In January 1990, with just a few months to go before graduation, 21-year-old Joseph Liemandt dropped out of Stanford University to start his own software company. His parents thought he was crazy. They begged him to finish his degree. But Joe, an economics major, had entered Stanford with the goal of starting a business and was convinced that he couldn’t and shouldn’t wait. It turns out the undergrad was right. Now 28 and CEO of privately held Trilogy Development Group of Austin, Texas, Joe oversees 400 employees, revenues of about $100 million and a company valued by Wall Street analysts at about $1 billion. Not a bad trade for a bachelor’s degree.

Talking to this boy wonder, it’s easy to catch his enthusiasm. As Liemandt says, “The downside of being a kid is that you have no experience and you don’t know what you’re doing. But the one thing you have is massive enthusiasm and that carries you through. What kept Trilogy going when everything was terrible and nothing worked, when we had no money and our parents thought we were insane, was that we believed so much in our dream. We thought we would be done in 12 months, but it took 30.

“The biggest thing that kids can bring to the table is a massive can-do, will-do, ‘I-won’t-quit’ attitude, and that’s what we had.” Joe convinced four fellow Stanford students to join him in his dream. John Lynch dropped out with him, while Christina Jones, Chris Porch and Seth Stratton combined studies with Trilogy work until graduation when they could go full-bore on the big dream.

What was the idea that convinced Joe Liemandt that it was now or never? In the course of doing part-time consulting work for computer companies during the school year, he noticed that when he ordered computer equipment, the shipments often arrived late, incomplete or with incompatible parts. He began to study how companies place and fill orders, and was surprised to find that in many companies, as many as 90 percent of the orders the salespeople placed were wrong. Even though the companies were technologically savvy and sold sophisticated products, they still used cumbersome manual procedures to sell, configure and deliver those products to customers. Sales reps spent too much time in consultation with manufacturing and product marketing over how to configure the product for the customer. To Liemandt’s surprise, his research showed that while companies spent over 40 percent of their budgets on sales and marketing, they spent only about 10 percent on automating those processes. “I thought, ‘Holy cow, no one’s done this and it’s potentially a $10 billion market!'”

Automating behind the organization

“What people usually mean when they say sales force automation is putting a bunch of customer information on a laptop for a sales rep,” says Liemandt. “We didn’t see a big return there. We didn’t feel that trying to improve the point productivity of salespeople, most of whom did not use computers, was that valuable. The sales rep doesn’t need time to manage his contacts better. But when he needs a price quote or information from the home office, he needs them instantly. We decided, ‘Let’s automate the sales and marketing organization behind the sales rep.'”

The first product they produced was a configurator – software that makes sure that when you sell a complicated product consisting of more than one piece, all those pieces work together. “It’s a pretty esoteric piece of software, very hard to write. We’d seen that people had tried to write them in the past and failed.” At the same time, they tried to raise venture capital, but the financial community was not impressed. Says Liemandt, “There are three things venture capitalists look for: an experienced management team – and a bunch of 19- or 20-year-old kids doesn’t cut it; a really experienced technical team who’s building a product for the second time, which we weren’t; or a new hit product. But the last thing you’d ask kids to do is write a mission-critical application for the Fortune 500, which is exactly what we were doing.”

They did not succeed in raising venture capital. “We bootstrapped ourselves using sweat equity,” says Liemandt. “From the time we started during the summer of 1989 to the time we hit it in 1992, we financed half a million dollars over about 25 credit cards.”

At the same time, they were struggling to sell the configurator. “We used classic cold-calling and direct-mail techniques, trying to find out who in the organization might need this product. In the fall of 1991, we got a letter from a senior guy at Hewlett-Packard saying, ‘We already have a configurator and don’t need your product.’ That was really tough. Because of its reputation in the Valley, HP is the kind of customer you’d really want.”

But Joe’s guardian angel was working full time, bringing about a chance encounter at a trade show with another executive at Hewlett-Packard who was looking to build a better configurator. That started a three- to four-month evaluation process, which culminated in a $3.5 million agreement for sales configuration software and support services by the end of March 1992. By then, Trilogy numbered eight employees. What would make a multi-billion dollar corporation sign with a bunch of kids? Says Liemandt good-naturedly, “They were nervous, but we had a pretty good product.”

They will come

Once Hewlett-Packard signed, the group faced a different set of problems. “We knew that once we built the software, everyone would want to buy it. That’s exactly what happened. The problem was that we were eight kids who all of a sudden had this huge market in front of us. We needed to move on to build the organization. We needed some adults.”

Liemandt turned to his father for help, asking him to become chairman of Trilogy. Gregory Liemandt was a successful businessman. He had been chairman of UCCELL in Dallas, a maker of software for mainframe computers, which he sold to Computer Associates. Although he had made $30 million from the sale, he had refused to finance his son’s fledgling group. “My father hated that I dropped out and therefore hated everything about what Trilogy was doing until HP signed,” says Joe. Once the deal was done, the senior Liemandt agreed to take the job. This was a turning point for father and son. Not only did Joe’s venture finally win his father’s approval, but the decision to join Trilogy gave the pair valuable time together that they would otherwise not have had. Gregory Liemandt had been diagnosed with terminal cancer in 1991 and passed away two years later.

With the sale to HP, everything changed. The group decided to make a second try at raising venture capital. This time, every major firm in the country wanted in on the deal, including the ones who had turned them down when they first got started. Says Liemandt with a laugh, “We said to the ones who had said no at the beginning, ‘Sorry, you missed.’ It was definitely sweet revenge.”

They raised about $4 million, but it wasn’t just the money they needed. “I wanted to sell as little as possible,” Liemandt explains, “because I was looking for some help in building the company. I didn’t really need the money. One thing about being a successful entrepreneur is that you think you know everything. That’s also the downside.” He sold less than 20 percent to the venture capitalists, who now sit on the board and provide valuable guidance. Trilogy grew to more than 50 people in six to nine months.

Silicon Graphics and AT&T were the next big sales. In the summer of 1992, Joe went on a press tour and Trilogy was written up in The Wall Street Journal. Executives at AT&T saw the article and flew down to Austin for a demo. By the end of the year, they had signed a huge license agreement.

Branching out

For the first few years, the focus of the company was entirely on the configuration product. Says Joe, “The problem is that configuration is really hard. But because we picked it, we stuck with it and we waited until we were bigger before we branched out. Knowing what to focus on was really important.”

In 1994, Trilogy signed its largest deal ever, for $25 million with IBM, and began development of its Selling Chain suite of software, which includes modules addressing quotes, proposals, catalogs, pricing, financing, configuration and ordering. “We finally felt we really knew what we were doing. Our customers had been asking us for a long time to do more than just configuration.” Cleaning up companies’ configuration problems exposed other areas that could use Trilogy’s help. “It was like peeling the layers of an onion. As part of putting in the configurator for customers, we’d start to map out their sales processes. We would see that now that they’d cleaned up their configuration mistakes, their pricing was all wrong.”

In every case, the return on investment for customers installing Selling Chain has been enormous. Recalls Liemandt, “We had a customer who saved $5 million on catalogs alone. Seventy percent of the catalogs they sent out to the field would never get read by anybody. Once they automated the system so a sales rep could print one out locally when he needed it, they saved $5 million.”

“One customer, a large distributor, was spending $30 to $40 million a year on their pricing system before we came along. They printed price books and sent them out quarterly, providing their sales reps with weekly updates in the form of paper sheets that had to be inserted into their price books. Forty percent of the time the sales rep was still quoting the wrong price because they missed sheet number 6a.”

Companies selling through distributors and resellers find that these kinds of problems are compounded by a factor of five or ten. Liemandt explains, “You have four different voice mail vendors with whom the Regional Bell Operating Companies (RBOC) have reseller agreements. As a sales rep you have to go back to your office and on your shelf each of these products is a three-inch binder. If you want to give the customer multiple options, you have to go through each of these binders. Needless to say, most people don’t do it. They just do one. They pull up something they did a few months ago. We have voice mail customers who put an automated system on the Internet where the RBOC salesperson can go online and ask: ‘This is the size of my customer. What product would you suggest is best for them?’ You can’t understand all the products that everybody sells. It’s just too much. Instead, by putting in a needs-analysis system you can help your channel sell what’s appropriate to the customer.”

The future of the selling chain

According to Liemandt, the Internet is the medium that will provide the next big opportunity for companies to increase their revenues. Trilogy has introduced Selling Chain for the Web, allowing sales reps to give better data faster to their prospects. In addition, companies using Selling Chain for the Web can make it easy for customers to buy products over the Internet. “If you’re shopping for computers you can visit your reseller’s Web site and configure and quote all the PCs to figure out which one you want to buy. It’s the kind of thing that sales reps hate but that customers love to do. They get to play ‘what if.’ In a low-margin business like PC retailing, this kind of thing is essential. Sales reengineering is about revenue and growth, not about downsizing and shrinking. That was your back office. In the front office, it’s about growing.”

In manufacturing companies, building to order is the next step in automation, says Liemandt. Car manufacturers are taking the lead in moving away from building to inventory toward giving the customer exactly what he wants. “It takes 12 hours to build a car,” says Liemandt. “When the dealer tells you it takes six to eight weeks for delivery, that’s all front office administration. For the whole ’80s everybody focused on the supply chain, total quality manufacturing, concurrent engineering. They spent all their money on the back office. All the major manufacturers have taken their manufacturing times from six weeks to six days but they haven’t done that for the front office. All the return for the next 10 years is going to be in the front office, the selling chain.”