A $14M Bootstrapped Family Business in Eugene, Oregon: Palo Alto Software Founder Tim Berry and CEO Sabrina Parsons (Part 4)

Sramana: In 2001 the market crashed, which impacted a lot of businesses. What did you do when you saw the trend annual revenue increases for your business stop and move the other way?

Tim Berry: I waited too long to do anything. We dropped five salaries on the same day a few months later. I discovered it was easier to let five people go all at once than individually. It was all about cutting costs. Those were difficult financial times, and we put ourselves in a risky financial position at that point. By 2002 we had recovered. Letting five of our 35 employees go was very painful. Cutting costs is a difficult thing to do.

Sramana: In 2002 you were back to $5 million in revenue. What was going on in terms of the business mix? Had the mixed changed between retail and downloads?

Tim Berry: That is an interesting question. We thought retail was going to collapse. We went through a period of buying a turnkey package that would let us do downloadable software. It took us until the fall of 1998 to get our process working properly, and we had to build it in-house.

Sramana: What came next in the chronology of the business?

Tim Berry: Around 2001 and 2002, I realized that I needed smarter marketing. By 2002 I had run into Sabrina, who had a lot of experience in this area and who also had built an interesting business with her husband selling our software in the UK. I bought that business and brought Sabrina on to essentially take over the marketing of the company.

Over the next five years, we grew to the point that we were approaching $10 million in revenue. Around 2007 it was very clear that we needed a new generation. The technology had changed. I wrote a third of the code of Business Plan Pro, but things were changing quickly. We needed to modify our existing product and create a browser-based online suite. That would let in the Mac market and mesh with app mentality.

On a Tuesday in 2007, I walked into Sabrina’s office and asked her what she would do if she were in charge. She ticked off a bunch of things. A third of them were things that were obvious, a third were things that I would have done anyways, and the remaining third of her list sounded good the moment she mentioned them. She told me that she would take the job as long as I started blogging and writing again. I remained an employee where I blog, teach, and write. Sabrina took over the leadership and management of the company. Sabrina took over the company in April of 2007.

Sramana: Sabrina, Tim handed you a company that was doing about $10 million in revenue at the end of 2007. What happened next?

Sabrina Parsons: I started putting plans in place along with my husband, Noah. He is the COO, and we work together to manage the company. We put plans in place to get some new software built. We made sure we were on top of the new application web technologies. About a year after we took over, the economy started to look very bleak. Throughout the fall of 2007 and the early winter of 2008, we had lined up a list of developers to keep Palo Alto Software at the cutting edge. Come Q2 and Q3 of 2008, people got very nervous. The financial market started looking poor. By September 2008, it was clear that this was a recession and it was not just uncertainty in the housing market.

People’s buying behaviors had changed. Our sales were affected. In 2008 retail was about 30% of our revenue, but stores themselves were seeing a huge down in sales. People were not going into stores to make purchases. We were getting traffic to our websites, but people were not buying. We felt that same paralysis. I looked at our forecast and realized that we needed to have a worst-case scenario forecast that identified all of the expenses we could cut to avoid laying people off. The memories from 2001 came back again. They had waited too long and fired five people in the same day, so they were anxious for us not to repeat that mistake and stay ahead.

We had some heated debates within our company, and they wanted me to put a list together of people whom we were going to let go. I came back and presented my new plan. It was a great time to go out and renegotiate infrastructure expenses such as hosting, telephone and broadband. We cut $17,000 a month in expenses that way. I wanted to hire a salesperson and avoid firing anyone. We agreed that if I made my numbers on a monthly basis, we would not need to lay anyone off. We managed to meet or exceed our numbers every month and we made it through to the fall of 2009, which is when things started picking up again.

This segment is part 4 in the series : A $14M Bootstrapped Family Business in Eugene, Oregon: Palo Alto Software Founder Tim Berry and CEO Sabrina Parsons
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