A software success.

Can too much prosperity be a bad thing? When a product takes off, many young companies collapse because demand outstrips their capabilities. CPA Janis Monroe, the founder of software developer and publisher MicroMash, was able to weather this challenge and, using an accountant's instinct for good management, set her business on a path for continued growth.

FROM THE RIDICULOUS TO THE SUBLIME 

Monroe was the chief financial officer of a retail concern for 15 years before she left to become a professor of accounting information systems at Sam Houston State University in Texas. In academia, "I became intrigued with the power of the computer for educational uses," she says. In the mid-1980s, she teamed with other professors to create software that would teach students accounting and help them prepare for the Uniform CPA Examination. Monroe started a company that would develop and publish the software and launched the product.

The initial reaction was underwhelming. "We were laughed at at all the trade shows," Monroe remembers. "They said the product was ridiculous. No one had ever tried to do this and no one thought it would work. As time went on, we crawled our way up the ladder. When you're ahead of your time and you're trying to break into a market, it's a long, hard climb."

The company's fortunes changed dramatically in 1990. The University of Texas at Austin was using the CPA exam review software for its students and, at an exam site near the university, the number of MicroMash users who passed the exam was way above the normal rate. As a result, the American Institute of CPAs and the Texas state board of accountancy investigated that site for cheating. It was determined that the students were innocent, and that the software was behind their accomplishments. "That made the company," Monroe says.

But such rapid success was a mixed blessing. At the time, the business employed nine people, including those in development. After the exam site investigation, "we suddenly went from 500 phone calls a month to 1,000 phone calls a day." Although Monroe welcomed the business, "it was a total management nightmare. We would place an order with our vendors at 9 a.m. and then sell the whole order by 10 a.m. The vendors weren't ready. The infrastructure wasn't in place."

Monroe says the company survived because she and her daughter, Elizabeth, who worked with her, refused to believe anything was impossible. To keep work flowing, employees were fed three meals a day at company expense. Temps were hired to help cover calls. Phone lines at the Colorado headquarters were kept open from 6 a.m. until 10 p.m. to accommodate callers from both coasts. When the phone lines closed, "Beth and I proceeded building product to ship. My husband would come in with cots and say, "Would you two just lie down for an hour?" But that was what we had to do. We went from a company of 9 people to one of 40 in six months."

Surging growth required temporary compromises on management decisions. Because it was vital to keep the product moving, "we built a high overhead because we didn't have time to get efficient; we just had time to get it done." Once the company grew into its success, Monroe had to analyze her operations and staff positions. "It probably took me a year to reorganize and get the company into a shape that I thought was right."

In restructuring, Monroe tried to remain flexible, particularly as her company grew to its current staff of 80. For example, "sometimes you hire people who can do top-notch work for 40% of the job but, for the other 60%, they're just mediocre." In such situations, Monroe's policy was to reshuffle personnel. For example, when an employee hired to sell was good with people but couldn't close a sale, he or she was moved to customer service. Technical experts frequently have disliked handling customer problems on the phone but have thrived when switched into software testing, Monroe says.

CHOOSE YOUR BUYER

Monroe relied on a variety of financing options at different stages in the company's history. Initially, all of the academic colleagues invested, but the arrangement didn't work well because the group had sharply underestimated the capital requirements to make the company successful. Monroe was considering selling out when a family member offered her a $50,000 infusion to expand the start-up herself. "That got us over the first hurdle," she says. When the company needed even more capital, Monroe considered accepting venture capital before she received offers from private investors who had heard of the company's success. Their investment gave the company the money it needed to survive.

By 1993, Monroe faced two problems. One was that although her original investors had been enthusiastic about backing a promising start-up, they were unwilling to finance further expansion. "They had put their money in, but they wanted to let it ride. But to survive in this market, you have to keep moving." Although the software was unique when introduced, other competitors had jumped into the ring. "That means we had to stay ahead of the times to be the best method of study," Monroe says.

At the same time, Monroe also perceived that MicroMash was becoming a takeover target. "All types of large companies were approaching me to sell. I realized that since I didn't own control of the company, someday somebody was going to take the offer. So it became prudent for Elizabeth and me to choose our buyer." In 1994, they selected ICS Learning Systems, in what Monroe characterizes as "a very successful acquisition, especially considering it was a 110-year-old, $140 million company buying a much younger, $4 million company."

Monroe has been satisfied with the deal because MicroMash has retained its independence. Elizabeth is president of MicroMash and Jan is chief executive officer--as well as executive vice-president of development at the parent. "Not only has it been good for MicroMash but it has also allowed Beth and I to grow with a large organization."

Formerly a print-based company, ICS wants to provide services on the Internet and through CD-ROM and computer-based training. "We have to figure out how to do that and still satisfy our core ICS Learning Systems customers who do not have computers yet." As a result, the company has developed a highly technical method of putting all of its content into standard generalized markup language (SGML). Using this technology, a sentence taken from a worldwide library of the company's divisions can be written once and then repurposed for use in an audio or video file, on the Internet, in a book or in computer-based training. "This is my big challenge at the moment--to take all the products of our various divisions and turn them into a technical database that will make us as high-tech as anybody in the world."

THE KEYS TO SUCCESS

Monroe believes the single key to success was the drive to make things work, which in the beginning included finding the most economical way to achieve results. She recalls reusing office supplies and arranging for inexpensive airfares to save the new company money. Another important factor, she advises, is to let go of those procedures when the value of your time makes it more costly to try to do everything yourself. Her venture into entrepreneurship has paid off handsomely. At the company's inception, she worked without compensation while continuing to teach. By the time she sold MicroMash, she was earning triple the salary she earned as a professor.

Monroe believes that her achievements rest in part on her practical approach to accounting. "I can pick up a balance sheet and an income statement and say, here's where the problems are. That's how I've always used accounting--in a management role." Monroe urged her daughter to major in the field, "because accounting is what will make you successful. If you don't have the ability to interpret your financial statements and you don't know how to respond to what's happening in the numbers, you won't succeed in other areas."

Her experience has taught her that what's important about accounting expertise isn't how the numbers got there, but what they mean. "To look at ratios and spot the weak areas on the statement--that's really an art." She insists that good financial information and planning are vital for even the smallest company. Even in its early years, MicroMash built its operations around monthly financial statements, budgets and objectives.

She also believes that an understanding of technology and its impact is crucial in any endeavor. "You certainly don't want to start any business--accounting or otherwise--without the technical tools you need. You can't say, 'I'll buy that piece of equipment when I'm successful.'" She advises accountants to anticipate and prepare for technology's effects on every business. For example, she recalls listening to a beer distributor who complained that the Internet was destroying his business because people were going direct and bypassing the distributors. "It's going to change everything we know today. We're looking at a time when technology is going to rule the world."

Firm Profile

Name: MicroMash.

Location: Englewood, Colorado.

Date founded: 1984.

Sales: $7 million.

Number of employees: 80.

Form of ownership: Corporate.

What we do/produce: Exam prep and continuing professional education and training for accountants and lawyers.

Our main customers: Accountants, lawyers, governments.

EXECUTIVE SUMMARY

* IN THE MID-1980s, WHEN MICROMASH launched software that taught accounting, most people scoffed. But when its products suddenly took off several years later, the fledgling company had to scramble to meet demand.

* AS ORDERS POURED IN, the company fed employees three meals a day and hired temps to answer phones. As the company grew from 9 employees to 40 in six months, it built up extra overhead to keep its product moving. Once the growth stabilized, it took a year to reorganize company operations for greater efficiency.

* WHEN THE COMPANY became a takeover target, founder Jan Monroe, who no longer retained a controlling interest, searched out a buyer who would allow her to retain her independence and to grow professionally.

* MONROE CREDITS HER ACHIEVEMENTS in part to her practical approach to accounting. Her experience has taught her that what's important about accounting expertise isn't how the numbers got there, but what they mean. She insists good financial information and planning are vital for even the smallest company.

* MONROE ALSO BELIEVES AN understanding of technology is crucial and advises accountants to anticipate and prepare for technology's effects on every business.

ANITA DENNIS is a Journal contributing editor.