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Lessons learned at wireless software maker

CEO Danny Shader looks back on start-up Accept.com as he looks ahead to IPO for Good Technology.

Regrets are numerous among Silicon Valley executives about deals they wish they hadn't done. But if the experience becomes a lesson learned and applied then perhaps a regrettable deal might just be worth it in the end.

Danny Shader certainly believes so. Today he's the president and chief executive of wireless software developer Good Technology, but seven years ago he was the co-founder of another start-up, Accept.com, heralded at the time as the first Internet-based, business-to-consumer and consumer-to-consumer payment services provider.

At a recent private company confab put on by ThinkEquity Partners, the executive bemoaned the fate of Accept.com--its $175 million sale to online retailing giant Amazon.com in 1999. "I wish I had not been pushed to do that deal, but I saw stars and dollar signs," Shader explained to the audience. "I think it was a big mistake."

Most entrepreneurs wouldn't consider a $175 million payout a mistake, and presumably Accept.com's venture backers didn't think so (the company, acquired after only one round of funding, never disclosed its financial backers or how much they invested in the start-up). But Shader, Accept.com's CEO at the time, is unforgiving of his decision.

He said he was too quickly caught up in the frenzy that characterized dealmaking in the late 1990s. The start-up was very young (about a year old), very small (about 25 employees) and very stealthy, having not released or even said much of anything about its product.

Indeed, Accept.com embraced Amazon's offer in part out of concern Amazon would develop a product similar to its own. "We were very nervous about what Amazon would do if they entered our market," he explained.

Yet once Shader's start-up was absorbed by Amazon, he says he realized that the sprawling company, which had been gobbling up acquisitions at a ravenous rate in 1999, had no intention of doing anything of the sort. Amazon lacked the focus and drive of a smaller team dedicated to a particular technology.

The PayPal payoff
About the same time, a rival online payment start-up unburdened by corporate inertia, Cofinity, pressed ahead. The start-up soon adopted the name of its flagship product, PayPal, before selling itself to Internet auctioneer eBay in 2002 for $1.5 billion.

"There was a huge opportunity as a start-up," Shader said of Accept.com's pioneering efforts in online payment services, now overshadowed by PayPal. "That lesson is now being applied at Good."

Shader told the audience that a "small-company mentality" is a major reason that Good and its rival and top player in the wireless software sector, Research In Motion, the Canadian maker of the ubiquitous BlackBerry handheld device and accompanying wireless software platform, are doing so well.

"It is incredibly hard and takes a lot of work," Shader said.

And money. Santa Clara, Calif.-based Good is one of the best-funded start-ups ever. The 5-year-old company recently raised an additional $65 million to put its total backing over the $200 million level. Now, Shader and his numerous venture capital backers, including Kleiner Perkins Caufield & Byers, Benchmark Capital Management, Avalon Ventures and, most recently, Advanced Equities Financial, want to follow RIM towards an eventual initial public offering.

"We're in a gigantic market where we are the clear No. 2 player," he said. "We think we have what it takes to be No. 1."

The path to further growth, however, is forcing Good to make some tough decisions, such as thoroughly upending its sales strategy. Rather than sell its software to customers side-by-side with sales teams from wireless carriers, including Verizon Communications and Cingular Wireless, Shader and his management team decided to divvy up its sales force into teams focused on each carrier. The carrier's sales force, in turn, would sell Good's software along with its service plan.

The advantage of this sales approach is the broader range of customers Good can reach by piggybacking its products on those of carriers. Good made headlines in June when it signed a deal with Atlanta-based Cingular under which Good's software will be included in wireless devices the cellular carrier sells.

That agreement was a direct challenge to RIM and its BlackBerry, which also is offered by Cingular. Via the agreement, Cingular became the first North American operator to directly offer the start-up's GoodLink software, and lets subscribers sign a single contract for cellular and wireless e-mail service.

This change was part of the preparation for life as a public company, Shader said. "All the right things are happening to allow us to go public," he enthused.

Remaining independent and shooting for an IPO isn't a realistic goal for many young tech companies these days. But Shader, after selling Accept.com too soon, may have positioned Good to be one of those companies to clear the IPO threshold. And if talk of an IPO draws takeover interest, that's presumably all the better for Shader--so long as this exit is in the billions of dollars.