May 86 History
Volume Number: 2
Issue Number: 5
Column Tag: Historical Computing
Historical Computing
By Dick Heiser, Industry Pioneer
PROBLEMS WITH SILVER LININGS
Today, Thursday sixth, is a rest day. I'm sitting on the lawn at Glen Helen Park,
near Devore, California. This is where Steve Wozniak organized the US Festival. It's a
beautiful, green, bowl-shaped area beside two lakes. When it's not a rest day, I'm
marching in The Great Peace March from Los Angeles to Washington, D.C. This is still
our first week, and today is our first rest day. Glen Helen Park is just as ideal for our
camping as it was for the US Festival, maybe better. We have a lot of organizing to do
yet, so there are lots of loose ends.
The computers, including a Macintosh, share an RV with the Pro-Peace radio
station, WQO, 1630AM. The Mac showed up at the last minute, and has proven
invaluable. It's being used for daily schedules, bulletins, letters, etc. It has also taken
over route planning from my IBM PC, which has been having keyboard problems. Why
did I bring an IBM PC if I am such a Mac enthusiast? I'm saving my Mac for after the
march, and sacrificing my IBM to the rigors of camping life. Sure enough, I dropped the
IBM's keyboard the very first day. I've taken the keyboard apart, popped-off
non-functional keys and fixed them by blowing hard. I've glued the broken foot back on.
At Radio Shack, I found out the difference between a capacitor and a varistor. They fixed
our uninterruptible power supply for free. It was a nice example of community
support for The Great Peace March. On the way back to camp, I thought of a neat way to
prevent the burnout from repeating. Fixing "handyman" problems feels good. It
reminds me of the early days at my computer store.
LITTLE PROBLEMS
Operating a store is just a process of solving lots of little problems. Cash flow,
for example, is a strange little problem. It seems like a big problem when you don't
have enough cash, but it's also a guiding hand from mother nature to keep mistakes
small enough to recover from them. With enough cash, I could have plunged deeply into
the wrong projects, and would have gone out of business. The funny thing about cash
requirements, is that they go up if business goes up, and go up if business goes down.
When sales increase, I re-order big quantities, and need lots of cash for C.O.D.
shipments. When business slackens, the credit bills become due, and fixed expenses
eat-up cash as well. My advice to entrepreneurs: Get Don Lancaster's book The
Incredible secret Money Machine and read it carefully.
Inventory space was another problem. I'm glad I resisted the urge to get proper
inventory shelves. We piddled along for seven years with a few cardboard boxes
stacked on edge. Not having enough space for inventory kept us lean. That's very
important in the computer business where inventory can cost a thousand dollars per
cubic foot! Nowadays stores seem to have more resourses. but it was a struggle for us
to do $80,000 in monthly turnover with $100,000 worth of inventory.
Another little problem was limiting what we carried. We sold ultraviolet lamps
to erase your EPROMS, anti-static carpets to protect your keyboard, cables,
connectors, etc. Where could we draw the line? Everything is connected. Somebody
needs every possible item - that's why it exists. We refused to sell general electronic
parts, and sent prospects elsewhere for bookkeeping software, for example. Some
items that customers needed badly, we found hard to sell: Metal cases for keyboards
were a huge hassle. A local fellow tried to make them, but couldn't control schedules or
quality. Used Teletypes (the Volkswagens of the computer industry) were hard to find,
and Teletype dealers were a surly lot. In the beginning, nobody knew what a computer
store should sell, so every store decided for itself.
BIG PROBLEM: PROFIT MARGINS
The personal computer industry has always had trouble with profit margins.
Because we started with mail order products, the discounts available to dealers started
out very low.
My first negotiations with MITS were based on a set of simple pencil-and-paper
spreadsheets. I prepared three plans: Optimistic, Pessimistic, and Best-Guess. Since
this was a completely new kind of business, it's not surprising that all the estimates
were wildly off. I had calculated sales at $450.00 per computer instead of the
$2000.00 per computer that would have been a better guess. On the basis of my plan,
MITS offered to supply kits on an OEM discount schedule. Original Equipment
Manufactures sell products to a reseller (now called a Value Added Reseller or VAR), at a
discount that depends on quantity. To avoid being fooled by big promises of future
quantities, these deals usually begin with very modest discounts that only get good when
the significant volume is actually achieved.This would have made it hard to start a
business with limited capital, because profits would be postponed along with the
discounts. My first order to MITS was at only a 15% discount from list prices; not
enough.
MITS increased the discount, and created a dealer plan when they realized stores
like mine would be good for them. They wanted me to succeed. So I placed another
order, at 25% off, and we went on to do a lot of business together. Discounts remained
at 20% to 25% off list until Apple came along. All dealers complained about these
unrealistically low profit margins.
When Apple offered 35% discounts to dealers, I shuddered. It was too good to be
true. Sure enough, price wars between Apple Dealers shaved the gross profit margin to
10% - 15%, and I found it harder to make money in the later big business years than
in the early years when all the dealers were griping about short margins. Nowadays,
dealers are going down the tubes (or, as the Germans have it, "Rorchenhin
Unterdurchgang"), trying to do business at 5% - 10% margins, even without paying
hackers to provide answers and training. I call this a "Big Proglem" because I don't
have an answer yet. The Law of Survival is a good way to separate the weak from the
strong, but I've seen too many tough-guy discounters in my neighborhood, Olympic
Sales and Computique, have reorganized under Chapter XI. Survival of the fittest, yes,
but there should be more to fitness than just price.
BIG PROBLEM: EXCLUSIVE DEALERSHIPS
This almost ruined me. MITS refused to allow dealers to carry competing
products. They believed it was an illegal demand, but they made it, verbally, anyway. I
started as an ALTAIR dealer, but new products from IMSAI and Processor Technology
looked interesting. MITS threatened to cancel the dealership of anyone who carried
other brands. The MITS people tried to protect their leadership position the wrong
way.
Brand-name competition in iron wasted enormous amounts of time. People
would come to The Computer Store to ask, "Why is an ALTAIR better than an IMSAI?"
We responded, "Choose a computer that can do a function or solve a problem, don't just
choose some brand of iron." I'm sure most people believed we were just defensive about
the ALTAIR, but we really believed in solving a problem with software and hardware,
rather than selling features of brand-name iron. We could honestly recommend the
ALTAIR computer, and we were e specially impressed with ALTAIR software, but we
grew tired of defending our choice of brands.
Many dealers left MITS because of their prohibition on competitive brands.
Finally, we too changed brands and lost the MITS ALTAIR line. I delayed for over a year
and finally acted with fear. I fully expected our customers to associate us only with
MITS, and expected them to stop dealing with us. I imagined it would be like starting
business all over again. After we changed lines, I was astonished: Not one customer left
us! Customers understood, after all: Iron is secondary; problem-solving is primary.
This was a big problem that ruined MITS, almost ruined my store, and wasted a lot of
energy.
BIG PROBLEM: BUILDING RELATIONSHIPS WITH PROSPECTS
IBM Mainframe installations are locked-in to IBM by a huge investment in
programs, procedures, training, and momentum. At The Computer Store, we put a lot of
effort into before-the-sale problem analysis and planning with the prospect. When we
completed this planning process, we developed a list of recommended hardware and
software with prices. For our prospect, this became his shopping list! Our effort was
always appreciated, but everyone's a price-shopper, too. We tried to think of ways to
get "account control", or to sell our consulting services, but we never solved this
problem. Neither has anybody else, to my knowledge.
COMPARING TWO ENVIRONMENTS
Working at The Computer Store was an exciting job. We responded to an
enormous variety of requests. We designed, recommended, specified, configured,
installed, trained, debugged, and fixed computer systems for every conceivable
application. Perhaps that is the answer after all; helping people help themselves!
In many ways, operating The Computer Store then and participationg in The
Great Peace March now are strikingly similar. In both cases, we operate with
inadequate resources and face great uncertainty. Many problems remain to be solved.
Solving these problems will offer excitement, and we eventually see the problems as
great opportunities.