SM: What was going on in the marketplace at that time? Why was there doubt that additional network monitoring software would be needed?
GR: While customers had plenty of choices, many times those customers were not happy. The companies they were buying it from were not focused on customer satisfaction. I felt that if we could come along with a good product and a high level of service at a reasonable price, then we would find our way in the network monitoring market.
SM: How long did you continue to represent that one company?
GR: We continued with that company because we had success rather quickly. We got our first deal on Christmas Eve. I remember because I was at home with my family, and the customer called me to tell me that they had faxed through the order. I had to drive down to the office to look at the fax with my own eyes to know it was real.
It is so incredibly satisfying to get your first customer to pay you real money for what you are selling. It reinvigorates your belief in how successful you can be. We felt we were on our way, and we started finding customers every month. Within two months my technical partner was completely swamped. He was no longer looking for a job and I actually had to go look for more help. We changed the software a lot, we changed the marketing, and we changed the pricing. The company in Norway was just five people and they were all engineers. We added that marketing shine on everything.
During the first full year of operation we sold $1 million worth of software, which was our target for the year. The main company in Norway had only sold $500,000 during the same time. I then proposed that we merge the two companies, with the Norway team focusing on writing the software, and I would run the combined company. We did it and built the company from that point.
SM: Can you describe that merger process in a bit more detail?
GR: To start with, it did not go anywhere. The engineers we had in Norway were not focused on the long term for the business. It was almost a hobby business for them. They just wanted enough money to pay their mortgages, whereas I had huge expectations. It was a difficult conversation. We ended up getting a third party involved. We met in the south of France for a few days and built a business plan for the combined company.
SM: As you did that, what form did your business take in terms of ownership? You had a $1 million business and they had a $500,000 business, but you both depended on each other.
GR: We decided that the value in the business was in the intellectual property. While we were selling $1 million in revenue, there was not much intrinsic value. We decided that the presiding company had to be the Norwegian company. The structure we used was to have the Norwegian company purchase the assets of my company. They did so by giving stock in the surviving company, which is a Norwegian company.
The ownership structure at that point evolved into four primary owners. There were the three original principles from Norway and me. We all owned roughly equal shares in the company. The other employees in Norway and the United States owned shares in the company. It was based on how long people had been working for us. We worked it out in a manner that we felt was equitable for everyone.