“Keeping Up With Constant Change”

Jim Harrer was manning his company’s booth at Comdex, the big computer convention, when he noticed a tiny exhibit nearby. He had never heard of the company — Netscape — so he strolled over to its booth to learn what they did.

The answer horrified him.

That was November 1995. Netscape was showcasing its new Web-based browser, Mosaic. Harrer watched a presentation and realized that his company’s products were suddenly obsolete. "At that moment, I knew we had to reinvent ourselves to survive," he says.

President and CEO of Mustang Software Inc. in Bakersfield, Calif., Harrer marketed text-based, bulletin-board software programs. He had spent nine years building Mustang into a strong competitor: Annual sales were approaching $5 million, and the company had recently gone public and raised cash to expand.

"When we arrived at Comdex, things were looking rosy for us," he recalls. "We came back knowing we had to toss out everything we had and start over."

To compete with Netscape, Mustang needed to develop an electronic-bulletin-board product that was Web-based rather than text-based, decided Harrer. So he directed his software engineers to design a new package using Internet browser technology.

"We spent all of 1996 bringing this to market," he says. "My engineers were working their butts off six days a week. Finally, we had a product we were excited about."

It failed. Harrer’s customers no longer wanted bulletin-board tools. When Harrer realized that his corporate customers faced a different problem — answering their incoming e-mail from customers — he developed Internet Message Center, an award-winning, e-mail-response-management system that became a hit.

Proving the Critics Wrong

The battle wasn’t over. During 1997, Harrer fought off his investors who dismissed his company’s chances for survival. There were three major complaints. Investors believed Harrer and his management team were blindsided by Netscape; they thought Mustang should have anticipated the emergence of Web-based technology and prepared for it.

They also questioned why Harrer didn’t respond to the threat by tapping an existing market, which they considered a safer bet. By creating an entirely new market for corporate e-mail systems, Mustang had to educate its customers from scratch.

Finally, investors frowned on Mustang’s home base in Bakersfield, a far cry from Silicon Valley. Operating out of a rural outpost didn’t enhance its stature as a cutting-edge firm.

Navigating Through Crisis

During Mustang’s darkest period, Harrer had two major headaches: He lacked funds to keep the business viable, and he struggled to hold on to top employees.

"We were running out of cash and falling under NASDAQ listing requirements," he says. "We were almost delisted. No one would invest any money in us at that point."

With no products to sell, Harrer cut his sales, marketing and technical-support departments to the bare bones. In 1995 he employed 65. Three years later head count dropped people to 22.

Those who stayed — mostly software engineers — retained a fighting spirit. Harrer couldn’t pay them market salaries, but they wanted to keep Mustang alive.

"I told these people I needed their help," he says. "They could have increased their salaries by leaving, but it wasn’t about money to them. It was about helping our company stay in the game."

Desperate for cash, Harrer finally found an equity fund that agreed to invest $1.5 million in Mustang. Terms weren’t favorable, but he didn’t have much of a choice. "Once we got that money, we started executing again," Harrer says. "In the last year we’ve stayed focused, and we’re seeing results."

Mustang’s 1998 revenues were just over $2 million. Today Mustang is aggressively rebuilding with 37 employees. Harrer plans to hire about 30 more employees over the next quarter.

Writer: Morey Stettner