In M A Game, Mind Your Ps Qs

My Smartest Mistake

Who: Ron Harris, 47, cofounder and CEO, Pervasive Software Inc., based in Austin, Texas
Mistake: "An acquisition that went wrong -- before we had even inked the deal."
Payoff: "Failure forced us to grow up and get real."

"Like many fast-track companies, we let a high stock price go to our head. After successfully acquiring Smithware in 1998, we assumed that we could nail another acquisition. Later that year, when we acquired EveryWare Development, which makes Tango Web-development software, we were busy drinking our own Kool-Aid. Basically, we flaked on due diligence, and we ended up with a bad fit.

"We made some customers unhappy by focusing too much on new products, and those products didn't generate revenue traction. Our core business maintained roughly 90% of our total revenues, but our growth rate (which had been at 50%) leveled off and then dropped. Our stock price, which had reached a high of $38, sank to single digits. A year later, we pulled the plug on the new product line and laid off about 90 employees, or about a quarter of our workforce.

"Throwing more money at the problem would have been easy. But we said, 'Enough is enough.' Our team is now battle-tested, and we're more tight-knit than ever before. Sure, staring the devil in the eye was a sobering experience, but I got the chance to realize just how fragile my business -- indeed, all business -- really is."

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