for Wells Fargo Bank. "In the middle of the project," recalls Mr. Arora, "Wells asked us to build it for Mosaic." At that time Mosaic was on the verge of stardom as Netscape Navigator 1.0, but he viewed the product with derision: "'It's a toy,' I said. 'It will never amount to anything important.'"
Since Wells Fargo was footing the bill, however, Mr. Arora and his colleagues did as they were told. In four weeks, they had constructed one of the first Web-based home-banking applications. "We went, 'Aha!'" he remembers. To his way of thinking, the breakthrough was too significant to be handled under the umbrella of Rae Technology. In November 1995 he founded NetObjects to develop tools for designing and constructing Web sites.
The company rapidly became a Silicon Valley darling. NetObjects' arrival into the market was well timed, and, more importantly, its flagship product, Fusion, received countless encomiums from the trade press, so often the lifeblood of young companies. Exploiting its own neutrality and Fusion's quality, NetObjects inked distribution deals with warring factions like IBM, Netscape, Microsoft, and Sun. The company also landed a marketing director's dream when, before Fusion was even launched, it was selected as the Web tool of choice for the much-publicized (and horribly tacky) online documentary 24 Hours in Cyberspace. Even the mainstream press paid attention: NetObjects received prime exposure in the July 1996 article "Fortune Visits Twenty-Five Very Cool Companies."
Then, barely five months later, NetObjects nearly destroyed itself.
After initially funding itself internally and with the help of individual investors, NetObjects completed a second round of $5.4 million from Norwest Venture Capital and Venrock Associates in February 1996. But by December of that year, the company needed more cash. According to sources, Mr. Arora was spending money too aggressively while failing to monitor the bottom line. Though he maintains that his spending never exceeded the projections of NetObjects' business plan, the events of December 1996 suggest otherwise. "It was a risky and difficult time for the company," concedes Mr. Arora. "I don't want to deny that."
Difficult, indeed. In late 1996 NetObjects' venture investors asked Mr. Arora to resign as CEO. There was a fundamental disagreement over how the company should grow. By his own admission, Mr. Arora subscribes to the "get big fast" approach; his venture investors were more cautious. Promod Haque, who represented Norwest on the deal, and Terry Garnett, who represented Venrock, both stepped down from their seats on the board when Mr. Arora managed to prevail in what he refers to as a "misalignment" between founders and funders.
A wall of silence now surrounds those turbulent events. Mr. Garnett will not discuss the matter in detail. "Young companies go through a lot of twists and turns," he says. But when asked if he had ever demanded Mr. Arora's resignation, he does not deny it. Mr. Arora gives an equally evasive, yet revealing, response. He, too, chooses to avoid details but will not deny that such a demand was made.
Sgt. Sculley to the rescue
How did Mr. Arora survive the machinations of the VC cabal? He had alienated his primary funders, and the company was bleeding money. "He was in a major confrontation with his board, and the board resigned. He couldn't make payroll. The company was literally ready to go under," says the unlikely white knight in this drama--John Sculley, Mr. Arora's longtime mentor and a seed investor in NetObjects. "Once things come unglued," Mr. Sculley says, "they can be very hard to put back together again."
Like a world-weary soldier, Mr. Sculley speaks plainly of the battle over NetObjects. He is no stranger to the internecine fighting that sometimes erupts between boards and management. In his mind, NetObjects was a strong company with a young CEO who "had gotten in over his head." Mr. Arora had not paid sufficient attention to cash flow, his venture investors were miffed, and other financial constituents, like Cupertino National Bank & Trust, were growing uneasy, recalls Mr. Sculley. "But it was clear Samir had a terrific product," he hastens to add. "It was a solvable problem."
At that point, Uncle John was instrumental in adding Perseus and AT&T Ventures as investors. They contributed to a $4.5 million round that acted like electroshock paddles on the wheezing chest of NetObjects. Mr. Sculley also played a vital role in approaching IBM to discuss a possible investment in NetObjects. IBM's competitor Microsoft had acquired Vermeer Technologies for its FrontPage product, and Mr. Sculley suspected IBM might want a similar product to fortify Lotus's Domino. Fusion seemed perfect. In March 1997 IBM took a majority position in NetObjects in a deal widely suspected to be worth more than $100 million. From the depths of the maelstrom, Mr. Arora had surfaced.
I will survive
Indeed, everyone survived. Both Norwest and Venrock still hold equity positions in the company, and all parties appear to have moved past the episode. Mr. Haque, the Norwest partner who walked away from the NetObjects board, maintains that his firm's relationship with the company is intact. "It's a great investment, and our relationship is very strong," he says. But Mr. Garnett's final reflection on the matter may be both the most salient and the most revealing about what truly matters in the fitful world of technology startups. "We continued to write checks through the entire process," he says. "That's the real litmus test." Despite the acrimony and conflicting visions, all parties maintained a fundamental belief in the company and its product.
And at the core of it all, we still find Mr. Arora. He is visibly uncomfortable when asked about the events of late 1996 and discusses them only in general terms. He is guarded and aloof--not yet ready to discuss his brush with failure.
By contrast, when questioned about his company and his vision, Mr. Arora speaks earnestly and with ease. With the full force of IBM behind it, NetObjects promises to be around for a long while, either as a company in its own right or eventually as a part of IBM. And, for better or for worse, Samir Arora will play the starring role.>>
January 1998
redherring.com
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