After the War

The Silicon Valley gossips in late 1983 said Adam Osborne was trying science-fiction writing. Then, the next spring, stories suddenly blossomed about his new software company; he bragged that it would be the paperback publisher of the micro world, a mass-market operation that would undercut rivals just as his computer firm had. The name of the new company, in Berkeley, California, was Paperback Software International. And his quotes against competitors were just as colorful as in the old days.

“There’s a helluva lot of software out there,” Osborne told USA Today, “and a lot of it’s overpriced garbage.”

He planned to sell his programs at book chains and book racks at less than one-fourth the prices of the Brand Xs. The idea seemed apple-pie admirable, but most people would rather not buy more software than they had time to learn and use; how many hardcore buffs were out there itching to spend hours mastering cheap new programs? Circumstances might change as software becomes easier to use. But could you imagine a Word-Processor-of-the-Month Club or a spreadsheet rack to the right of the gothic romances? No, except for games programs and very cheap enhancements of existing business programs like Lotus 1-2-3, the paperback concept seemed dicey. Even Osborne wasn’t infallible as a seer and market analyst. Once he’d predicted that IBM would fail in the micro market, and hadn’t he been too slow to grasp the importance of IBM compatibility for his own products? Still, although Osborne Computer Corp. itself had floundered, it had not been for want of the right vision at the company’s inception. His new software enterprise might indeed survive in the proper niche. First, however, he would need capital. In fall 1984 InfoWorld reported that Osborne had paid for a booth at a software show but had not set it up because, for want of funding, his first products weren’t ready. Investors may have shied away due to Osborne’s earlier failure to overcome the classic entrepreneur’s challenge: not just to start a company but keep it prospering.

In shrunken form, with Osborne having resigned as president in September 1983, his old company lingered on in early 1984, selling old machines and still promising a new IBM-compatible portable. Andy Kay at the time had no need to fear this corporate husk. For a while, in fact, Kaypro may even have been the fourth largest maker of personal computers shipped to stores specializing in them. And his hard-disk gamble was paying off for the moment—the same risk that Osborne himself had avoided as too perilous for a portable manufacturer.

Orders had kept piling up for Kaypro 10s. Then again, so had the problems with Tandon, Kaypro’s major hard-disk supplier.

David Kay even claimed that Kaypro was receiving Tandon drives “with ‘IBM’ stamped on them that also have ‘reject’ stamped on them.” Delivery delays allegedly had cost perhaps $30 million in sales of the Kaypro 10s over eight months. Tandon, while conceding that some rejected drives may have accidentally reached Kaypro, claimed that such problems were rare.[[12]]

The Kays’ 1984 sales would exceed $100 million. But some rivals were growing faster, and IBM, Panasonic, and other household names were now muscling in on the portable market. “Kaypro’s immediate prospects are good,” said one analyst of the industry. “I don’t know about the long-term ones.” He told of a big white tent that the Kays had put up on a hillside to store badly overstocked computer parts. The Kays might argue that they wanted to keep expenses down. To the analyst, however, the white tent symbolized amateurish management. In September, Kaypro acknowledged that millions of dollars in computer parts might be missing from the tent and some large trucks; and whatever the cause, theft or bad accounting, the crisis hardly endeared Kaypro to investors. They now could recover only $4 per share—a fraction of the $10 offering price. Around the same time, some angry investors filed lawsuits charging Kaypro with falsely reporting its finances. Kaypro denied this. I hadn’t any idea of the validity of the suits. An official with Osborne Computers, however, discussing the tent and the general management problems it symbolized, appropriately observed: “It was déjà vu to hear about Kaypro’s inventory situation.”

Six regional sales managers had left earlier that year for a competitor. Former Kaypro executives griped that the Kays paid too much attention to trivia. Andy Kay even interviewed prospective security guards. Some employees relished this personal touch, but Blair G. Newman, ex-director of marketing and strategic planning, complained to Business Week, “There are too many Kays and not enough pros.” Unconvincingly, a Kaypro spokeswoman shrugged off the resignations, saying a small clique of friends had left and plenty of people had lined up to replace them.

Andy Kay’s antipathy toward professional managers was coming back to spook him. All along his attitude hadn’t been so different from that of Adam Osborne, who, stubbornly, told a reporter after the Chapter XI filing, “The major lesson I learned from this thing is that I’m as good a manager as any of those guys.” An ex-Kaypro employee complained to me: “The Kays are worried that professional managers will take away their power. Andy Kay wants to run the company himself. It’s a feudal society there. A lot of employees call it the Kay fiefdom. It’s like a training ground for young knights. You can learn a lot, but it locks you into a rigid structure. There are no changes from the bottom up. That’s the big problem. I don’t know how they get away with calling it ‘participative management.’ Ordinary employees never have any meetings with Kays to discuss major decisions. There’s no checks and balances. If the guy at the top makes a mistake, there’s no way to correct it. No one can call the king’s bluff and stay.”