First in a four-part series; Originally published in CADCAMNET and Engineering Automation Report in 2007
By Randall S. Newton
The meeting hall in Puerto Vallarta, Mexico is concert-dark and filled with several hundred college students. Heat, humidity, and anticipation are all thick in the air as a middle-aged man of slight build ascends to the stage. “You are the luckiest kids in the world,” this man in T-shirt and jeans tells the crowd, which roars in appreciation. “You are in the right place at the right time.” Behind him on a large screen appears a PowerPoint screen showing his personal contact information, including his email and cell phone number. Almost everyone rushes to jot it all down, afraid this precious information will all too quickly disappear.
The man is not a rock star trying to make contact with groupies, or an evangelist trying to win souls for Jesus. He is Bob McNeel, CEO of Robert McNeel and Associates. His company makes Rhino, the free-form 3D design software with a rapidly growing global cult-like following. Before I go one sentence farther, I want to ask you a question: Can you imagine any other CAD industry CEO giving 700 college students personal contact information?
Bob McNeel is not your typical CAD industry CEO; Robert McNeel and Associates is not your typical CAD company. The event at which Bob McNeel shared his personal contact information (DIMe v1.0) was not a sales event or even a company-sponsored users’ conference. It was an event organized by a group of industrial design students and instructors; Rhino just happened to be the only CAD company invited. At the same time in Delft, The Netherlands, 300 architects gathered to discuss the use of Rhino for advanced design. Again, the attendees organized the event and then asked Rhino—and only Rhino—to participate.
There will be eight events like DIMe across the globe in 2007. Robert McNeel and Associates spends almost nothing on marketing, preferring to pour all its resources into product development and customer support. So its users band together and invite the company to conferences with a grassroots enthusiasm rarely seen in the commercial software industry. In one long day in Puerto Vallarta, just before DIMe began, Bob McNeel and his associate Scott Davidson sat down with four CAD industry editors and explained what CADCAMNet calls The Way of Rhino, which we will unfold in a series of articles. Grasshopper, prepare to be enlightened.
The founding vision for a new company establishes a specific vector and a trajectory. That vector becomes the path which defines not only the initial mission but also sets limits on the company’s future; it is very hard for a company to stray from its initial launch trajectory. For example, Microsoft’s launch vector was support for microcomputers, while Google’s launch vector was organizing the world’s information. Is it any wonder in this Web-based era of many pieces loosely joined that Microsoft, clinging to its initial theme of empowering devices, struggles for a new identity while Google soars through the Internet with one interesting tool after another? Both firms continue to be defined by their initial launch trajectories. “Robert McNeel and Associates” is an unusual name for a software company because it was founded in 1980 as an accounting firm. As Bob McNeel explains it, the company got into software at the request of clients who wanted help with IT as they moved from timeshare mainframes to PCs. One customer needed a couple of copies of AutoCAD, so McNeel became a dealer. (In those days, anybody who bought two copies of AutoCAD at one time could become a dealer.) Bob and Sandy (his wife, also active in the business) quickly realized there was good money in selling software, so the company switched gears and began selling and supporting AutoCAD.
McNeel and Associates may have started selling software, but the firm stayed on its launch vector of professional services. The ethic of service to clients was already the trajectory; the only difference was that selling software was more profitable than accounting. As the years went by, the company responded to client requests and eventually developed more than 20 add-on products for AutoCAD. One by one Autodesk created competitive products or added equivalent functionality to AutoCAD, forcing McNeel to stay light-footed and continually respond to client needs with new software. Profits from these early products funded later development that led to Rhino.
Know Thy Stakeholder
Closely related to launch trajectory is the identification of the stakeholder. Most software companies are started by engineers and entrepreneurs who have an idea for a product and a plan to get rich from it. The stakeholders quickly become the founders, the investors they recruit, and sometimes stockholders (if the company goes public) and employees (if they are granted shares). The company serves the best interests of the stakeholders at all times or ownership replaces the management. Identify the stakeholders and you understand the motivation of the company. In our Puerto Vallarta sessions, Bob McNeel explained that there are three ways to make “real money” in CAD: buy stock in a CAD company, create a CAD company and go public, or earn stock options as an employee.
A closer look reveals the three are not equal. Stock investment is a zero-sum game, McNeel says; it only works if there are more buyers than sellers. Collectively, dividend growth in the CAD industry does not support the collective stock price. To have made money over the years in CAD stock would require constant buying and selling.
Making money in a public stock offering “is a game only the venture capitalists win,” McNeel says. “It takes guts and money… it is a wealth transfer mechanism to move money from retirement accounts to the VC’s pocket.” The recent trend of private equity firms buying software firms is an “interesting wrinkle on the VC game,” McNeel notes, and cites Alias as a case in point. Private equity firm KKR bough Alias for $57 million and sold it to Autodesk for $197 million. During the transitions, KKR made $140 million, Autodesk gained $400 million in market capitalization, and 400 Alias employees lost their jobs (many of whom had stock options). The stakeholders are obvious, and note that the users of Alias software do not enter into this at all.
Bob McNeel points this out because clients are the stakeholders of a professional services firm, not the owners of the firm. If you don’t believe that, consider the fate of accounting firm Arthur Anderson, which went under when Enron malfeasance became public. Very few professional services firms expand beyond a narrow ownership (generally known as partners), because of the conflicting loyalties that erupt. As a professional services firm that happens to be a software developer, McNeel has created an enterprise that in many ways is the antithesis of a commercial software firm. It consciously identifies its stakeholders as the users of Rhino and its other products, and organizes business accordingly. From identifying market segments to its spending on sales and marketing, nothing Robert McNeel and Associates does will look familiar to employees of other CAD vendors. We will explore the specifics in Part 2 as our series “The Way of Rhino” continues.