Can you believe Cowpland...he doesn't change his tune...look at this interview....sorry for the length...hope it has not been posted previously
Monday 6 October 1997
'You'll be amazed'
Amazed: Cowpland predicts huge successes within six months
James Bagnall
The Ottawa Citizen
The Ottawa Citizen / Corel Corp. Chairman Michael Cowpland predicts his firm will beat IBM, Sun and Oracle combined, in having the world's best network computer.
Corel Corp. chairman Michael Cowpland defied conventional wisdom early last year when he shelled out $158 million U.S. in cash and shares to buy Utah-based WordPerfect. And he has paid a big short-term price. Corel, the company he founded in 1985, will post a huge net loss this year, contributing to a sharp drop in the firm's share price. This, in turn, didn't help Mr. Cowpland's personal finances. In August, he sold $20.5 million worth of Corel shares to pay off personal debts. On Friday, the day these trades became public knowledge, Mr. Cowpland talked about the state of his and Corel's finances with James Bagnall, the Citizen's senior technology writer. Following is an edited digest of their conversation.
The Citizen: I take it your personal affairs were based on the assumption Corel's share price would be much higher when your loans came due this year.
Mr. Cowpland: Yes, that's why I've been borrowing over a four-year period. The company's shares were nearly $27 when our main product was CorelDraw and we were doing $150 million-a-year in revenues. Naturally when we bought WordPerfect last year, I wasn't selling my shares because with higher sales, you'd expect the shares to go up.
The Citizen: This was all related to your tax bill?
Mr. Cowpland: Yes.
The Citizen: Not the house?
Mr. Cowpland: Well, when you sell shares to buy something, you've got the tax owing. It adds up over a period of years. The banks are more than willing to lend you money but eventually the loans come due and then you've got to pay them off.
The Citizen: You couldn't roll them over?
Mr. Cowpland: It may have been feasible but when things are looking a little bit dicey, rolling over the loan isn't quite as simple.
The Citizen: Were you encouraged by the lender to cash in your shares?
Mr. Cowpland: I didn't really want to have to go through a heavy negotiation. I've got enough to worry about running the company.
The Citizen: It must have hurt to have to sell one-quarter of your personal stake in the firm to cover the loan?
Mr. Cowpland: Yes, on the other hand I've got plenty of assets anyway. I'd rather run hassle free with what I've got than have to waste time working with banks. Corel is also going through an intense transition period, so the last thing I want to do is fight on two fronts.
The Citizen: I take it you're sticking around.
Mr. Cowpland: Well, absolutely. On top of that, I know what I'm doing. I've had 30 years of experience in high tech and if you look at the pattern, it's been non-stop growth -- maybe not smooth growth all the time, but growth. The fact is, we've been able to point this ship always in the direction of where the biggest opportunities are.
The Citizen: Knowing what you know now, would you have still bought WordPerfect?
Mr. Cowpland: Absolutely.
The Citizen: What would you have done differently?
Mr. Cowpland: We would have divested our multimedia and consumer products immediately because there's so much energy required to do the WordPerfect suite. When you consider all the different versions -- from international to academic -- it actually ends up to be hundreds of products
The Citizen: Initial sales of WordPerfect software seemed to be pretty strong. What happened after the first year?
Mr. Cowpland: Basically it's been steady. The volume's gone up because our sales of academic versions have gone up. But we've had difficulty gaining any market share from Microsoft other than in the most price-sensitive markets. Microsoft definitely controls the high end of the market. Most of our product sales are upgrades while most of Microsoft's sales are full products so they're getting a lot more money per box than we are. The strategy we adopted was the only one we could adopt. It's been very successful -- the reputation of our suite is fantastic.
The Citizen: But financially it hasn't been a success.
Mr. Cowpland: But it will be in the sense that we're now looking at the ability to carry it forward into a new range of products. And if you don't have a suite to offer, you can't even get into the game.
The Citizen: What is the game?
Mr. Cowpland: We've got the hottest network computer on the planet and the software to run on it. Remagen is software that lets corporations access applications like WordPerfect suite or even Microsoft Office running on a server (a large computer that doles out software programs to people on a computer network). We'll also have the new Alta software, which will help corporate teams collaborate electronically. So here we are poised, leading in three of the most important technologies of the next decade. And they're all about to unfold in the next few weeks.
The Citizen: You're starting to concentrate on selling to large corporations instead of just the retail market.
Mr. Cowpland: Yes, but until we had the right weapon, we couldn't attack the multinationals. There's no way you can go to General Motors or Exxon and tell them to get rid of Microsoft Office and put in WordPerfect suite unless you've got something different to offer. All we had was an equivalent suite. With Remagen, we can offer them a tool that lowers the cost of operating computer networks. And we can sell corporations Remagen even if they don't want to buy our WordPerfect suite (because Remagen is designed to work with Microsoft products as well as others).
And if that doesn't work, our sales people can offer to sell them one of our network computers (stripped down versions of conventional, Windows-based personal computers). So they've got three things to sell. Now it makes sense to have a corporate sales force.
The Citizen: Corporations are conservative. They generally prefer their suppliers to provide consistent product development strategies over a number of years. You haven't provided that.
Mr. Cowpland: We actually have a fantastic brand name.
The Citizen: In the retail market.
Mr. Cowpland: Period. We've always delivered on our technology; and we stand behind the products. So basically, we're not finding any difficulty with corporations accepting us. In fact, we can't tell you who they are right now, but we're in serious discussions with some of the biggest companies in the world who are extremely keen to take our technology. They want to see our Remagen.
The Citizen: These products are in pilot programs now?
Mr. Cowpland: Yes, and they're telling us to give them the product, they want it that badly. And we're talking about huge, huge companies.
The Citizen: But given your earlier predictions and where things later wound up don't you feel uneasy giving me these optimistic projections?
Mr. Cowpland: Well, I'm giving you projections of technology and our predictions of technology have been accurate. It's difficult to predict market share because that is also partially dependent on what the competition is doing and sometimes you guess wrong.
The Citizen: Shouldn't you be more conservative?
Mr. Cowpland: I'm not giving you sales numbers, am I?
The Citizen: Not now. Is this a new approach then?
Mr. Cowpland: Yes, you could say I'm much more conservative on the sales numbers, which are basically hard to predict. It's tough to tell sometimes where your product has ended up. Is it in the retail sales channel or in customers' hands? So we decided recently to go to a completely new model in terms of accounting for sales. We're going to measure the sales peoples' performance based only on what goes out from the distributor to the reseller.
The Citizen: To the end buyer in other words.
Mr. Cowpland: Yes. It's not really changing accounting rules. It's more changing the way we recognize revenues from the sales compensation point of view. We think this will be very beneficial once we've gone through it because we'll have more of a just-in-time inventory as opposed to a large retail channel float.
The Citizen: This past 18 months must have been a big learning experience for you.
Mr. Cowpland: Yeah, the whole industry is learning. Look at Compaq Computer Corp. They're moving to a system of building computers based on individual customer orders. Everybody is learning from each other. At Corel, we're learning from the hardware companies.
The Citizen: Is it true the first time you used a head hunter was when you hired your new senior vice-president of sales, Don Sylvester?
Mr. Cowpland: Yes, we realized we had a complete gap on our corporate sales side and we went after somebody from either Dell Computer Corp. or Sun Microsystems Inc. because they've got the top two corporate sales forces in the world.
The Citizen: Are you doing other outside hires?
Mr. Cowpland: Yeah, we're looking for a chief information officer.
The Citizen: How about a chief operating officer?
Mr. Cowpland: We don't need one. The operations are trivial here. Making the products is a piece of cake. If we have a good forecast, it's the easiest business in the world. The thing is, a good forecast comes from a good sales person. The problem we've had is a lack of realistic forecasting of sales and execution. That's what we got Don for.
The Citizen: Isn't there something to be said for hiving off some of your responsibilities to someone else?
Mr. Cowpland: Actually Don is going to be the person who is going to hone the message from the corporate point of view. One of the first things he spotted, and I agree with 100 per cent, is the need for compatibility. In other words, we're not going to be going against Microsoft, we're going to co-exist with Microsoft.
The Citizen: That's a big change for you.
Mr. Cowpland: We've been realizing this along the way. But, give credit to Don, he jumped on that very quickly as a key issue because we recognized that with our new technology we would have to go alongside Microsoft.
The Citizen: Are you comfortable with this? You were the one who once said 'Microsoft is scared to death of us?'
Mr. Cowpland: In the retail markets they are, or they were. The fact is, they fought back and now each of us has our share and it's pretty stable.
The Citizen: Your goal is no longer to be number one in this market?
Mr. Cowpland: I think realistically it would be to be a good number two in the office suite market.
The Citizen: Corporate and retail, both?
Mr. Cowpland: Yeah. The retail is influenced by the corporate market because people buy what they've got at work.
The Citizen: Is it fair to portray you as someone who's finally trimming his sails in the face of the Microsoft juggernaut?
Mr. Cowpland: Not really. It's more like you've got to continuously evolve in this business because it changes every six months. Microsoft once said 'Who needs the Internet?' If anybody's consistent in this business, they're going to be dead meat. Basically, what we're trying to do is go for the big opportunities where we can be number one or a good number two in a big market like office suites.
Before the WordPerfect acquisition we looked at these other opportunities. We asked ourselves, with an 80-per-cent share of the graphics software business, what were we going to do, just sit on that forever? We have all these keen engineers who want to do new things, so we looked around for other opportunities.
The Citizen: You seem like a halfback who's always looking for a hole in the line.
Mr. Cowpland: You have to. R&D is not a business where you bat 1000. If anybody ever thinks that they may as well be an accountant or run a brick factory or something.
The Citizen: Or a telecommunications equipment company? (In a reference to his earlier role as president of Mitel Corp.)
Mr. Cowpland: (Laughs). Some things are more safe than others. But in these kinds of fields you have to have the skunk works projects. At the same time, you have to make sure you have the cash cows to carry it forward, which we did with CorelDraw. Now we've got all the decks clear and the new products are looking fantastic. And we're not talking about little niches here; we're talking about a whole industry -- the Webtop.
The Citizen: In case the revenues don't take off, I'd like to talk about your firm's finances.
Mr. Cowpland: That's a good point. We've taken a very conservative point of view. We're saying our plan going forward is to have the company profitable on the current base products -- CorelDraw and WordPerfect suite, in other words. These are big products and we don't have a lot of expensive overhead. We've only got about 1,500 people and we're able to cut advertising costs on a dime. We're reducing these 50 per cent right away and that will make us profitable right out of the gate.
The Citizen: Corel has about $20 million cash?
Mr. Cowpland: Cash and securities? It's about $25 million now.
The Citizen: You also have a line of credit.
Mr. Cowpland: An unused line of credit of $25 to $30 million at least.
The Citizen: If necessary, you can also securitize your receivables. How much would that fetch?
Mr. Cowpland: $50 million at least.
The Citizen: Do you have any plans to trim the number of employees?
Mr. Cowpland: No. We're trimming our advertising costs because that's very easy to do. We don't need to trim our talent; we need the talent to take the new products forward.
And remember, we've financed the startup of Corel Computer out of current cash flow. We're in extremely good position. We've got three new products -- the network computer, Alta (due out next year) and Remagen. We recognize they may start slower than expected, even though the potential is gigantic. So we're saying we'll run the company on the core products, which are enough to give us a positive cash flow.
The Citizen: Are you considering initial public offerings?
Mr. Cowpland: Absolutely. The ideal opportunity would be Corel Computer. That's why we put it in a separate company under separate management. All we're waiting for there is to see the actual hardware. When we do, which is just a month away, we have multinationals lined up wanting to partner with us.
We're holding off for the moment because we think we'll get much better value for the company when people get super-excited about how good this hardware is. People will be stunned to think that out of nowhere a small company like Corel comes out and beats IBM, Sun and Oracle combined, in having the world's best network computer.
The Citizen: Is it disappointing for you to hear some of your former executives say things like 'Corel smells like another Mitel.'
Mr. Cowpland: You'd be amazed what the scenario will look like in six months time. Anybody who's being negative now will look pretty silly six months from now.
Copyright 1997 The Ottawa Citizen |
