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The Volkswriter turnaround.

THE VOLKSWRITER TURNAROUND According to conventional wisdom, one of the best ways to revive a failing company is to find a merger partner, who (presumably) can create economies of scale and marketing synergism. But when Lifetree Software ran into trouble a year and a half ago, its top managers tried exactly the opposite approach: They split the company into two smaller pieces. And so far this contrarian strategy seems to be working remarkably well.

Certainly, Lifetree's prospects were pretty dismal. Sales for 1988 had dropped to $2.7 million (down from a high of $5 million), with a $775,000 loss. In early 1989 a hasty upgrade of Volkswriter Deluxe, the company's flagship word processor, brought in a little new revenue, but Lifetree still generated $98,000 in red ink on $592,000 in sales. Moreover, layoffs had cut the company's staff from 35 to 15, and morale was deteriorating. "Things were getting really tense around the office," says Vicky Boddie, a veteran Lifetree employee who managed customer service and printer driver development.

Worst of all, company founder Camilo Wilson--an industry pioneer who introduced the first successful PC-based word processor in 1982--no longer had much faith in the future of his own company. Wilson had been investing heavily in diversification efforts; so far, nothing had clicked, but he was convinced that he could build a respectable business around a grammar checker called Correct Grammar, which he had licensed from Houghton Mifflin.

Early in May, Wilson broke the bad news: He'd decided to pull the plug completely on Volkswriter. Henceforth, Lifetree would focus all its marketing and development efforts on Correct Grammar.

To Vicky Boddie and her husband Ned, Volkswriter's head of development, the news came as a shock. "We'd put six years of our lives into Volkswriter," she says. Moreover, the Boddies owned 10% of the company and felt they ought to have a stake in Lifetree's future.

"So we said, 'Why don't you let us have Volkswriter?'" Vicky Boddie recalls. "The next day, we were at the lawyers, and three weeks later, we'd signed all the papers."

In essence, Wilson and the Boddies split Lifetree into two parts. Wilson kept the corporation, the Correct Grammar license, and the company's San Francisco sales office. The Boddies acquired the Volkswriter product line, the Monterey headquarters--and $280,000 worth of debt, including a $150,000 bank credit line that had to be repaid immediately. ("That's what home mortgages are for," Vicky Boddie says wryly.)

Vicky Boddie took over as president of the new company, Volkswriter Inc., while Ned concentrated on a crash effort to update the product line. "I had never read a spreadsheet before," Vicky admits, but she quickly found ways to cut overhead. Volkswriter Inc. moved to smaller quarters (cutting rent from almost $15,000 a month to $2,700), dropped an expensive direct sales effort, and hacked away at everything from advertising and T&E accounts to office supplies.

In addition, the Boddies themselves went without paychecks for six months--though they made sure that their remaining five employees collected full salaries and back benefits. "We thought it was more important to take care of employees," Boddie says.

Surprisingly quickly, the downsizing at Volkswriter Inc. paid off. Fixed costs, says Vicky, dropped to 25% of their previous level. From May 1989 to September 1990, the new company generated $1.7 million in revenues--well under Lifetree's previous run rate--but turned a pretax profit of $195,000, a respectable 12% of sales. That money helped retire most of the debt the Boddies inherited, "plus, we still have money in the bank."

In a sense, Vicky Boddie points out, the past 17 months have been little more than a holding action; the company hasn't issued an upgrade and its product line is still based on "four year old technology." But Volkswriter Inc. is about to unveil the first of three major revisions this month, and the Boddies have already enlarged their staff (to 15 employees) and are gearing up for "a fairly major presence" at Comdex. "Volkswriter word processing is definitely back in the running," she says.

Vicky Boddie, president, Volkswriter Inc., One Lower Ragsdale Dr., Bldg. 2, Monterey, Calif. 93940; 408/648-3000.
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Title Annotation:Lifetree Software's strategy of splitting into two companies to survive tough economic times
Article Type:company profile
Date:Nov 7, 1990
Previous Article:Laptop-friendly software.
Next Article:How to write better upgrade letters.

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