New companies are sold to the public in much the same spirit as new books, new music, and new politicians. The sellers leap onto airplanes and fly to many cities, where they put on a show for the perfect strangers who they hope will buy their product. In the case of a new company, the strangers are money managers and the show is called “the road show.”
The Healtheon road show had the same two stages as most road shows for Silicon Valley companies. The first stage was in Europe. Europe was a useful place to open not because it had a lot of money managers dying to invest in new technology companies but because it didn’t. Europeans were famously clueless about new things, not to mention new new things. When the Netscape road show had passed through London, and after Jim Barksdale had spent an hour explaining to a group of Englishmen what, exactly, the Netscape browser did, one of the investors raised his hands and asked, “Do you need a modem to use your product?” The way he said it you could tell he was pleased he’d heard of a modem.
Europe was the place to polish the act before taking it onto the stage that really mattered, the United States. You could flop in Europe, and Europeans would never know. “What we’ll tell Americans when we come back is far more complicated,” said the Morgan Stanley man simply, as Clark’s plane leveled off at 37,000 feet.
Once over the Atlantic, Mike Long and his CFO, Jay Westerman, reviewed their slide show. The road show was, in fact, a traveling slide show. The slide show was the preferred technique for rendering essentially abstract concepts—“the future,” “software,” “the U.S. health care industry”—concrete. Unless they have seen a slide show, investors do not truly believe they have been shown a business, especially when the business is an abstract promise to make a lot of money rather than a concrete, profit-making enterprise. And so, together with the man from Morgan Stanley, the Healtheon executives sat in the big swivel chairs in the back of Clark’s jet and examined the first slide in the show. It was the Chart of Many Bubbles.
I should say that from the start it was clear this was not Clark’s show but Mike Long’s. Clark was along only because Long had asked him to come, on the theory that Clark’s reputation for inventing the future couldn’t hurt and might help. After all, Jim Clark had made a lot of money for investors over the years. Clark for his part would have preferred to be working on his boat. He listened politely to Long’s presentation. Occasionally he walked to the back of the plane and sat himself in front of the blue Silicon Graphics work station he carried with him wherever he went. There were still many kinks in his own software, and the boat was due to cross the Atlantic a few weeks hence. He was determined that, if something went wrong, it was not going to be his code that caused the problem.
Clark’s priorities were not lost on Long. Before he set the dates for the Healtheon road show, he made sure it didn’t interfere with the launching of the boat.
The trouble with Mike Long’s slide show was that he couldn’t just tell investors what he really thought: that he intended to build the world’s biggest company. They wouldn’t believe him; they’d laugh him off the stage. To translate Jim Clark’s ambition into the language of the global investor, Long had to tease them with charts and numbers and hope they arrived at their own rosy conclusions. But here, outside of Silicon Valley, the Chart of Many Bubbles looked perfectly baffling. No ignorant person could conclude anything from it. Long seemed to realize that he could never truly explain Healtheon’s software, or the U.S. health care industry, to foreigners. He groped for a simpler way to show Europeans exactly how Healtheon intended to seize the world’s largest market.
“I sort of like the physician metric,” he said. He sounded hopeful but looked weary. He hadn’t slept properly in several days.
The physician metric was a complicated-sounding phrase for a simple idea: the number of doctors who used Healtheon’s service. Investors needed some way to evaluate how well Healtheon was doing. Investors liked to be able to count progress in dollars. Long wanted them to count progress in doctors.
“I like the physician metric too,” said the Morgan Stanley man.
“You think there are too many things on that slide?” Long asked, holding up one of the charts that followed the Chart of Many Bubbles. The slide was a war zone of arrows and swooshes.
“The simpler the better,” said the Morgan Stanley man. “Think AOL. One of the great things about AOL was that they hammered into the heads of investors the idea that all that mattered was the number of subscribers.”
Clark said, “That’s exactly right.”
The Morgan Stanley man became more enthusiastic about the physician metric. He wanted to call Mary Meeker, the Morgan Stanley analyst who was fast making a name for herself as the leading authority on Internet businesses, and “bake” into her mind the idea that investors should focus only on the number of physicians hooked up to Healtheon’s service. Long leaned over to Clark and said, “Hell, we could get 150,000 more physicians with just two deals.”
“Really?” said Clark. He was interested again.
The two men danced together around the next heuristic problem: how to explain to investors how much money Healtheon intended to make, without sounding absurd. “I don’t think I have to say it,” said Long. “I think all I have to do is say that there are 700,000 physicians in the United States and that we feel we have a legitimate shot in signing up 500,000 of those. Each doctor represents $20,000 a year in revenues. I’ll just say, ‘You do the math.’”
Clark thought this was a great idea, as did the man from Morgan Stanley. You do the math. The Healtheon men and their banker were not just creating a presentation. They were inventing the manner in which their business would be judged, at least for the next few years, while they lost great sums of money. You do the math became one of Mike Long’s favorite phrases. You do the math gave the investors something to do with their hands while he spoke. And if they actually did the math, they arrived at the most fantastic calculations. Multiply 500,000 doctors by $20,000 a year and you wound up with $10 billion a year in revenues. Ten billion a year that did not even include foreign health care markets, which Healtheon now also had vague ambitions to conquer. Microsoft, America’s most highly valued corporation, had only $8 billion annually in revenues.
Everyone was happy with the physician metric. The man from Morgan Stanley was so happy that he presumed a familiarity with Clark. Clark had settled himself in behind his computer work station. The Morgan Stanley man leaned over to chat about the sailboat. The sailboat had people back in the Valley talking—it was yet more evidence that Clark was just a little…different. “I was wondering, Jim,” the Morgan Stanley man asked, “what happens if the computers go down? Is there a mechanical override or backup or something?”
“The computers won’t go down,” said Clark, so gruffly that the investment bankers flinched. Clearly, there’d be no questions about the boat from investment bankers on this trip. Clark let the Wall Street people sell his companies to the public and make him billions of dollars, but only because he hadn’t yet figured out a way to get rid of them. But he’d never let them into his sacred world of machines.
The first two days in London nothing much happened. The British were hard to sell to, but the British were always hard to sell to. In these situations they tended not to even cross that invisible mental line that separates spectators from customers. Dapper British men in expensive suits came to see Mike Long’s slide show with the air of people watching a tennis match. They asked questions that suggested, if not keen interest, at least mild curiosity. Long made his pitch in Britain seven times inside of thirty-six hours. He was moving too fast to notice that something was terribly wrong. It wasn’t until the third morning in Amsterdam when it dawned on him, as it dawned on everyone else, how unlikely he was to sell anything to anyone, much less sell the new new thing to Europeans. The vision of a technology company rising up out of the miasma of the U.S. health care industry and changing the world was suddenly, horribly implausible. Change required optimism, and optimism was suddenly scarce.
The first morning on the European continent we gathered in the conference room of a fancy Amsterdam hotel. Long had not slept in forty-eight hours. The U.S. stock market had finished 200 points lower the day before, having fallen 250 points the day before that. The German stock market had just opened down 8 percent, the equivalent of a 600-point drop in the Dow. Banks around the world were announcing massive losses from loans they’d made to Long-Term Capital, an American hedge fund gone sour. Holland’s biggest brokerage firm, ING Barings, announced that morning its new plans to cut 1,200 jobs. The Bloomberg news service had an article quoting IPO experts saying that the business of companies with huge losses and no foreseeable profits trading for many multiples of their revenues had been stopped in its tracks by the new skepticism of financial markets.
Clark arrived at the breakfast with a stack of faxes from Healtheon’s publicist. They turned out to be Healtheon’s first reviews. There was a front-page article in the Wall Street Journal, a big spread in Business Week, a smaller spread in U.S. News & World Report, and a long article from Bloomberg News. Before his slide show Long declined to read any of them. Still, he could see from Clark’s face that the reviews were not good. Business Week quoted Jim Barksdale, the Mike Long of Netscape, describing Clark as “a maniac who has his mania only partly under control.” The Wall Street Journal’s front-page story suggested that Healtheon’s software was not finished.
Long looked around for the slide projector. It didn’t exist. Normally, the slide projector had something wrong with it but at least it existed. Normally, Clark just fixed it.
He looked out over the breakfast table. Along it sat half a dozen surprisingly young Dutchmen with their pallid Dutch skin and lank Dutch hair. They dug into droopy cheese sandwiches. Cheese sandwiches! At seven in the morning! The thought did not obviously interfere with their pleasure in the free meal. Each one of them ate for three. The gusto with which they attacked the cheese sandwiches caused Long to wonder if they had come, perhaps, for the food. Were these people really the power brokers of the northern European financial markets? Of course not! The power brokers were all back in their offices trying to figure out how to sell their Internet stocks.
Wearily, Long produced the paper version of his slide show. He held it up before him, like a second-grade teacher with an alphabet chart. The first slide was no longer the Chart of Many Bubbles. The Chart of Many Bubbles had baffled one too many Englishmen. The first slide was a list of the people who sat on Healtheon’s board of directors: Jim Clark, John Doerr, Dick Kramlich, a virtual who’s who of Silicon Valley. “Everyone at our company who is not on this chart,” Long said, “is under twenty-six years old and works twenty-four hours a day seven days a week and sleeps in his cubicle.”
No one at the conference table laughed. No one even broke a smile. From their expressions of incomprehension it was unclear whether they understood English. They looked to be about twelve years old. Their suits were the off-the-rack polyester sacks that every European male bought before his first day at the bank. Their socks drooped.
Still, Long worked his way steadily through the slide show. The phrases rolled off his tongue: We think doctors want to pay for our services by the drink…. The Internet changes everything…. There is constant media scrutiny of this company…. A one-point-five-trillion-dollar market is ours to win or lose…. You do the math.
Their faces remained uninspired. There was not the slightest sign of comprehension in them. If there was a sound in that room, it was the sound of air being let out of a tire. The Internet and all it stood for felt woefully out of place. What could it mean to a dozen Dutchmen who were still getting their minds around the idea of electric power?
A lesser man would have caved in and walked out of the place. After all, why did Mike Long need to be going without sleep for forty-eight hours for the privilege of explaining the U.S. health care system to a handful of Dutch adolescents? He was plenty rich enough that he didn’t need to work. He was, at least on the surface, a modest man; certainly he had no further material needs. More to the point, he was not like Jim Clark, who was forever doomed to grope for the new new thing. He could have given up, then and there. Yet he didn’t. The Serious American Executive had signed on for his tour of duty in the Internet wars. Having signed on, he was going to finish.
After the Dutch paper slide show we drove in silence back to Clark’s plane. There, while detained on the runway, Long asked for and received the front-page article from the Wall Street Journal. He sat in one of the big swivel chairs and placed the piece on his lap, unread. He could have been a director preparing to read the reviews of his latest film, or a politician checking the papers to see how his latest policy speech went down.
But before he started, Long lowered his expectations. That was one of the little psychological tricks he played on himself. As the Serious American Executive, he was not allowed to show great emotion. He could not permit himself to be visibly upset or disappointed. Thrilled as Mike Long had been by the physician metric, he never let himself hope that he could sell Europeans on the idea. For instance, as we drove in from the airport to central London, he brought up a trip to Europe he had made recently with his father. His father had been an infantryman in World War II. Long gathered up twenty or so snapshots his father had brought back from the war, grabbed his father by the hand, and set out to revisit the sites and retake the photos. They tracked down ten of the twenty places. “And the thing was,” said Long, on his return to Europe, “they were all the same. We retook this one picture in Pisa, beside the statue of Garibaldi. In the old picture there was a shutter hanging off one of the houses by a single hinge. That had been fixed. Other than that the two photos were identical.”
This had been Long’s way of saying: if Healtheon failed to sell in Europe, he could blame the failure on the European resistance to change. Now, before he read the article on the front page of the Wall Street Journal, Mike Long said, “George is a cynical guy.” He was referring to George Anders, the Journal reporter who had written the article. If George Anders panned Healtheon in the Wall Street Journal, it was because George was a cynical guy.
And then Mike Long began to read. For the next hour he read and reread the article many times. He read it front to back, then back to front. He skipped to the middle to reexamine a particularly noxious passage. He put it down, then picked it up again, as if starting in on it fresh might somehow alter its meaning. In that hour Long did not speak or change expression. He was a man in a trance.
The article about Healtheon that appeared on the front page of the Wall Street Journal on October 2, 1998, was a rocket from pre-Internet America. It quoted industry experts saying things like “a lot of the challenges we face in health care have very little to do with the Internet.” It pointed out that Pavan and his team of engineers were late delivering Healtheon’s software to doctors, and left it to the reader to surmise that this just might be because the software did not work. It went on to say,
Much of Healtheon’s allure comes from its two main backers. The company’s Chairman, James Clark, is a co-founder of Silicon Graphics Inc. and Netscape Communications Corp., whose Web browsers have helped Internet mania sweep the world. Healtheon’s main venture capitalist is Kleiner Perkins Caufield & Byers, which has shown a Midas touch on its Internet investments…. But Healtheon has struggled to live up to its pedigree…. For much of this year, Mr. Clark, the company’s chairman, was away from the U.S. for about a week each month, including visits to a Dutch boat yard building a yacht for him.
The implication was clear: no man who spent a week a month in Holland building a boat could plausibly claim to reform the U.S. health care system. Never mind that only a man who spent most of his time programming a boat to sail itself would persist in his quixotic ambition to reform the U.S. health care system. Just a few months earlier no journalist would have dared to cast such a skeptical eye upon any enterprise associated with Jim Clark. The climate of the Internet had changed. Clark was suddenly like one of those big hairy mastodons at the dawn of a new Ice Age. ClarkWorld was now treacherous. Stocks were falling fast, and Internet stocks were falling fastest.
Mike Long, like everyone else on board the jet, up to and including Clark’s pilots, who held shares in the Healtheon, knew instantly that the road show was over. Oh, they would travel from city to city in the United States with the slide show. They would explain the Chart of Many Bubbles fifty times more. But wherever they went in America the article in the Wall Street Journal would follow them.
That article marked the final rite of passage for Mike Long, the Serious American Executive. He had spent twenty years building a robust computer business in Austin, Texas, without reading a word about himself, except perhaps in the local paper. Certainly no one dared to criticize him publicly. No reporter would ever dare analyze him and dissect his business. Now, as Long read the Wall Street Journal, he found that he had opened himself up to a new set of forces. The Serious American Executive read the piece over and over again. He’d just become a citizen of ClarkWorld.
“Pavan doesn’t fidget,” Long finally said. His voice was cold with anger.
“What?” asked Clark, who through it all had been sitting next to Long and paying him no attention.
“It says here that ‘Pavan Nigam “fidgeted” when asked for a firm delivery date for the software.’ Pavan does not fidget.” Then Long tossed the article onto the seat and wandered back to a sofa to take a nap. Clark just watched him leave. “Mike’s going to have to get used to the press” was all that Clark said.
The final leg of the European road show was a triumph of habit over reason. Mike Long went on selling even after it was clear that selling was a waste of time. The Europeans probably would not have been able to do the math in any case. But at least, as he stared out at teenage European investors devouring their bizarre breakfast foods, Long could remain hopeful for his prospects in America. Now he knew that he was doomed in America, too. Selling Healtheon required him to manage the perceptions of investors. No investors would be able to evaluate Healtheon’s software; they relied on the reputations of the people involved. Now those reputations had been called into question. Until now investors would have wanted to believe that the software worked; now they would want to believe it would not. For that reason Pavan Nigam was called out of his cube at Healtheon and onto the road show.
Of course, in a rising stock market the Wall Street Journal might not have had such effect. Indeed, the people at the Journal might not have had the nerve to run such an article, as they faced the likelihood of being made to look like fools the moment Healtheon’s stock took off. But with the market collapsing the article was as definitive as a stake in the heart. After his final European presentation Mike Long returned to the plane, flew back to the United States, and finished the job. As he traveled the country he wrote e-mails to Kittu and Stuart and the three hundred or so other employees back in the Valley, who he knew were simply waiting to find out how rich they had become. They convey the spirit of a man disguising from his loved ones his knowledge that he will be executed in the morning.
From New York he wrote:
The first thing you notice about presenting in New York City versus Europe and the West Coast is that courtesy and benefit of the doubt go out the window. This is in your face territory. The demeanor of many of the investors is outright hostility. This is partly by design to test your knowledge and conviction and partly just the way people are that live here. We responded with equal aggression.
From Philadelphia:
One benefit that the bankers provide in each city is one of those long black limos that high school kids take their dates to the prom in. This car proved to be a big asset in Philly where we were reminded that when objects collide mass matters. Three cars crashed into us on a rain slick freeway on the way back to the airport. Next thing you know we’re helping drivers from two crashed cars into the back of the limo to lie down and wait for the ambulances to arrive.
Mass matters.
The one thing that is very obvious about money managers is that their self esteem and attitude is heavily dependent on how their performance chart looks each day.
From Dallas:
There is always a lot of anxiety with our bankers about the length of our presentations. The goal is to tell the entire story in twenty minutes or less, a worthy goal that Pavan, Jay and I are still striving for.
From Chicago:
There is no one else out here but us. Can a successful IPO be done in this market?
From San Francisco:
For a dinner presentation which turned out to be in an open restaurant that was full of interesting but perplexed people who didn’t realize they were going to get an investor presentation during dinner. One thing you notice right away is that you’re presenting at a lot of breakfasts, lunch and dinner forums and everyone gets to eat except us because we’re talking. Answering difficult questions from potential investors with your mouth full of food is bad form. There are always sandwiches of some age and variety in the car between meetings.
The road show came to a screeching halt in New York in late October 1998. A couple of hundred institutional investors who had spent the morning selling any stock or bond not fully guaranteed by the U.S. government gathered over lunch in a hotel ballroom to hear the riskiest idea they’d heard in a while. Before Mike Long’s slide show Clark offered a few encouraging remarks. A male investor raised his hand and asked Clark to comment on the article in the Journal, and the quotation from the health care executive who said the Internet is irrelevant to his industry. “It’s quite typical of larger companies that are threatened by smaller companies,” Clark said. “They say, ‘It’s not important.’ And that’s what keeps them from responding.”
Mike Long then rose and delivered the slide show. The phrases rolled off his tongue: The Internet changes everything…. There is constant media scrutiny of this company…. A one-point-five-trillion-dollar market is ours to win or lose…. You do the math.
He made all the right noises. But at the end of the show the investors had only one question.
“If you guys are successful,” a New York investor asked, “how long will it take before Microsoft is in the business?”
Mike Long got this world-weary look on his face, and repeated the question for anyone who hadn’t heard it. “The question is Microsoft. Are they going to blow us away?…Well, their strategy is that they are going to dominate all vertical industries. And their hubris is unlimited. So, yes, we have to assume that they are coming, sooner or later.”
The man from Morgan Stanley rose and said, “Thank you very much. And we’re looking for an early-next-week pricing.”
It never came. A few days later the man from Morgan Stanley drove from his office on Sand Hill Road down to Healtheon and told Mike Long that they hadn’t found enough interested investors to justify taking Healtheon public. Oh, they probably could sell a small stake in the company to a handful of believers—at the same price that Clark and the venture capitalists had paid for it. But what was the point in that? A few hours later, after a conversation with Clark, Mike Long canceled the deal. The deal had been, of course, central to all of Mike Long’s plans. Without a highly valued share price, he would be unable to buy all the little companies he wanted to buy, and seize control of the entire U.S. health care industry. Nevertheless, he called all the employees together in a conference room and persuaded them that one day soon they would triumph.
But even as he spoke he knew he had one very immediate problem: he needed another forty million dollars just to keep the company running. He called the Wall Street bankers and the venture capitalists and Jim Clark, and told them.
At that moment, I think, it dawned on Clark that the food chain of capitalism was missing a link and that, if he summoned the nerve to hoist himself up, he could be that link. And that if he didn’t have the nerve to do so he would make a mockery of his entire remarkable climb. He once told me, “I can’t be a venture capitalist, because I’m not that kind of person, and I can’t be a manager, because I’m not that kind of person. The only thing I can do is start ‘em.” His role in the Valley was suddenly clear: he was the author of the story. He was the man with the nerve to invent the tale in which all the characters—the engineers, the VCs, the managers, the bankers—agreed to play the role he assigned to them. And if he was going to retain his privilege of telling the stories, he had to make sure that the stories had happy endings. If that meant supplying forty million dollars more to Healtheon, so be it.
In that decision, taken during a financial panic described by Alan Greenspan, the chairman of the Federal Reserve, as “the worst” he’d ever seen, you could, if you looked closely enough, see the first glimpse of the new new thing. Clark’s willingness to take risks others shunned was the source of his financial power. He was the guy who always won the game of chicken because his opponents suspected he might actually enjoy a head-on collision. With the markets falling fast, and the financiers hemming and hawing, he called first Mike Long and then the investment bankers, and told them all he’d like to supply the entire forty million dollars to Healtheon. Forty million dollars suddenly looked like real money. Forty million dollars was the annual budget for a medium-sized city. More to the point, forty million dollars was at that moment nearly 20 percent of the after-tax value of Clark’s Netscape stock, itself falling rapidly.
Clark’s faith in his new enterprise was actually faith in his own imagination, as the new enterprise was merely an extension of that imagination. The power of that faith, once again, was transforming. One moment the financiers were wondering aloud where the forty million dollars was going to come from. The next moment they were trying to prevent Clark from supplying the full amount, and acquiring for himself an even larger stake in the troubled company. In the end the bankers and the venture capitalists agreed to let Clark give Mike Long twenty of the forty million dollars he needed. They supplied the rest. And so Clark bought half the canceled IPO, at six dollars a share.
I spoke to him a few hours after he did this. Technology stocks were collapsing, and a new pessimism had found its way into the heart of the miracle economy. All Clark said was, “I’ll be a billionaire again soon.” And then he returned to the serious business of programming his boat, and to the search for the new new thing.