By Harry McCracken | Friday, April 1, 2011 at 6:45 am
The first high-profile evidence of trouble at Osborne Computer came in June, when InfoWorld published a story with the alarming title “Far-reaching woes plague Osborne.” It said that the company was suffering from a cash crunch, and that delays with the Executive and a promised add-in board that would give the new machine IBM PC compatibility had hurt Osborne 1 sales.
By then, layoffs had begun at Osborne Computer–92 people in May and 93 in June. In July, the Journal published another story on Osborne’s plans to go public–saying that financial woes had forced the company to give up on them:
Sales of its Osborne 1, a best seller in 1982, fell off sharply in the spring, when the offering was to have been made, forcing the company into a cash squeeze.
Osborne Computer’s main problem has been the timing of its introduction of a new portable computer this spring. Dealers cut off orders for the Osborne 1 to wait for the new machine, but it was behind schedule.
“We had an April with no income,” says Adam Osborne, the chairman. The company was also coming out of fiscal 1982 with flat results or a loss, and competition from newcomers in the portable-computer business was intensifying. Osborne takes the blame for the introduction snafu.
There you go: The first mention in print of the miscalculation that would come to be known as the Osborne Effect.
Still, the Journal ended its report on a cautiously upbeat note: “The company seems to be recovering, although its officials decline to discuss revenue or earnings. Some dealers say the Executive is selling well.”
The bad news, however, kept coming. In August, Osborne closed a New Jersey plant, laying off 89 employees. It also terminated 200 workers at its Hayward, California facilities. It laid off another 312 on September 9; a photographer captured a memorable photo of Adam Osborne in the corporate parking lot, holding his briefcase to cover his face. (Apparently, that Osborne magazine ad was wrong: briefcases did serve a purpose.)
On September 13th, true disaster struck: the company filed for bankruptcy. It would stay in business, shielded from its debts by the court, but as a shadow of its former self. The workforce, once more than a thousand, shrunk to 27 employees; the dream of Osborne Computer continuing to be a major force in the industry died.
So why did Osborne collapse? Among the people who tried to answer that question was Adam Osborne. In mid-1984, he self-published Hypergrowth: The Rise and Fall of Osborne Computer Corporation. He wrote the book in collaboration with fellow tech columnist John C. Dvorak. “I knew Adam and was hanging out at his house, and he came up with the idea of me helping to keep him honest,” Dvorak explains. “but seventy percent was his.”
InfoWorld published a large chunk of the book in three excerpts, which you can read here, here, and here. In it, Osborne blamed the company’s fate in great part on banks which would not extend Osborne Computer credit it needed to keep going and growing. He also criticized CEO Jaunich for decisions such as pricing the Executive at $2495, which resulted in sluggish sales, and accused him of setting up the company for failure so he could increase his pay package by rescuing it–a charge that Osborne later retracted.
–Adam Osborne on The Computer Chronicles, 1984
Curiously, Osborne claimed in Hypergrowth that when he had told the Wall Street Journal that the company’s financial struggles stemmed from “an April with no income” he had been fibbing to cover up deeper problems. He specifically denied that the Osborne Effect had destroyed the company: “The facts are that the Executive was announced on April 17 and shipped during the first week of May–a miracle of punctuality by microcomputer industry standards.”
Those aren’t all the facts, though: if Osborne dealers had read The Wall Street Journal in January, they knew that the company was working on additional machines, even if the new models hadn’t been announced. But the Executive didn’t show up until more than four months later, and the cheaper system and IBM PC-compatible one didn’t arrive at all. That was a lengthy period of uncertainty for Osborne Computer in general and the Osborne 1 in particular.
Creative Computing’s David H. Ahl reported that leaks rather than preannouncements had hurt the company:
To give the jazzy $2495 Osborne Executive a running start, Adam began orchestrating publicity early in 1983. We, along with many other magazines, were shown the machine in locked hotel rooms. We were required not to have anything in print about it until the planned release date in mid-April. As far as we know, nothing did appear in print, but dealers heard about the plans and cancelled orders for the Osborne 1 in droves.
In early April, Osborne told dealers he would be showing them the machine on a one-week tour the week of April 17, and emphasized that the new machine was not a competitor for the Osborne 1. But dealers didn’t react the way Osborne expected; said Osborne, “All of them just cancelled their orders for the Osborne 1.’
Osborne reacted by drastically cutting prices on the Osborne 1 in an effort to stimulate cash flow. But nothing seemed to work, and for several months sales were practically non-existent.
Still, it’s clear that theory behind the Osborne Effect–that an otherwise healthy enterprise committed unwitting suicide by preannouncing products–doesn’t stand up. The Osborne 1, so alluring in 1981, looked like an antique by 1983, in part because it had originally aspired, as Adam Osborne had explained, to mere adequacy. If people didn’t find it so tempting anymore, they didn’t have to wait for better Osbornes: They could buy a Kaypro or a Compaq or one of numerous other computers that built on the Osborne 1′s innovations. And many of them did.
Moreover, the product category that Osborne Computer created–CP/M-based luggables–didn’t outlive the company by very long. The booming market for IBM-compatible machines had already left CP/M a dead operating system walking. And “lap-size” computers were getting better at a furious pace. The portable computer of the future wasn’t anything that Osborne had preannounced: It was Toshiba’s T1100, an enormously popular PC-compatible laptop.
Here’s bittersweet video of Adam Osborne guesting on a 1984 episode of the public-TV series The Computer Chronicles, pointing out–accurately–that the PC business in the mid-1980s was more about mass production than innovation, and recommending that ambitious young people not enter it:
Looking back, Thom Hogan attributes Osborne Computer’s failure to problems similar to the ones outlined in Hypergrowth:
Cash flow, basically. And decisions relating to it. The company was undercapitalized from the beginning, so the very rapid growth essentially had us ordering more supplies every month faster than we were taking in money on the income side. The company would have sold even more than we did with more capital. Basically it was “buy as much new parts and add as much staff as we can afford” every day. I can’t remember a month where the cash flow numbers looked great, despite the profitability numbers looking decent. Some of the undercapitalization was greed. The VCs back in those days didn’t see any reason to put more money in as long as a company was managing to keep the balls juggling in the air. But then they made another decision that impacted the juggling: replacing Adam with Jaunich was amongst the most terrible decisions I’ve seen in Silicon Valley. The VCs thought that it was necessary to take the company public and get their big cash out. But replacing Adam pissed Adam off, to the point where he became counter productive (announcing the Executive II before we had the Executive out the door, sitting in Paris for weeks on end, etc.). And Jaunich simply didn’t understand tech businesses at all and started making decision after decision that was, well, to put it bluntly, stupid and wrong.
Osborne Computer may have filed for Chapter 11 bankruptcy, but it was eager to prove it could bounce back. It regrouped, installed a new management team–Adam Osborne remained on the board for a while but eventually left–and sent employees to trade shows wearing cheery “Osborne is Back” buttons. More important, it released the Vixen, based on the concept for a smaller, cheaper Osborne that the Wall Street Journal had mentioned in January of 1983.