Founded, and Lost
By Sarah Schafer
At one time, Mike MacDonald and Frank Pittelli were just a couple of techies who loved to write code. The two friends would hold programming jam sessions, swapping ideas like guitarists sharing their newest riffs. Three years ago they started a software company together.
"We had a blast," Pittelli said of those early days of running NetFactory, which became Visual Mining Inc.
Now three years old, the Silver Spring company has 40 employees and new hopes. A first-time-ever profit and $5 million in sales are possibilities in 1999, executives said. In January, Visual Mining got a new chief executive, Thomas Dailey, who has led other ventures to success. In the next two months Dailey will move the company to the I-270 corridor, Maryland's hot technology row.
But for Pittelli, Visual Mining's prospects seem bittersweet. Today the 40-year-old Pittelli is looking into other gigs, having been forced out of his management role at the business he and MacDonald founded. His story, he believes, is one other start-ups should heed. Among his lessons: Investors can turn an entrepreneur's world upside down.
The idea was to sell software that helps large companies capture information stored in their databases and turn it into visually appealing charts -- "dynamic data," in the jargon. The software would be written in Java, a programming language introduced several years ago by Sun Microsystems Inc. that is relatively simple to write and that works with any operating system. Using a World Wide Web browser, the mini-programs would be able to dig through corporate databases (or mine them, hence the company name) for information and then spit the data out in chart form.
While the concept sounds simple, it helps solve a classic business problem: having scads of data, but no useful way to access and use the information. Instead of having to beg their information systems workers to get information for them, executives could use the software to do their own digging.
MacDonald and Pittelli set up shop in 1996, dubbing their venture NetFactory because their mission was to manufacture tools for company networks.
For the first year, the entrepreneurs relied on the World Wide Web for marketing. They contacted search engines such as Yahoo, and got their Web site listed. Immediately, companies started calling to ask for the software. Database powerhouse Oracle Corp., which still uses the product as part of its database software, was one of the first customers.
Those were fun times, recalled MacDonald, 37. "I'd be talking to Oracle while the dog was barking and the kids were outside my door."
Headquarters consisted of his and Pittelli's respective homes, which made juggling phone calls tricky. "I'd say, 'Well, he's not in this particular location.' " MacDonald laughed, saying he sometimes had to tell white lies to hide NetFactory's true size from customers. Putting clients who asked for tech support on hold as if they were being transferred, and then picking up the phone again himself in hopes they would not recognize his voice, was one.
"I would talk to somebody on the phone and they would say, 'Well, I'm looking to get a discount on that,' and I would say, 'Let me ask you a few questions.' . . . I wanted to make them think we were bigger than what we were," Pittelli said, also laughing.
But at the end of the first year, MacDonald said, "It wasn't too far down the line we realized neither of us were sales guys."
Through a mutual friend, the founders met Matt Young, a salesman in search of a new business experience. They hired him and he soon put them in touch with a venture capitalist he knew in Boston. By 1997 the company found itself with $4 million in venture capital (after six grueling months of discussion, Pittelli said) and a board of directors made up of representatives from two venture firms.
"The investment money changed life," Pittelli said.
Suddenly, he said, he was ripped from his insulated world of programming, "thrust into a world where . . . building the best possible product wasn't the goal."
For example, according to Pittelli, the board asked the founders to hire someone for a job and overruled Pittelli when he refused.
The new hire's job was partly to keep the programmers -- at this time there were six of them -- on schedule and to make the programming process more efficient.
Pittelli felt threatened. The product, he said, "was my baby," which he would have been happy to hand over later, "when it got old enough." He said he believed product development and creativity were being sacrificed.
"I have been around enough to know that technical leaders don't run companies for very long," he said, noting there are a few exceptions. "Eventually you hand it over."
But some board members thought Pittelli might hold the company back. "If you don't want to let up on control, that's where you run into problems," said Robert Davoli, general partner at Sigma Partners in Boston and a Visual Mining board member from the beginning. Pittelli, he said, "wasn't good at the boring side of engineering," such as scheduling, testing, and documentation.
"It's hard to give up pieces that were totally your domain," MacDonald said, empathizing with Pittelli.
MacDonald didn't have the same resistance to the wishes of the new management. When the board pressured Pittelli to spend less time at the company, until he finally left for good in the summer of 1997, MacDonald stayed. Pittelli still retains a significant investment in the company.
The board had made other major changes. First, it had asked Young to step aside as chief executive, although the directors kept him on as acting chief executive until Dailey's arrival. Young remains in a senior management position.
Second, they had asked to change the company's name a second time; the co-founders had already switched once, from NetFactory to ChartWorks.
According to Davoli, Dailey is well equipped to lead Visual Mining, having headed up companies such as Claritas and Spectra Marketing Systems Inc. He founded Spectra and expanded it into one of the largest marketing firms in the consumer packaged goods industries before selling it to Claritas. Before joining Visual Mining, Dailey was chief executive and chairman of VorTech Equity Partners Inc., which was formed to acquire decision support software companies.
MacDonald said he is soaking up from Dailey "things I wouldn't have understood before," such as signs in the stock market that indicate what might be the right time for an initial public offering.
He and Pittelli, who still call each other occasionally to talk shop, had very different backgrounds that may have colored their experiences, MacDonald said. After college, he spent 11 years in the Air Force. "I'm sitting in board meetings and thinking these guys are talking another language," he said.
But, he said, "Frank had been doing code from day one, and he had been in the business world a lot longer than I had."
"I still look at it as a real learning experience . . . there are different worlds out there that I feel kind of surprised to be in." For him, it's akin to joining an elite club, the members of which enjoy myriad privileges: access to capital, the ability to forge deals with industry heavy hitters and Palm Pilots filled with the direct lines of big name management and technical talent.
For Pittelli, however, it was a different type of learning experience. "It's a story of a very intelligent technology guy who got his hat handed to him in the business world," he said. "I failed to keep all the votes in my pocket where they belonged."
He plans to start another company soon, he said. "The next time I'll know what to look out for."
A Look at ...
Visual Mining Inc.
Founded: 1996 as NetFactory. Changed name to ChartWorks in 1998, then to Visual Mining in January.
Headquarters: Silver Spring
Description: Sells software that mines corporate databases and then presents the information in chart form.
Revenue: Sales in 1998 were slightly more than $1 million. The company is not yet profitable.
© Copyright 1999 The Washington Post Company