The tragedy of MicroStrategy:
washingtonpost.com
DOT-COM HALO : The Rise and Fall of Michael Saylor
MicroStrategy's CEO Sped to the Brink
Microstrategy's Michael J. Saylor was worth an estimated $13 billion and was predicting his company would be key to transforming Americans' every day life through technology. Two years later, those ambitious plans are on hold as Saylor and his firm struggle to navigate the dot-com bust.
About this series
This series of articles is based on interviews with Michael Saylor and more than 100 people who have known, watched or worked with him. It is also based on court documents, MicroStrategy memos and internal e-mails.
Sunday
Tycoon: Michael Saylor had a vision that was not just about software. For a while, everyone wanted to be a part of it.
Monday
Damage control: Forced by outside accountants to revise MicroStrategy's books, Saylor and his board struggle to keep the company afloat.
Tuesday
Facing the SEC: Saylor maintained that Microstrategy's mistakes had been negligible. But unless he admitted some fault, his problems were going to be worse.
Wednesday
Aftermath: "I made the mistake of being passionate and idealistic. ... That was my sin."
By Mark Leibovich
Washington Post Staff Writer
Sunday, January 6, 2002; Page A01
First of four articles
There were times, when it was all going right, when Michael Saylor would stare out the huge oval windows of his leased Gulfstream jet and fixate on the Rocky Mountains passing below him. He would marvel at how he was covering more territory in five minutes than the western settlers covered by wagon over several months.
This was back in 2000, at the height of the Internet age. In a few Nasdaq months, Saylor's newly public firm, MicroStrategy Inc., had gained a stock value that exceeded the total worth of his former employer, the venerable DuPont Co.,198 years old. In a few Nasdaq seconds, Saylor could amass more wealth than his father had in his 30-year Air Force career.
It didn't matter that MicroStrategy was just a software maker that helped companies manage their inventory and customer information. Saylor had what he called "the dot-com halo," the aura that came with being not just a business, but a revolutionary one. He become an icon to his "constituencies," as he called them -- the media, Wall Street, his employees. He wasn't building a firm as much as a belief system.
"We're purging ignorance from the planet," Saylor often declared in his high, throaty voice. He was on a "crusade for intelligence," one that sounded just grandiose enough to be plausible at a time when technology chief executives stirred such exuberance, rational or otherwise.
On Feb. 4, 2000, with MicroStrategy's shares at $142 and his paper wealth shooting into the billions, Saylor hosted a 35th birthday party for himself at Cities, the fashionable Adams Morgan restaurant. "Guess who's old enough to run for president?" the invitation said, and Saylor duly announced his candidacy that night, a would-be standard bearer for "The Technology Party." He was kidding. Or seemed to be. But at the time it seemed weirdly possible.
Then, just a few weeks later, it all crashed -- a flip of fortunes that was sudden even by the exaggerated norms of the late 1990s and the early part of 2000. Saylor's life and companybecame object lessons in how ephemeral success could be in the new economy, how perspective could be so easily lost, and how myths -- and stock fortunes -- could so easily vanish. When MicroStrategy's story began to unravel, at least some industry and Wall Street watchers believe, it signaled the end of that era. "This one popped the bubble," wrote James Cramer, columnist for TheStreet.com. "MicroStrategy forever changed the Internet mania."
In a starkly compressed time frame, Saylor was transformed from a new world titan to an age-old parable: "It's the same story in a way of a classic Greek tragedy," said Don Griffith, a former Securities and Exchange Commission lawyer who grew up with Saylor in the Dayton suburb of Fairborn, Ohio. "It's the story of Icarus and Daedalus. Mike was the guy who flew too close to the sun."
Saylor grew up wanting to be an Air Force fighter pilot, attended MIT on an ROTC scholarship and entered business after a heart murmur grounded him. He often applied flying metaphors to his corporate rise. He spoke of how the "juice" of high-speed business can either "skyrocket" an entrepreneur or "blow him up." He also did some of his best thinking in the back of the Gulfstream, the night sky heightening his solitude. These were mostly peaceful meditations. But not the one on the flight that Saylor remembers best.
Late on Friday night, March 17, 2000, Saylor was flying to Washington from San Francisco. It was a few days before MicroStrategy was scheduled to sell newly issued stock to the public, which would help the company pay for its CEO's manic expansion plans. The sale was expected to raise $2 billion -- the largest public offering in software industry history.
Saylor was returning from a "roadshow," the ritual that comes before a stock issue in which executives promote their companies to big investors and fund managers around the country. By every appearance, Saylor's meetings were going well, and shares of MicroStrategy finished the week at $226.75. "I'm at the top of the world, everybody loves me," recalled Saylor, who was then the wealthiest person in the Washington area, at least on paper. "Everybody loves the company, we're hitting the cover of every magazine. . . . I was household."
But Saylor knew that he had a secret. A week earlier, MicroStrategy's financial auditor, PricewaterhouseCoopers, had called into question some of the company's accounting records. The accountants wanted MicroStrategy to restate some of its financial reports, a potentially devastating step that could send Wall Street into a selling panic. Negotiations had raged all week between officials of MicroStrategy and PricewaterhouseCoopers to determine the need for, or magnitude of, a restatement. Meanwhile, Saylor continued to pitch his company to eager investors in Chicago, Kansas City, Los Angeles and San Francisco.
When the roadshow ended, Saylor flew home, sullen and alone on a beige leather sofa in the back of the $40 million jet. "I know the gods have this wicked sense of humor because of what they did to me," Saylor said later. "They put me in a position where I was simultaneously the most successful person of my generation and in hell. All at the same time."
Like the company he still leads, Saylor seems diminished and weary by what he calls "my ordeal." In the same way that presidents, in their photographs, look as though they've aged eight years for every four they've been in the White House, Saylor, now 36, seems to have aged about six since his 35th birthday. His boyish flop of brown hair has gone half gray. His fresh round face has become jowly and bearded. His chest-out walk, once the stomping gait of a man who knew exactly where he wanted to go, has acquired an uncertain slump.
In a series of interviews between May and January, Saylor seemed at once humbled by his experience and bitter. At times, he drew comparisons between himself and victims of diseases or violent crimes. "I don't think that the trauma or stress I felt is any worse than the stress that a father feels when his son has leukemia," Saylor said last summer, describing his feelings during his company's sudden fall. "Or whose wife is dying. I think it's the same . . . in my case, it was my company catching leukemia."
Saylor always fancied his mission to be a seminal one. His role models were Caesar, Churchill, Gandhi and Gates. He decorated his basement with framed press clippings about himself. He kept a sculpture of Rodin's "The Thinker" in his office and he had a searing need to believe that MicroStrategy was doing work for the ages. And, for a while, his constituencies needed to believe in him as well -- in all his possibility, in all the new economic rules that his success seemed to prove.
As it turned out, Saylor earned his place in history through the narrative of his rise and swoon. This series of articles reconstructs that story. It is based on interviews with Saylor and more than 100 people who have known, watched or worked with him. It is also based on court documents, company memos and internal e-mails that were provided to, or summarized for, The Washington Post by officials at MicroStrategy and sources involved in private lawsuits and an SEC investigation of the company.
What emerges is a vivid dispatch from one of the most perplexing and tumultuous periods in economic history. It also provides one of the great, and largely unseen, corporate dramas in the evolution of the Washington area as a major technology center.
At the story's hyperkinetic center is Michael Saylor, who became the exemplar of two eras, boom and bust, in their greatest extremes. And it all happened in a matter of days.
"I guess," Saylor said, smiling at the thought, "that I represent a strange piece of history."
'Hit the Floor Running'
The thinking went like this: If Thomas Edison were to write a book about his life and legacy, it would be called "Electricity." So Michael Saylor believed that he should write a treatise of his own, called "Intelligence."
His pursuit -- to make the species up-to-the-second smarter -- was so elemental to civilization that it needed to be distilled in a book, one of those really big books, maybe more than a thousand pages. Not for vanity's sake, but for history's.
On Jan. 31, 2000, before a meet-and-greet with former Treasury secretary Robert Rubin, Saylor met with the literary agent Amanda "Binky" Urban in Midtown Manhattan to discuss "Intelligence." She was intrigued by the idea, and they agreed to keep in touch.
People throughout Saylor's life describe him as the smartest person they have ever met. "Usually you find a guy with [Saylor's] intellect in the back of some lab, interacting with rats," said Joe Robert, a Washington area real estate maven who befriended Saylor during his rise. But Saylor was no outcast, Robert said. He could converse on diverse topics and with multiple audiences: He could quote from Augustus and "Caddyshack" alike, talk circuitry with engineers, numbers with financiers, Big Vision with investors and bachelorhood with the media.
He loved music, played the tenor sax and trombone as a teenager, and would later teach himself guitar and piano. He was valedictorian at Park Hill High School in Fairborn, where he lived from age 11 with his parents, brother and sister in a small aluminum-sided duplex on Wright-Patterson Air Force Base. He was raised in a taut, Southern Baptist household, steeped in chore regimens and vice-free conservatism -- no cussing, smoking, drinking. "Hit the floor running, son," Chief Master Sgt. Jerry Saylor would yell into his son's bedroom, after waking him at 6 a.m. with a loud clap. The $50,000 ROTC scholarship Saylor earned from MIT was worth five times the amount of his family's entire savings at that time.
John Sterman, a marketing professor at MIT, said Saylor was "always an unusual fellow, far more serious than most at MIT. . . . a student you wouldn't forget." For a class project, Saylor built a computer-simulation model that applied the ideas of Plato's "Republic" to an ideal civilization. To meet his undergraduate thesis requirement, Saylor, inspired by Machiavelli's "Discourses," wrote a computer program that simulated the reactions of varied government systems to calamities such as famines, plagues and war. He graduated with highest honors, earning a degree in aeronautics and astronautics, as well as one in science, technology and society.
Saylor started MicroStrategy in 1989 with Sanju Bansal, his MIT roommate and fraternity brother. Saylor had spent two years writing computer models for DuPont's titanium dioxide business, but wanted to start his own business. He persuaded his boss to give him a $250,000 consulting contract to continue building computer models. The deal came with office space near DuPont's headquarters in Wilmington, Del.
In 1992 MicroStrategy developed an early version of the product that would become its franchise: software that allowed companies to extract useful bits of information from their unwieldy corporate databases. By using the software, for instance, McDonald's could learn that a Chicago franchise was four times more likely to sell Big Macs on winter Friday nights than was a franchise in Miami (where customers disproportionately preferred filet-of-fish sandwiches). While seemingly trivial, such data would prove vital to the companies, and even as other software companies were developing similar "data-mining" products, as they were called, Saylor and Bansal were able to impress and attract an early array of Fortune 500 customers.
In 1994 Saylor and Bansal moved the company and its 50 employees from Wilmington to Tysons Corner, figuring it would be easier to lure elite workers to the Washington area, "a major center of civilization," Saylor said. MicroStrategy doubled its revenue every year between 1994 and 1997.
'Information Everywhere'
Part of Saylor's marketing savvy in the late 1990s sprang from his unwillingness to stay confined to the niche of back-office technology. No matter how solid MicroStrategy's business and product was, Saylor felt restless. What Saylor craved -- and ultimately sold -- was a higher corporate purpose for MicroStrategy: He wasn't so much making tools as much as he was "freeing information." He wasn't a seller of data-mining software but a purveyor of "intelligence," just as Bill Gates's mission at Microsoft wasn't simply to sell software for personal computers but to put "a computer on every desktop."
In computing history, which Saylor studied closely, the dominant companies have been the ones that could shroud the unsexy functionality of their products in the sleek possibility of What Could Come Next. As Internet, database and wireless technologies evolved, Saylor said, information would soon become an essential utility, "like water," and MicroStrategy would be the company that spread it everywhere. Enlightening McDonald's about its Big Mac sales was just a start of a grand technological crusade that would eventually "purge ignorance from the planet."
By the time MicroStrategy held its initial public offering of stock in 1998, Saylor was gaining little notice for his data-mining products and plenty for his vow to spread "information everywhere." He began to pitch his company's software products in mystical rhetoric. The back cover of MicroStrategy's prospectus -- published in conjunction with the IPO -- included a boldface quotation from science fiction author Arthur C. Clarke: "Any sufficiently advanced technology is indistinguishable from magic."
Shares were priced at $6 for the June 11 offering (adjusted for a Jan. 4, 2000, stock split), and they doubled by midday. On the Merrill Lynch trading floor that morning, Saylor grinned as he noted that "MSTR," MicroStrategy's ticker symbol, was listed on the Nasdaq ticker right after "MSFT" (Microsoft), a company that Saylor idolized.
"Warning," a message flashed over the trading floor. "Do not confuse MSTR with MSFT."
The Grand and the Grandiose
On the surface, MicroStrategy seemed the prototype of the democratic new-economy workplace: Employees could wear jeans to work and were always free to e-mail the CEO with ideas. But these egalitarian appearances belied the company's military ethos, with Saylor as a ubiquitous general in a theater of his own creation. To a degree that is unusual among even the most obsessive entrepreneurs, MicroStrategy has been Saylor's life. He worked late into most nights, often seven days a week.
Saylor fervidly protected his ownership stake in the firm, and this insistence almost led to the company's demise before it left Wilmington. In 1994, the firm's senior managers -- Sid Banerjee, Dave Sherwood, Steve Trundell, Eduardo Sanchez, Ed Jurcisin and Manish Acharya -- were working long hours and receiving relatively low salaries. When they asked for an equity stake, Saylor and Bansal resisted until the managers finally walked out en masse on a Friday. By Monday, the group had retained a lawyer. Negotiations ensued, and the dispute was settled when Saylor and Bansal agreed to grant the managers a collective 7 percent of the young firm.
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