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Floriculture, a $40 billion global business, is engaged in the struggle to transform something “natural and unspoiled” into a mass produced, transportable product, says Amy Stewart, bestselling author of Flower Confidential: The Good, the Bad, and the Beautiful in the Business of Flowers. This transformation relies on an extensive network of breeders, field workers, auction houses, sales representatives, shippers, and florists to offer consumers a variety of choices well beyond those found in backyard gardens. Flower growers don’t wait for nature to introduce the genetic mutation that will make them millionaires; in the lab, they painstakingly cross-pollinate promising varieties to develop new plants with marketable characteristics, creating hundreds of new varieties every year. Breeders might extract a color-producing substance from a petunia, feed it to bacteria, and inject those bacteria into a rose to produce an unusual and eye-catching hue. Consumers can purchase gerberas with blooms as wide as salad plates and roses with yard-long stems perfectly suited for Valentine’s Day boxes.

In a drive to satisfy not only the eye but the nose, breeders are also working to reintroduce a lost quality in the production of many cut flowers: scent. Many commercially sold flowers emit no fragrance. “Scent uses up a great deal of a flower’s resources,” Stewart explains. “If you want a rose that smells like a rose, it will die within a few days.” Today’s flowers might be cut on Monday, travel by plane and truck on Tuesday and Wednesday, arrive at the florist’s on Thursday, and be purchased on Friday by someone who wants them to look fabulous in a vase for a week. These blooms can’t afford to smell as nice as they look.

Lead Management is a term used in general business practice to describe methodologies, systems, and practices designed to generate new potential business clientele, generally operated through a variety of marketing techniques.

The effort to re-engineer scent might expand product development in directions few consumers imagine. Stewart predicts that “flowers could be engineered to release scent in the evening, when people come home from work . . . or perhaps a new scent could be introduced all together. Just imagine: a tulip that smells like jasmine . . . a chocolate-scented rose . . . Is it only a matter of time before a lily is bred to smell like Calvin Klein cologne?”

In America, nearly 80% of cut flowers are imported. These blossoms come from mountainous regions along the equator, mostly from Ecuador and Columbia. Kenya keeps Europe in bloom; Singapore cultivates the world’s orchids.

In the uplands of these countries, conditions are perfect for growing flowers. The days are always 12 hours long; sunlight is intense, and nights are cool.

Just as important, however, are the social conditions found in these paradises, where labor is cheap, plentiful and nonunionized. When workers are told to dunk roses into an anti-fungicide, they don’t ask whether that concoction might give them cancer or pollute their groundwater. And no one tells them that it is banned in the countries where their flowers are sold, writes Stewart.

Their governments also look the other way. When flower growers move into developing countries, they take over scarce resources, like water and arable farmland, leaving less for native agriculture or industries, contends Stewart. Slowly the host economies become dependent on the growers. In Ecuador, flowers are now the third most important product, after oil and bananas.
Fortunately, not all growers abuse their workers or their host country’s resources, and flower lovers need not buy the products of those who do. In the West, certification programs have evolved to inform consumers which flowers have been grown under healthful and humane conditions. In America, these blooms bear the VeriFlora seal.

Is a systematic approach that initiates with the  sales process and ends with the engagement closing. This typically has an accounting component associated with it – overseeing the profitability of project engagements within an organization.

Despite its hard economics, the flower business is thriving. The latest variety of gerbera featured in bridal magazines may have been created in a laboratory, but it is also breathtakingly lovely. Though independent florists have lost retail ground to supermarkets, they continue to create arrangements that delight and astonish. In the end, as Stewart’s book makes clear, beauty—and romance—will always command a market share.

In 2007, Adobe Systems marked its 25th anniversary, a relatively long tenure for a company that sells personal computer software, an industry barely more than 30 years old. Surviving so long in this rapidly-changing business has required a certain nimbleness. Adobe’s products — and its business models — have evolved as computing moved from standalone PCs to the global communications network of the Internet and worldwide web. But behind these changing technologies is a consistent set of business principles established by Adobe’s two co-founders and current co-chairmen Charles M. (Chuck) Geschke and John Warnock.

Computer scientists who originally worked together at Xerox’s storied Palo Alto Research Center (PARC), Geschke and Warnock founded Adobe Systems in 1982 to commercialize their ideas for electronic document production. The company’s first product, PostScript, was a computer language for describing printed pages that Adobe sold to printer manufacturers. This largely behind-the-scenes technology built into printers set the stage for the desktop publishing revolution of the late 1980s.

One key to PostScript’s success was its sophisticated technology for rendering digital typefaces. Adobe’s font business moved the company into the retail software market. Its software business expanded when the company developed Adobe Illustrator, a drawing program to allow graphic artists to take advantage of PostScript’s rich imaging features. Photoshop, another imaging program for editing photographs and other “bit-mapped” images, was licensed from brothers Thomas and John Knoll in 1988.

Lead Management is a term used in general business practice to describe methodologies, systems, and practices designed to generate new potential business clientele, generally operated through a variety of marketing techniques.

In June 1993, Adobe shipped the first version of its Acrobat software for creating and viewing electronic documents. Acrobat was slow to catch on initially, but once the Reader software required to view Acrobat’s PDF documents — originally priced at $50 per user — was distributed without charge, the technology began to gain traction with users. With the rise of the web, PDF became a de facto standard for distributing richly formatted electronic documents.

The desire to support rich content on the web also motivated Adobe’s acquisition of Macromedia in 2005. When Knowledge@Wharton asked then CEO Bruce Chizen about the primary motivation behind the deal, his one-word response was: “Flash.”

With PostScript, PDF and Flash, Adobe established core standards that laid the foundation for desktop publishing, electronic document interchange and interactive web content. With the company’s AIR (Adobe Integrated Runtime) platform, Adobe hopes to have a similar impact on the development of the next generation of web-connected software.

Knowledge@Wharton recently met with Adobe Systems’ co-founder and co-chairman Charles Geschke near his home in Los Altos, Calif. In this edited version of that interview, the 68-year-old Geschke discusses how Adobe Systems was born and how the company’s business plans and its product portfolio have continued to evolve.

Knowledge@Wharton: Do you recall when you first met John Warnock?

Geschke: Very well. [Working at Xerox's PARC] I’d just put on a demonstration of what the future office could be like for Xerox senior management in Boca Raton, Florida. It was a big deal. We did a stage production that was scripted and set up in Hollywood.

This was the body language of essentially every Xerox executive looking at all this stuff. [Folds his arms and tenses up.] It was pretty clear to me that we were fighting a tough battle, but I was committed.

When I got back I was given the opportunity to start a new lab focused on graphics, electronic printing and some other stuff. First, I needed to find a chief scientist. I didn’t want to recruit somebody from inside PARC because I wanted some fresh ideas.

I’d known John by reputation but I’d never actually met him. I called him up and said, “I’d like to talk to you about some interesting things I’m doing.” We met for lunch. He had a beard and I had a beard. He had three kids, two boys and one girl. I had two boys and one girl. He refereed soccer and so did I. He was a mathematician. I was originally a mathematician by training.

We hit it off, and I hired him. It was the best hiring decision I ever made.

Knowledge@Wharton: What prompted you and Warnock to leave Xerox?

Xerox loved [what we had done]. They said, “We’ll make it a corporate standard.” I said, “Great!” I went to Connecticut to [Xerox] headquarters and said, “I’m here to talk about the marketing plan for rolling this out.” They said, “Oh, wait a minute. At Xerox it takes seven years to develop a product — and we can’t talk about this because other people will get the idea and beat us to market.”

I said, “Seven years! [In the] industry you’re about to go into, that’s two to three generations. By the time you bring it out it will be worthless.” [They said,] “Sorry, [it takes] seven years at Xerox.”

John and I were frustrated. It turned out that his thesis adviser at the University of Utah was on the board of the investment bank Hambrecht & Quist. Bill Hambrechtwas one of the first guys pushing venture investing in high-tech companies.

We told him our plan, which was to build a complete turnkey publishing system — the computers, the printers, the typesetting equipment, everything — and sell it to the Fortune 500 so they could bring a lot of their production work in house. He liked the idea because he hated financial printers. Every time he did a prospectus he felt that he was being robbed. He agreed to invest $2.5 million over two years in two equal payments and told us we would have to quit our jobs — which was a little bit of a gut wrench, although we knew with our backgrounds we could get a job in [Silicon] Valley pretty easily.

So we opened our doors and began recruiting people.

Knowledge@Wharton: If your original plan was to sell complete, turnkey publishing systems, why did you switch to just marketing PostScript printer software?

Geschke: One of my professors from Carnegie Mellon, Gordon Bell, had left Carnegie to become the head of R&D for Digital Equipment [Corporation]. After about two months he came by to see what we were doing.

We showed him what we were involved in and described our business plan. He said, “Wow, that looks very cool and it solves a problem I’m having. But, of course, I don’t need any computers — I’m Digital Equipment. And I’ve got a deal with Ricoh for the printer so I don’t need that. But I have two or three development teams that are failing miserably at figuring out how to interface them together. That’s what you guys are doing as part of your solution. Why don’t you just sell me that software?”

We said, “Well, Gordon, we’ve got this business plan that raised $2.5 million dollars. We have to do that.” He said, “Well, if you change your mind, call me.”

In about two more months, a friend of ours who had left Xerox to work for Steve Jobs [on the] Macintosh brought Steve over. We showed Steve what we were doing and he said, “Wow! But I don’t need the computers, I’ve got this Macintosh [in development]” which he showed us. “I have a deal with Canon for the laser printer, so I don’t need that.” He said, “But my development guys are getting nowhere with this software. Sell me your company, come work for me and I’ll put it in my product.”

“A  brand is the identity of a specific product, service, or business. A  brand can take many forms, including a name, sign, symbol, color combination or slogan. The word brand began simply as a way to tell one person’s cattle from another by means of a hot iron stamp.

Knowledge@Wharton: Did you actually consider selling the entire company to Apple?

Geschke: No, not really. We heard him, we were polite. But we said, “You know, Steve, we really want to start our own company.” And he said, “Oh, all right, I can understand that. So, sell me the software.” We said, “We have this business plan that raised $2.5 million.” He said, “I think you guys are nuts. You’ll change your mind. When you do, call me.”

So we talked to the chairman of our board, Q.T. Wiles, whom Bill put in as sort of a fatherly figure to advise us. He said, “Jobs is right — you’re nuts! That business plan was only there to get you the money. Your customers are telling you what your business ought to be. Throw the business plan out and do a deal.”

I called up Steve, hat in hand, and said, “We changed our mind; we would like to arrange a deal to license you the software.” He said, “How much do you want for the company?” We said, “We’re not for sale, Steve.” He said, “Oh, all right.”

So we worked a deal with him. He bought 19.9% [of Adobe Systems] as part of the deal, which was a 5x multiple on the original venture investment and we did a deal with a prepayment of future royalties. Altogether we brought in about $3.5 million. So our second round of venture investment did not come in as a tax preferred investment. They just bought stock with it.

Knowledge@Wharton: This is how Adobe began as a printer software company?

Geschke: Yes. We developed the [PostScript] language after we left PARC. What really caught people’s attention was what we were doing in terms of rendering type on-the-fly from outlines [the curves used to define the characters of a typeface at any size or angle].

Popular mythology at the time said that couldn’t be done; you have to hire a bunch of monks to build bitmaps. We knew that wouldn’t fly because we really wanted [to do] arbitrary expansion and contraction [of the typefaces]. You could never have enough bitmaps or enough typefaces to satisfy the printing world. It was just infeasible. You had to do it from outlines. We eventually developed software that did that and continue to use it today.

We built our own outline type business at the same time. We were the first to be licensed the trademarks “Times” and “Helvetica” by the Linotype corporation.

Knowledge@Wharton: Was that hard to convince a traditional font company like Linotype to go into digital type? This was very different from the business they were in [selling fonts for traditional typesetting equipment].

Geschke: Oh yeah. They had a lock on the customers who bought their type. If you decided to get rid of them and go to Agfa or Compugraphic, it was a big deal because nobody’s equipment was compatible.

We went to Compugraphic first because they were an American company and we thought that would be easier. They were very arrogant. They had the lion’s share of the market at the time. Linotype needed an edge up and so they agreed to do business with us.

Within about two years they had the lion’s share of the business in the United States because they had PostScript compatibility. Compugraphic had to sell itself to Agfa and basically went out of business.

Knowledge@Wharton: By the time you developed your actual business plan, you had Apple as a partner?

Geschke: And Linotype.

IBM came to talk to us, but we deliberately decided to go really slow. We figured that in order to get a decent deal with them we had to have leverage — namely a competitor already doing well. We tried to do a deal with HP [Hewlett-Packard]. They were extremely arrogant because the [Hewlett-Packard] Laserjet was doing very well and they didn’t want to talk to us.

After the [Apple] LaserWriter and desktop publishing became a phenomenon, IBM decided they had to get into the game and we did a deal with them. As soon as we announced the IBM deal, then Hewlett-Packard called and said, “We think we need to do business.”

Knowledge@Wharton: When did you enter the Japanese market?

Geschke: We licensed type technology for the Japanese market in 1986 or 1987. [It was] almost the identical situation as with Compugraphic and Linotype.

Originally the Japanese typesetting industry had only one company before World War II. The two guys who ran it got into a disagreement over the Japanese conduct of going to war. One guy was a supporter [of the war effort] and the other was not. So they split the business. One guy stayed in Tokyo and his business took off, because he was at the seat of power. And the other guy took his part of the business to Osaka. He did okay, but he was struggling.

We first went to the Tokyo branch. At that point it was run by a woman, which was quite unusual in Japanese industry. She was the widow of the fellow who had stayed in Tokyo. I could never get to the second cup of tea with her. She just didn’t want to talk. She had 90% of the business and she didn’t need anything new-fangled.

So we went to Osaka and talked to the other company and, again, because they wanted to get into a stronger position and they intuitively knew the industry was going to change, we did a deal with them. We got the license to their type library and they now have 80% to 90% of the business.

Knowledge@Wharton: As was the case with Linotype, the incumbent wasn’t interested, but the underdog was. And it completely changed the fortunes of both companies.

Geschke: I think if you did a study of business deals, it’s almost always that way.

The companies that think they’re in control of their long-term destiny don’t want to talk to a young start-up company that’s going to change the rules of the business.

Knowledge@Wharton: From the beginning, you documented the specification for the PostScript language.

Geschke: Yes. We published the spec about three or four months before the first LaserWriter shipped.

Knowledge@Wharton: These days this is fairly common practice to help establish a standard platform, but it was much less common back then. Was this merely a practical necessity because people needed to write software to drive PostScript printers or was this a strategic move to establish PostScript as a standard?

Geschke: It wasn’t strategic in the sense that we understood this would become a standard way of doing business. It was the only way we could figure out to get the hardware manufacturers and the software developers and the platform vendors to collaborate. You couldn’t do independent deals with each of them because there would always be somebody left out.

If you really wanted to make it a standard — and our goal from the beginning was to have it be a universal standard — you have to publish. You just have no choice. You’re taking the risk that someone will do a better job of implementing it. We had the self confidence that we would always have the best implementation, and that has turned out to be true.

Knowledge@Wharton: A lot of PostScript clones did come along eventually.

Geschke: At one time there were over 75 of them.

Knowledge@Wharton: Did it ever worry you that they would start to chip away at your market share?

Geschke: No. But it turned out that Microsoft acquired one of them.

Knowledge@Wharton: From Bauer Enterprises.

Geschke: Right. TrueImage, they called it. Microsoft did a deal to license TrueImage [to Apple]and Apple would license TrueType to Microsoft. That was pretty scary for us.

Knowledge@Wharton: When did you first hear about the Microsoft-Apple partnership for TrueImage and TrueType?

Geschke: A few days before it was announced.

Knowledge@Wharton: This was announced at the Seybold [publishing systems] Conference in September 1989. You heard about it a couple days prior to that?

Geschke: The preceding Friday. I had a conversation with Bill Gates.

Knowledge@Wharton: Did Gates call you?

Geschke: No, we were trying to close a deal. We were [hoping to] license him ATM [Adobe Type Manager] which was Adobe’s version of TrueType for [on-screen font] display.

The deal we offered Microsoft was [already] running technology ready to ship in a matter of weeks, all the type libraries already licensed, all of the agreements in place and we were not going to charge them. It was free!

Knowledge@Wharton: How could he say no?

Geschke: That’s what I asked Bill. And I’m not going to tell you the answer.

Knowledge@Wharton: But he told you in that phone call that he was going a different way and was going to do a deal with Apple to license its font technology?

Geschke: Yes. It’s why he was going a different way that I’m not going to tell you.

Knowledge@Wharton: Presumably it was a control issue — he didn’t want the control of that core technology in the hands of an independent company.

Geschke: Let’s leave it at that. Let’s move on.

Knowledge@Wharton: Okay. What was the response to the Apple-Microsoft announcement at that Seybold Conference?

Geschke: I think if you were to talk to Adobe customers in any era, one of the things they’ll tell you is that, while they may have a disagreement about this or that, by and large they were treated fairly. They could depend upon getting great technology licensed to them on a fair and equitable basis. Customers like that. If you treat them the way you like to be treated, they sense that. That was always part of our core philosophy as a company.

At that Seybold Conference, when the announcement was made between Apple and Microsoft, the Seybold people immediately changed the schedule to put a panel on the last day to discuss all of this. Before the panel began, the moderator got up and said, “I want to take a straw vote. I want everyone to raise their hand who thinks they would rather have Apple and Microsoft take over this segment of the business.” There were a few hands raised — I’ve always believed they were Microsoft and Apple people — but, basically, no one voted against us. They all wanted Adobe to continue to be their vendor.

We brought ATM out within about 60 days and sold hundreds of thousands of units in the first quarter, which was a lot in those days. It was three years before Apple and Microsoft shipped TrueType.

Knowledge@Wharton: And TrueImage really never got out of the starting gate.

Geschke: No, it never got anywhere. Apple tried to build one product on it. They eventually gave up, called us and said, “Will you come back?”

Knowledge@Wharton: How was it to go from being a company that sold printer software to OEMs [original equipment manufacturers] to being a shrink-wrapped desktop software company with products like Illustrator and Photoshop?

Geschke: It was a “come to Jesus” moment inside the company, because all the profits were being made by PostScript. As we began to invest in not only development, which was relatively inexpensive — just a few people — but more importantly in building a sales and marketing presence in the retail channel, we were chewing up resources. It was difficult in the early days to demonstrate profitability in that business. Every time we would have a budget debate, you can imagine how that went: “I’m bringing in most of the money. I should be getting these resources.”

Knowledge@Wharton: What motivated you to stick with this second line of business?

Geschke: One of the obvious lessons in business is that you can’t continue to be a one product company and survive. We also felt we couldn’t be a one channel company and survive. We were captive of those OEMs [of PostScript printers]. If they ever decided to drop us, we [would have been] toast. We had no channel.

In fact, one of the things that we did to try to get HP’s attention — The [Hewlett-Packard] LaserJet had cartridges [to add features to the printer]. We built a device to convert a LaserJet into a PostScript printer and sold it at retail [as a LaserJet cartridge]. So we already knew we were going to a retail sales channel.

The other thing that was happening is that the [software] applications in those days on DOS — Windows wasn’t even there yet — and the Macintosh weren’t using more than 20% of the capability inside [a PostScript] printer. In fact, our own graphic designers at Adobe had to learn how to program in PostScript to do graphics. We knew that wasn’t going to fly.

John’s wife was — and is — a graphic designer. John had a second job [when he went] home at night writing PostScript code to do what she wanted to do on the LaserWriter. He got a couple of engineers to come up with Illustrator. We launched Illustrator and it did very well.

We realized then that we spent a lot of money to build a retail channel and a sales force and we had to feed it. There had to be more products.

Knowledge@Wharton: That led to Photoshop?

Geschke: A couple guys from the University of Michigan — the Knoll brothers — came out to California and showed us this thing they were working on for manipulating photographs. John and I couldn’t figure out if there would ever be much of a market, but it looked like a pretty good idea. By that time it was obvious that the printing industry was going to go completely digital with our technology — and that the same would be true in all imaging dimensions. It should be true in photography. It should be true in video. Why wouldn’t all imagery be digital?

So we decided to buy the two-man company and hire the guys. We did a royalty deal with them so we could keep the price reasonable.

When we made that decision there were no digital cameras. A scanner was about the size of a refrigerator and cost $30,000 to $40,000. A power user on a Macintosh had this little black and white display with an extra disk that held maybe 20 megabytes. And we are bringing out a product that was going to push all those dimensions right off the map.

We instinctively knew that was where things were going. The only business book that John and I ever read, and the only chapter that I remember from it was a chapter entitled “Market Gap Analysis.” The one idea I remember was that it is easier to build a business if you find a new solution to an already perceived problem that no one has come out with before — because you instantly are [at] 100% market share.

We did that with PostScript, we did that with Illustrator, and we were going to do it with Photoshop even though we knew we were going in early. And it has worked out very well.

We did the same thing with Acrobat. We brought Acrobat out about three years before the Internet really took off, thinking that local area networking would be enough to support it, but it wasn’t.

And we’re trying to do the same thing with AIR [the Adobe Integrated Runtime development platform for cross-operating system software]: Bring it out before anyone else has the idea of the concept, get the platform established, and then shame on us if we can’t make money off it.

Knowledge@Wharton: While the technology has changed greatly over the past two decades, there appears to be a certain consistency in Adobe’s business strategy.

Geschke: That’s one of the things that contrasts us with Microsoft. They have never invented anything that I am aware of. They clone someone else’s idea and use their market position to try and force their way into the business.

Tell me a new market innovation they opened up. Windows came from PARC. Word came from PARC. Excel came from Lotus. PowerPoint came from Aldus Persuasion. And they can’t take credit for e-mail.

Knowledge@Wharton: You mentioned that Acrobat was a product that was different than anything that had come before. What was the initial insight that led to the development of Acrobat and PDF?

Geschke: We had already, in effect, converted anything that went to physical media into digital form. Paper is a great way to read information, but it’s not a very effective way to store it. It’s a very expensive way to ship it, and it’s very hard to search. But a digital representation of the page doesn’t have any of those problems. It’s very cheap to store — you can store the entire world knowledge in a couple of filing cabinets. You can ship electronic information and let the recipient decide how they want to read it — on a screen, on paper or on film. And searching it is much more efficient.

It came out of that idea. If everything that matters goes through our [PostScript] printer driver, we can just capture it at the printing point and turn it into this electronic form.

Knowledge@Wharton: Initially, Acrobat Reader 1.0 wasn’t free — it had a retail price of $50 per seat. With Acrobat 2.0, the Reader became free. Was that decision difficult internally for you to make?

Geschke: Oh, yeah. The concept of giving away software was anathema, a very foreign concept. But it became obvious that doing that was the only way we could get market penetration. Microsoft could assume that somehow or another everybody had Word. We couldn’t assume that everyone was going to buy the Reader.

Knowledge@Wharton: For a long time it cost Adobe more to develop and market Acrobat than the revenue it returned.

Geschke: Oh yeah, the antibodies inside the company were just all over it.

Knowledge@Wharton: People wanted to kill the product?

Geschke: Of course, because they said, “Look, we’re selling all this Photoshop. We’re selling all these printers. Why the hell are we investing in this thing, and giving it away?”

Knowledge@Wharton: Why did you continue to invest in Acrobat for so long? What gave you the confidence to continue to pour money into it?

Geschke: Your own instincts. You can’t analyze a market that has never existed.

When people were analyzing whether to invest in the Haloid Company, which was the precursor of Xerox, they went out and measured the carbon paper market, and they said, “It’s not very big and it’s not growing very much.” They were measuring the wrong thing.

Knowledge@Wharton: Adobe is a publicly held company. Would the current market let you run that long with a product that was costing you more than the revenue it was generating?

Geschke: As long as we were making a lot of money on everything else, they never knew. The trick is to be very aggressive in other parts of your business.

And if you’re lucky enough to get a “franchise” product like Photoshop, you can’t become complacent. For example, when we brought out PhotoDeluxe we were initially the strongest competitor for Photoshop. Rather than cede the low end of the market to someone else, we took it. And that allowed us to upgrade people. With hindsight it was the exactly the right thing to do — not give someone the ability to undercut you, come in and be “good enough.”

We learned that from the LaserJet. [Although a] PostScript [printer like] the LaserWriter was a much better product, eventually the [Hewlett-Packard] LaserJet was good enough. [Although PostScript is] still a profitable business.

Knowledge@Wharton: Even with all the PostScript clones?

Geschke: And the fact that all the money is in the ink. There is no money in the printers anymore.

[Do you know who today is] our biggest customer for desktop printing? Xerox. I own two Xerox printers now, both of which have PostScript. One’s black and white and one’s color.

So whatever goes around comes around.

Knowledge@Wharton: In the summer of 1998 Adobe Systems went through a difficult period. The stock price was depressed. Quark, one of your leading competitors in the page layout business attempted a hostile takeover. What caused that situation?

Geschke: A year or two earlier, I walked into John [Warnock's] office and said, “John, I think I don’t want to work at a full-time job in a year that begins with the numeral 2. It just doesn’t seem right.” He said, “What are you telling me?” I said, “I’m telling you we’re both getting pretty close to 60.” I was flying a quarter of a million miles a year. I said, “I just don’t think it’s good for me to keep doing this because if I can’t do it full out like I always have, I won’t feel good about it, and I don’t think I’ll be good for the company. We really need to think about what to do.”

We have always been highly leveraged — our revenue per employee has always been high. As a result, we kept a pretty lean organization with a pretty shallow management structure. We frankly hadn’t done work trying to groom anybody [as a successor], because we weren’t thinking about it.

So — this was not our brightest decision — we decided we could recruit replacement talent, spend a couple of years with them, get them up to speed, and their natural abilities would take over.

We hired three or four very bright people, [people who were] very successful in their previous businesses and had the right pedigree to run a business like Adobe. We figured we would meld them into a team.

Well, each one of them thought that he should be the future CEO of the company. Rather than melding as a team, they fought like cats. It became miserable. It was impossible to have a staff meeting without it breaking out into angry disputes. It was getting ugly. Because of people trying to build turf, spending was getting ahead of revenue. And in the summer of 1998, the Japanese market went off a cliff for six months. It just stopped. I’ve never fully understood why it happened. And we found ourselves having to preannounce a very bad quarter and dealing with these people who weren’t getting along.

John and I decided that we would fire all of them on the same day.

We identified the person — Bruce Chizen — we wanted to groom from the inside. [We decided to] just gut it out — announce the bad quarter and go back to our knitting.

After we announced all that, we got the [hostile takeover] letter and that became public immediately. This was the second time that we had to go to a Seybold Conference and deal with a very awkward moment in our history.

Because our crack marketing people were so divisive internally, we didn’t have a keynote position in that conference. We talked to Steve Jobs, who had come back [to Apple]. We showed him InDesign [Adobe's page layout software] running on a Mac and said, “We’d like to talk about this. Can you give us some of your time?” He said, “Sure.” We went up on stage, showed [InDesign], and people loved what they saw, because they could see the PostScript imaging model coming right up on the display, which is something Steve always wanted to ship on the Macintosh, but when he left and [Jean-Louis] Gassée came in, Gassée squelched that.

The audience loved it. On the last day, they had another one of those panels [where they polled the audience to see who supported a Quark acquisition of Adobe]. I don’t know how much you know about Quark, but their customers have a lot of difficulty with them. This time, there wasn’t a single hand raised in the room when the question was asked.

And we now have market leadership in that market. It’s the only time we’ve ever dislodged an entrenched competitor. We were ticked off. And fortunately we built a superior product.

Knowledge@Wharton: As part of this management change, of all the executives in the company why did you look to Bruce Chizen?

Geschke: He had a sales and marketing background. He had worked for a while for Microsoft and at Claris [a software company started by Apple Computer].

He was actually being hired by Aldus the week that we announced the acquisition. [Then Aldus president] Paul Brainerd and I went to the San Francisco airport, Paul introduced me to Bruce, and I convinced him to stay even though his job was going to be different.

We didn’t know how it would be different. Shortly after the merger, we changed what he would do. He’s the guy who brought out PhotoDeluxe.

We watched him bring out a product, launch it and build a new category [for Adobe software]. As a result, we had a lot of respect for his abilities and gave him higher-power jobs. By 1998, he was running all of our application products business. He seemed like the natural candidate to groom. We did that for a couple of years, and when I announced my retirement, we moved him in as the president.

About six months later John decided he didn’t want to work anymore and then [Chizen] became the CEO. Bruce did an incredible job [and stepped down in December 2007].

Fortunately we didn’t repeat the mistake. We had been grooming [current CEO] Shantanu [Narayen] for several years to move in that position. “We’ll find another person to groom so that when Shantanu [steps down], we’ll do it again.”

Knowledge@Wharton: The issue of succession seems to be a challenge for many technology companies. Apple is very centered on Steve Jobs. Oracle is very Larry Ellison centric.

Geschke: It’s hard. If you want to give real value to your shareholders and build a company that has a long life, you realize pretty quickly that that is a major problem and you’ve got to start working on it. We should have been brighter and known that we couldn’t go outside; you have to do it from the inside.

I have always believed that the principles and values of the company you build is an important ingredient in its success. You can’t get someone to come in from the outside and just pick that up in a six-month training period. It doesn’t work that way. Not everybody agrees with some of those principles — they think they have to do it a different way.

Knowledge@Wharton: It seems like you’ve tried to maintain the consistency of Adobe’s corporate culture even as the company’s technology focus has evolved.

Geschke: We really didn’t start emphasizing [corporate culture] until roughly 1989.

When we began, John and I wanted to build a company that we would like to work in. Why would you build a business you didn’t want to work in?

We both had enough experience that we knew there were a lot of things we felt we shouldn’t do and had some ideas about things that we thought were important to do. But we didn’t really start verbalizing it until it became clear that, as we got bigger and we had to confront tough things, we needed to make sure that everybody understood and could help us enunciate what those principles were, what that culture was about, and make this ingrained in how the business ran. So I started at least once a year giving talks on the whole thing.

In 1998, I wrote a [six-page] memo and distributed it to the whole company about not only what the background cultural ideas were, but some of the things that we had started to do that were deviating from good principles of how the business would run. When new employees come in, they’re still getting a session at employee indoctrination to give them that background so that they understand the kind of company they are coming to work for.

Knowledge@Wharton: What were some of the key points in the memo you sent to the employees?

Geschke: I talked about the fact that we were having way too many meetings that were too large. If you have a decision-making meeting, you can only have four or five people in the room. If you have a communication meeting, be careful whether you even need to have it. There are lots of ways to communicate; you don’t need to bring all the people physically into one place. Mundane stuff like that. Treat the company’s assets the way you would treat your own. They don’t belong to you; they belong to the shareholders.

One of the things I talk a lot about is the necessity to juggle all of the constituencies that have an interest in the business: shareholders, customers, employees, vendors, and the communities in which we operate. Those constituencies are all mildly in conflict with one another in terms of what’s best for them. Your job as a leader in a company is to find an appropriate way to juggle those conflicting interests so everybody feels like they’re getting a fair deal, without letting any one dominate the others because they’ll drag your company down.

Geschke on Adobe’s Culture

Memo

Read the Memo (15kb)

I talked about the difference between leadership and management. Your job as a leader is to create more leaders — not more followers. That’s what you need to do as a manager. That’s actually a quote from Ralph Nader, de-politicized. If you’d like to see that paper, I’d be happy to ship it to you. There was nothing private about it. [For more on Geschke's memo, see sidebar: "Geschke on Adobe's Culture"]

Don’t tell my friends at the Wharton School, but I never took a business class in my life. John didn’t either.

Knowledge@Wharton: The two of you co-managed the company for much of its history. How did you split the tasks and balance what each of you did?

Geschke: It’s a very unique business relationship. I know a little bit about the internals of the interactions between Packard and Hewlett — which were very similar in most respects. John and I have worked together ever since I hired him in 1978. That’s 30 years and we’ve never had a serious argument. We haven’t always agreed about everything, but we never left work angry at one another. We had a shared perception of our principles and values.

We paid ourselves the same, we get the same stock options — everything was identical. We can’t both have the same title but, I don’t care much about titles, because it didn’t matter — we were both running the company independent of our title. It’s a wonderful way to run a business, because it gives you so much more freedom. You have a real soul mate.

Although [former CEO] Bruce [Chizen] developed a lot of that relationship with [current CEO] Shantanu [Narayen], [running a company] can feel pretty lonely. Who do you talk to? That’s one thing John and I have always tried to do for Bruce and Shantanu. We don’t keep an office at Adobe. I don’t want to be perceived as looking over their shoulders. [But] we make ourselves available anytime that they want to sit down. We usually have breakfast once a month with Shantanu to chat and see how things are going. If he wants to call, we’ll be there immediately.

Knowledge@Wharton: Are you and John still close, now?

Geschke: Yes. I talked to him on the phone yesterday. We have common friends in Los Altos where we live. [Our wives] Nan and Marva have always had a good friendship. And our kids get along great.

It’s been a very unusual, very wonderful relationship. I feel extremely fortunate. I can’t imagine doing it alone.

Knowledge@Wharton: What do you think is the biggest mistake Adobe made in its 25-year history?

Geschke: That’s always hard to answer. I’d say [it was] trying to prepare for handing over the company to the next generation. That was a huge mistake.

We are so lucky that we were able to recover from that. It could have been disastrous. It was a combination of a pretty strong economy overall and the fact that once we got the cost controls in place the top line of the business was very healthy, so we were able to get back in economic control of the business. But that was a scary, scary time when you fire your four most senior executives in the same day.

Knowledge@Wharton: Looking back on the history of the company, what are you most proud of?

Geschke: My grandfather and father were letterpress photo engravers. I grew up around ink and printing all my life. I remember the first color work that we did at Adobe. I brought home samples of some halftones [for printing photographs] and I showed them to my Dad. He took out his engraver’s loupe and looked at it. He looked at it again. He said, “Charles…” — when he called me “Charles” I knew it was bad news — “Charles,” he said, “This doesn’t look very good.”

I said, “I know, Dad, but I just wanted to show you this because we are going to get it right. We’re just not there yet.”

My father was a very kind and gentle guy — tough, but still gentle in the way he was tough. About two years later we made dramatic breakthroughs and had gotten to the point where our halftones formed the right kind of rosettes. They looked as good, if not better, than conventional technology for printing.

I brought a sample home and said, “Dad, we did some new work here. I want you to take a look at.” He took out his loupe and he looked. And he looked about four or five times at it. With a big grin on his face, he said, “Charlie…” — he’s one of the few people who could call me Charlie — “Charlie, you’ve done it.” And to me that’s the thing I’m proudest of. During my dad’s lifetime — fortunately he lived to be almost 99 — I could show him that I had done something, from a completely different direction, that he could see the value in. You don’t often get a chance to do that with a parent. That was really cool.

Knowledge@Wharton: What do you think is the biggest challenge Adobe is facing going forward?

Geschke: Inventing the future. We’ll never succeed unless we continue to open up new vistas.

I honestly believe that our technology and what’s happening in the market — where essentially all visual communication is going to the web — is the sweetheart point in our whole envelope of products and technologies. Shame on us if we can’t figure out a way to take advantage of that shift in the way the world is moving with the distribution of information.

A lot of what are there today — the limitations of browsers and of the web imaging standards — are things that we think we have a solution for. As they become the primary delivery mechanism, that value is going to differentiate.

When the world economy nearly collapsed in late 2008, many proponents of globalization feared that a contagion of protectionism would break out, poisoning the prospects for new trade initiatives that could provide long-term benefits for both companies and consumers. In the United States, unemployment was rising to unacceptable levels due in part to continued business services outsourcing (especially to India) and the steady influx of imported goods (especially from China).

Many of the trends in international trade that have developed over the past few decades appeared likely to be altered, or even reversed, in response to the weaknesses exposed by the economic downturn. Would multinationals succumb to domestic pressures by bringing home jobs they had outsourced? Would frustration over China’s trade surplus force Beijing to raise the value of the renminbi? Would countries turn inward, protecting their economies during a time of crisis, rather than pushing forward with new trade agreements?

In this special report, we take a detailed look at global trade in the wake of the recession, analyzing the impact on five fronts. One article explores whether outsourcing has run its course. Another focuses on China, whose trade surplus is increasing again even as it weighs a shift from exporting to serving its growing middle class. In a third article, we assess the changing relationship between the United States and India, which is gradually becoming a key trading partner. In a fourth piece, we ask whether the recent trade pact between the United States and South Korea is a turning point for U.S. export policy. Finally, we discuss how the growing complexity of global supply chains is driving more multinationals to the Internet “cloud.”

Lead Management is a term used in general business practice to describe methodologies, systems, and practices designed to generate new potential business clientele, generally operated through a variety of marketing techniques.

Customer Relationship Management (CRM) is a broadly recognized, widely-implemented strategy for managing and nurturing a company’s interactions with customers, clients and sales prospects.

Outsourcing: New Pressures to Stay Home, Old Reasons to Go Abroad

Has outsourcing run its course in the wake of the recession and complaints from U.S. politicians about stubbornly high jobless rates? Exports from emerging markets fell markedly in 2009, and more companies are thinking harder about the unknowns of going abroad. But the cost savings in Asia are still highly attractive to multinationals, and export levels went up again in 2010. What’s more, China’s workforce is gearing up to manufacture an ever-wider range of products.

China at a Crossroads: Trade Tensions Vie with Consumer Needs

China’s trade surplus is rising again and, with it, criticism of its handling of the renminbi. At the same time, China is facing the need to shift its focus from exports to serving its huge and growing middle class. Can it handle the transition, especially with inflation on the rise, real estate in a bubble and a demographic profile that increasingly resembles an inverted pyramid?

India as a U.S. Trading Partner: Far Beyond BPO

India is still the place to go for business process outsourcing — making it a lightning rod for complaints about lost U.S. jobs. But President Obama’s recent visit, highlighted by the announcement of nearly $15 billion in new trade deals, is putting India on the map in another way — as an increasingly important market for U.S. goods.

U.S.-South Korea Trade Pact: A Turning Point for American Exports?

Washington’s surprise trade agreement with Seoul is good news for American exporters and promises to be a powerful economic stimulus, supporters say. Its success could revive other proposed free-trade pacts that have been on the back burner. But is Congressional approval a sure thing at a time when many Americans are suspicious of globalization, questioning whether trade pacts lead to job losses rather than the promised job gains?

Supply-chain Management: Growing Global Complexity Drives Companies into the ‘Cloud’

When the global economy nearly collapsed in late 2008, some multinational companies reacted by quickly cutting their head counts and technology budgets. As cash flow dried up, providers of on-demand global trade and logistics technology were expected to face times in their efforts to retain old customers and win over new ones. It hasn’t turned out that way. A growing number of manufacturers and retailers have decided, instead, to streamline their worldwide supply chains for the long haul by signing up for pay-as-you-go logistics services available through the Internet “cloud.”

President Obama’s visit to India in November was a welcome opportunity for both the United States and India to focus on the positive aspects of their economic relationship. Rather than directly address the politically delicate issue of outsourcing thousands of U.S. service jobs to India, the President and his entourage of business leaders called attention to the growing volume of trade between the two countries and the vast new opportunities for much closer trade and investment ties in the future. Overall, more than $14.9 billion in bilateral trade deals were either announced or highlighted during the visit, according to the White House, including $9.5 billion in new U.S. exports to India, reportedly supporting an estimated 53,670 U.S. jobs. “These cross-border collaborations, both public and private, underpin the expanding U.S.-India strategic partnership, contributing to economic growth and development in both countries,” said the Office of the Press Secretary in a statement.

India’s role in the global economy — and U.S. perceptions of that role — continue to evolve at a rapid pace. Less than two decades ago, conversation about India in the U.S. often focused on its poverty and the foreign aid that the U.S. and other developed countries offered to alleviate it. Now, the emergence of Indian companies on the world stage draws increasing notice. Such players include Tata Motors, which owns prestigious British brands Jaguar and Land Rover, and global IT service providers like Infosys.

Too often, however, India’s growing prowess in networked business process outsourcing (BPO) attracts negative attention, especially among those Americans who feel their jobs are threatened. In 2009, U.S. companies bought $2.3 billion worth of BPO services in India, up from $1.5 billion in 2007, as Indian firms continued to improve the range of their offerings . But as President Obama’s visit highlighted, there is a lot more to the U.S.-India business relationship than India’s enormous skill at supplying back-office services.

Although U.S.-India trade is still overshadowed by trade with China, India is gradually becoming an important partner for the United States. U.S. exports to India have expanded from just $3.6 billion in 2000 to $18.2 billion in 2010 (12 months through June), compared with $69.6 billion in U.S. exports to China in 2009. On the other side of the ledger, U.S. imports from India have grown from $10.5 billion in 2000 to $26.4 billion in 2010 (12 months ending June), still dwarfed by the $296 billion in imports from China in 2009. Much of the growth in commodity trade is occurring in non-consumer sectors that attract little public attention but where U.S. manufacturers remain highly competitive. During his visit, President Obama announced 20 export deals, some involving big-ticket items like passenger jets, gas and steam turbine engines and oil-and-gas equipment supplied by such Fortune 500 names as Boeing and GE.

In what other ways is the U.S.-India business relationship likely to evolve? And what are the remaining weaknesses in India’s infrastructure and workforce that will affect this relationship as well as India’s future growth?

Redefining Business Processes

While an estimated 85 million to 100 million Indians have already moved out of poverty into India’s middle class, that’s only a small percentage of the country’s 1.17 billion people. The country’s workforce still has a long way to go before it can match up with that of the major industrialized nations of North America, Europe or East Asia, notes Ravi Aron, a senior fellow at Wharton’s Mack Center for Technological Innovation who is also a professor at the Johns Hopkins Carey Business School.

Is a systematic approach that initiates with the  sales process and ends with the engagement closing. This typically has an accounting component associated with it – overseeing the profitability of project engagements within an organization.

At the highly regarded top of India’s pyramid, notes Aron, there is a relatively small group of “extremely capable entrepreneurs who are redefining business” so that India can overcome its remaining weaknesses. They are the internationally recognized elite who are leading India’s emergence as a global center for outsourcing services. Below them, in the middle of the pyramid, says Aron, is a second group, “the growing lower middle class that is making it possible. This is the labor force that executes the vision of the group at the top.”

Below that second group is the old India: an enormous third group of workers whom Aron describes as “the victims of the state,” workers ill-suited for playing a role in a modern industrial society. These are the people, he says, who might have been better off if the Indian government had not left the country’s economic emergence largely to the small group of entrepreneurs at the top. “This underclass votes on the basis of caste and religion, and you get terrible politicians who keep them down,” says Aron.

The whole world knows that China’s recent transformation into a modern nation is based on enormous government-led initiatives to improve that country’s infrastructure, both physical and human. But the situation in India is quite different, notes Aron. The entrepreneurs who have led India’s limited transformation have done so despite the continued poor quality of its physical infrastructure — its broken-down roads, bridges, power grids — and the unwillingness of Indian politicians to invest in that infrastructure or in the country’s emerging pool of workers. Indian companies have succeeded despite the country’s infrastructure, not because of it. “They find ways to get around its frailties and develop certain unique capabilities,” says Aron.

Ironically, some of those unique capabilities “have become devastating weapons to take on other multinationals” from outside India, according to Aron. “Many of the early IT majors learned how to manage [in India] in spite of the lack of infrastructure” because they had to do so in order to survive. They figured out how to offer their Indian customers back-office processes that had predictability, reliability and scalability. Having learned how to provide high-quality services “in a place where there is every possible frailty you can think of,” Aron says, these Indian firms gained confidence that they could compete elsewhere. They did that by offering the same sorts of services to multinational companies on the backs of the world’s most reliable telecom networks, which are far more predictable than those in India.

Training in the Private Sector

In another creative adjustment to local frailties, the leading home-grown entrepreneurial companies have responded to the shortage of formally trained, high-level engineers by taking it upon themselves to train their own people to meet the highest global standards. As recently as 2005, McKinsey reported that only 25% of engineering graduates in the Hyderabad region were “suitable for employment in multinationals.” McKinsey then went on to make a disturbing forecast: Demand for engineers would reach 138% of supply by 2008, leaving India unable to develop its full potential for outsourcing IT services.

Aron says the situation was even worse than that, and it remains bad. He estimates that “only about 10%” of engineering graduates currently meet the highest global standards. The good news: Because the Indian government did not invest in training programs for its young engineers, “the onus fell on private industry” to train the bright prospects in-house — and they proceeded to do so. In the process, the Indian firms learned valuable lessons about how to train and manage labor, according to Aron, and have used that knowledge to provide services for U.S. and other foreign companies. “You impose an entirely new set of quality requirements [on such engineers] because you know what it takes.”

Likewise, India’s emergence as a location for outsourced legal services also reflects its creative adaptation to its own weaknesses — in this case, the dreadful condition of its over-burdened courts. “Indian courts are extremely slow,” notes Aron, so a case can go on for as long as 25 years before it is resolved. With all its delays and inefficiencies, “India has a huge number of lawyers who are constantly on call.” The result is a new service for export:  English-speaking Indian lawyers who are available to provide legal services for multinationals on the other side of the globe.

Legal services is one way in which Indian providers are expanding their range of outsourced offerings, and demand for their offerings is strong, says Jacob Shasho, president of Hyderabad-based NAPS India, which locates and hires employees for U.S. multinationals that outsource medical billing and other back-office processes to India. “We get to the point where the client doesn’t feel any difference between dealing with an employee who is next door and an employee [who is] in India,” notes Shasho. “Imagine a very long cord to the client in India.”

Despite India’s well-deserved reputation for call centers, Shasho says that most outsourced services are not voice services. Instead, most employees are engaged in such activities as medical billing, programming, accounting/bookkeeping and legal research. Although the rise of outsourced legal services may seem threatening to U.S.-based lawyers, Shasho points out that Indian workers are not allowed to provide legal advice since they are not licensed to practice law in the United States. “They don’t have direct contact with clients in India unless the client needs legal services for a case that takes place in India.”

Shasho says that India’s technical infrastructure is “very advanced. The Indian economy is really dependent on BPO and KPO [knowledge-process outsourcing] for such services as accounting and legal research. You don’t need all of the more than one billion people in India. You need only to take the cream of the cream. Maybe only 10% to 20% of the population can be in the IT sourcing sector, but this cream-of-the-cream is huge” because the size of the population is so large.

Growth Opportunity for Transportation Specialists

The weaknesses in India’s physical infrastructure could turn out to be a growth opportunity for foreign companies that supply critical transportation services. As demand for manufacturing and agricultural products expands, supply chains for manufacturers and agribusinesses — which have tended to be localized — will need to extend across the country so that companies can distribute their products cost-effectively, according to a recent report by Frost & Sullivan, a business research and consulting firm. Spending on transportation and logistics in India, which reached $75.19 billion in 2009, about 6.2% of the country’s total GDP, is expected to grow at a compound annual rate of 9.9% between 2009 and 2014, to $120.42 billion. Despite India’s shortcomings, U.K.-based Transport Intelligence Ltd. rated the country highest in its Emerging Markets Logistics Index because of the huge potential size of the market and its “growth attractiveness.”

Lead Management is a term used in general business practice to describe methodologies, systems, and practices designed to generate new potential business clientele, generally operated through a variety of marketing techniques.

The problem with most industrial and retail sectors is that there are multiple levels of intermediaries, says Srinath Manda, a Frost & Sullivan industry analyst, in the firm’s recent report. Because companies will be hard pressed to serve such an intricate network, logistics service providers — including multinationals like UPS and FedEx — could expand their sales in the country. “Apart from the steady expansion of operations by large domestic industrial groups, an increasing number of global majors in industries ranging from automotive and electronics to pharmaceuticals and cement have been targeting a spot in the highly lucrative Indian market,” says Manda. “While foreign companies need to engage logistics service providers  — since they are not conversant with the culture, government policies, or distribution landscape of the country — domestic companies are outsourcing their logistics activities to organized third-party logistics [firms] to focus on their core competencies.”

Manufacturers and logistics companies are hampered the most by the country’s poor infrastructure connectivity in rural areas, says Manda, especially in the consumer goods, food processing, pharmaceuticals and consumer durables industries, which have a huge potential consumer base in these areas. “Apart from the development of dedicated railway freight corridors, the focused development of inland waterways and the strengthening of road networks through the national highway development program are expected to improve the market reach of most industries,” notes Manda. “Owing to these efforts, professional logistics services can be extended up to rural areas, leading to a higher scale of logistics activities outsourcing.”

Already, some Indian entrepreneurs are finding innovative ways to leverage the weaknesses of India’s transportation infrastructure to their competitive advantage, according to Aron. Bombay-based Tata Motors, for example, has taken advantage of the peculiar characteristics of India’s supply chains, which are more localized, less differentiated and less specialized than those in North America. “You don’t have 14 or 15 grades for the same auto part in India,” says Aron. These characteristics have made it possible for Tata to source car components closer to its factories, and coordinate R&D and production efficiently. Otherwise, the process of coordinating the flow of components to various factories would have been more costly. That makes it possible for the company to manufacture the world’s least-expensive car, the Tata Nano, which sells for only 100,000 rupees, little more than $2,000. “Even if you doubled the cost, it would be very cheap,” says Aron. And it gets 3.5 times the mileage of a Toyota Camry.

As for the design of the Nano, it, too, takes advantages of India’s weaknesses. “The roads are terrible, and the Nano had to be very agile” to move between cows and bullocks on the road, notes Aron. “You overcome your handicaps and so you become very effective in competing around the world.”