Conversations: Sue and Alan Cooper, Who Founded Cooper and Then Sold It to Wipro/Designit in October 2017
need little introduction, as the Cooper name has been a rock in the history of interaction design. Their company, first named Cooper Software and then simply Cooper, was founded in 1992. The pair grew the studio in size and reputation, wrote and published books, and created Cooper U, a dedicated educational arm of the company. They sold the company in 2017, and now they run a ranch.
Why did you both start Cooper?
Alan Because I couldn’t get a job (laughs).
Sue He couldn’t get a job. And then I stepped in, “Okay, well, I guess we’re going to have to do this on our own.” Alan had this passion for separating design from building it. He hung his shingle out saying, “I’m going to do this consulting thing for design consulting, no programming,” and got three clients right away. So then I was the back end and making sure that we were set up as a business and getting the contracts done. And then it naturally evolved and we hired our first employee and he came to the house and I went, “Shit, we’ve got to get an office.”
This was back in 1992, and I felt like people were burning out in Silicon Valley, and I wanted to have a company where we didn’t burn out people. There was Alan’s passion to design and make, just create stuff that doesn’t frustrate people so much. So then we had to write the books. We knew that consulting, books, and teaching all went together. And so we started Cooper U and did all of the wonderful things that had to happen in order to have a viable business.
We grew to about 70 people.
And I think about 10 years in, we were approached by a company who wanted to buy us, right before the dot com bust (2000), but we weren’t ready. We didn’t have an investment banker or anything. So one of the key stories for me is that I often look back to what they were offering then—and we could have sold out then for probably more than we eventually got—but we didn’t feel ready. We just weren’t ready to talk to them, we weren’t ready to sell. We had too much to do. And then boom, the dot com crash happened so it’s probably good we didn’t sell because—
Alan We would’ve gotten a lot of worthless stock. We would’ve gotten a much bigger number that was not backed by real money, I think. The dot com bubble popped and we just got destroyed, so we dropped down. Sue took over because I couldn’t handle it, I was losing my shit. And Sue came in and basically rescued the company and she pared it down to, I think there were 7 people, 7 employees besides us.
Sue By 2015 or 2016, I had grown the company back. Alan was off having fun. And I wanted to have fun, too. So I hired a company to help sell Cooper—an investment firm that didn’t have any experience in our area, but they were really good salespeople. I hadn’t done any research. I hadn’t asked anybody else. Adaptive Path had just been purchased, and I should have asked them; I should have asked around. But I ended up interviewing all these investment bankers, and this one company that we hired was absolutely a disaster, they hadn’t done any deals in our area. They didn’t know the segment, they didn’t understand the value of design.
It helped us realize what we needed to do to get ready for another investment banking firm. We had to get our marketing together to make Cooper a valued name brand. We had to communicate our messages more clearly so that an investment banker-type would be able to understand it.
I had to get our revenue up after this failed investment banking thing. I decided to hire a consultant, Ken Trush out of New York; Maria Giudice recommended him.
Ken told us, “In order to be attractive, you really need to have a broader reach and an executive team in place that is a little stronger than what you have.” So we acquired a design company called Catalyst based in New York. Their company had about 15 people. The merger gave us a New York office in addition to our 45-person San Francisco office.
I knew that we had done the right thing with Catalyst when Nick (Gould, President of Catalyst) and his team of 15 people made baseball cards to introduce themselves to our team. Each baseball card had a picture of the person and their stats. It was such a great thing to do because you’re meeting so many people at once that you need a little cheat sheet. I thought that was brilliant.
Alan I actually think the Catalyst and Cooper merger illustrates a key point. In order for any kind of a merger or acquisition to be a success, the two companies involved have to be the same size. The closer to the same size they are, the better the chances are for a successful integration. We were three times bigger in terms of personnel. But we were a small single office shop and they were a small single office shop, and we’re running the way a small company runs, not the way a big company runs. We don’t think in terms of multimillion-dollar deals. We were thinking in terms of $100,000 deals. And we stressed from the very beginning that we were not acquiring Catalyst, we were merging with them. And that’s, let me just say, that kind of humility is not to be found when a big company buys a little company.
Sue One of the most important keys to our successful sale was retaining the right person to help. Luckily, we met Julie Levenson at La Honda Advisors in Palo Alto. She was like the calm center of the storm during the entire acquisition process, and much of our success was due to her expertise.
So you had established a joint company that was bigger and more attractive to buyers, and had successfully merged with Catalyst. Then what happened?
Sue This company Wipro approached us. And we said, “Yeah, we’d like to talk.”
Wipro had acquired Designit, a European firm quite large for an interaction design consultancy. They had the lead. So our firm would become part of Designit, which was part of Wipro.
Alan and I knew we wanted out. We didn’t want to be part of the buyout terms. So we kept out of the inner workings of the deal negotiations because we wanted to show that our company can stand on its own without us there. Nick became the key Cooper lead for our sale. He carried the ball all the way to the finish line.
Were there retention milestones built into the deal as well?
Alan It was a remarkable and unexpected thing—Wipro basically said from the beginning that the Coopers are out. They held me to a three-year commitment to come at their beck and call. They could say, “We need Alan Cooper here now,” and I had to show up. They never once asked me.
We also had a non-compete for three years, too, not to work with other firms or whatever. But now I could start a new UX design company if I like.
Sue Go for it, honey (laughs).
Why do you think Wipro felt so strongly about the two of you not staying on?
Sue I think it was because they recently had a bad experience with a company they acquired, where the founders were a pain in the ass. They didn’t want to see their methods and all this stuff change. You have to let the new company take on its new part, and they thought if we were there, we would’ve probably fought them a little bit more.
Tell me a little about the negotiation process.
Alan Wipro had 5,000 employees, and we had 50. The way I think about it is that in an acquisition situation, especially when you’ve got different size companies, the negotiations are like a ratchet joint. It’s a joint that spins one way. And it always spins against the little company.
Early on in the negotiations, they come in and they say, “Oh, we want to buy you. This is going to be a match made in heaven. Everything is wonderful. Here’s the amount of money we’re going to give you.” And you say yes. And then they say, “Okay, we need to look a little closer.” And they look a little closer and they go, “Well, we’ve got to give you a little less money.” And again, they look a little closer, and say, “We’ve got to give you a little less money,” and then a little less money.
And in the meantime, you’re getting more and more committed to this. You’re a little tiny company. They have 50 people on their M&A team; you have 50 people in your whole company.
And so then you finally consummate the deal and at the last minute they say, “Well, of course you’re responsible for these taxes,” which nobody ever mentioned. And so you just have to write a check for $300,000 or $400,000. It comes out of your pocket. And then they say, “Oh, by the way, didn’t we mention that there’s this other thing that you have to pay for?” And then there’s this fee to these lawyers, and then there’s this thing and that thing.
And so there’s this constant ratcheting of things that you have to give, but the initial price that you agreed on, that never changes. Once you sign the deal, the money they give you, that’s a number that’s written down. The things that you’re giving them, all of a sudden they’re kind of fluid and they’re constantly changing and they always change in one direction. They never come in and say, “Oh, by the way, we picked up the tab for this thing, for travel, for negotiations.” And instead they say, “Oh no, that’s on you.”
Believe it or not, Sue finally settled this thing just a couple of months ago. Keep in mind, we sold the company five years ago. We had an office in California and we had an office in New York State. And so even though we’re a tiny little company, and the amount of money we sold it for is just down in the rounding errors of the state revenues, we’re a soft target. They don’t come after Wipro, the giant multinational corporation with huge deep pockets; they come after tiny little Cooper. California wanted us to pay taxes on that transaction, and New York wanted us to pay taxes on that transaction. Well, you don’t have to pay taxes in two different states, but it’s going to cost you five years and several hundred thousand dollars in legal fees just to straighten that mess out.
Sue New York decided to audit us because they thought that more of our revenue was produced out of New York than California, so they didn’t think they got their fair share. We had to go back into history and prove it to them. But they ended up deciding that New York was owed more anyway. So we had to pay New York more. You can get that money back from California, but it took several years to negotiate it back.
It’s actually in our favor because California taxes are higher than New York. We weren’t cheating or anything, it’s just New York wanted to get their claws in for more money.
These deals have a long tail. You think you’re done, and then these unexpected little things come up.
I sense you have a different sentiment between your merger with Catalyst and your sale to Wipro.
Alan When we acquired Catalyst, it was really a merger of equals. And we very much wanted a win-win. We wanted them to be successful. We wanted to create a New York office and we wanted to learn from them and we wanted them to learn from us, and they wanted the same thing and it worked really well. We’re not business executives, we’re entrepreneurs and we’re driven not by making money, we’re driven by doing good work and that’s a very different thing.
But once a company passes 100 or 150 people, it kind of stops doing that. You get professional management in, and their job is to make money and they don’t care about win-win. They care about winning and that’s a very different thing.
The problem is that the big companies want to buy you because they can’t re-create what you do inside their organization. The reason why they can’t re-create what you do inside their organization is because of their culture. The large size of the business says that whenever we have options, we always take the one that brings the biggest yield. Well, the one that always brings the biggest yield is the one that is proven. The bean counters never opt for the risky acquisition. And mergers and acquisitions people, they’re bean counters to the nth degree. They’re the beaniest of bean counters.
When the acquisition is completed, your organization is now in the bloodstream of a larger company that has antibodies against who you are and what you do.
And in my humble opinion, there are very few acquisitions that actually work.
The Wipro guys wanted the Cooper people to behave like Wipro employees. The Wipro employees work differently and think differently. And our guys said, “No, that’s not how we do things, and the reason why we’re successful at what we do is because of the way we do things.” And the management up and down in Wipro, they were just unsympathetic to that. They said, “No, no, no, you can do your magic, but you have to do it our way.” Well, that’s just a way of saying, “We’re going to destroy you and everything you stand for.”
When their bean counters were counting and evaluating your company, did you speak with other potential buyers?
Sue No. The biggest gotcha was that Wipro didn’t want us talking to other firms, they wanted to tie us up, because they said, “We’re going to put a lot of time and energy into this deal and we want you to not talk to anybody else.”
And so we agreed to that, stupidly, and then we were waiting, waiting, waiting. I think the hardest part for me was waiting for them because they just dragged it out so long. It’s a big company and they need to do their machinations, but then we couldn’t talk to anybody else. So now we’re tied up, can’t talk to anybody else, and are committed to this deal.
It was a mistake to agree to not talk to anybody else because we lost any sort of leverage that we had at that point.
It’s a tiny deal, and they’re working on huge deals and this is just this little one. And the little one can take as much time and resources as this big giant deal.
Where was your anxiety level during all of this?
Sue Oh God, it was horrible. Nick handled it all, and I didn’t want to call him every day, “What’s happening? What’s happening?” So I would just try not to call him.
It was really hard to keep people at the time. There were a lot of other companies poaching our people. With every person who leaves, your value goes down because they look at how many people you have. And so that was stressful.
Then we went into a little bit of a hiccup in the economy back five, six years ago. That was stressful because our revenue wasn’t meeting the projected revenue that we had given them.
We were waiting, just waiting. Having the ball in their court was so frustrating, because you’re just sitting there going, “Okay, I guess we’ll just continue doing business and do the best we can.”
Eventually, the deal closed, and Cooper became part of Designit and Wipro. You stepped back from the company, but you certainly got to watch it from afar. How did you feel about what you saw?
Sue When we acquired Catalyst, we were very careful to honor their culture and they were very careful to honor ours. So it was a much more simpatico kind of situation. They were very respectful, and Cooper’s culture was to kick ass and take names and we’re going to show you how to do this. We have a special way of doing things.
And the Wipro Designit people didn’t appreciate that. I kind of sensed that they respected Cooper and our reputation and the books and the methodology and all that, but that they were thinking, “That’s fine, we know that stuff and we’re going to do it our way.”
Alan At the last minute they decided to change our name from Cooper to Designit, which is a grossly bad business decision.
Sue But that’s their right. They bought the company, they bought the rights to do that, and if they don’t see leverage in the name, then they need to do what they’re going to do.
Alan I’m not saying that they didn’t have the right to do that. I’m saying that it was a grotesquely poor business decision. If you’re selling your company, you’ve got to let go, and you can’t run a company from the grave. You can’t have these strings attached. They don’t want it and you don’t want it, and you don’t want to be involved in that.
This is why you don’t want to accept an earnout. If you accept an earnout as part of your compensation for an acquisition, what you’re doing is you’re saying, “My compensation will be for running the company the way I always run it, except I no longer have the control to run it that way.” It’s just a suicide pact. So you never ever want an earnout. An employment contract is okay. Even a modest non-compete is okay. But an earnout is ridiculous.
Sue Because you’re being measured on your success…
Alan …but you’re not in control of your success.
Sue You’re not in control anymore. And as an entrepreneur we are used to having a lot of control.
We sold the Cooper name, the Cooper URL, everything. The Cooper website, it’s gone. And so now there’s no way to find any information about Cooper on the net. For people who are putting down Cooper as their resume, they can’t find us anywhere. They can’t find any information about the company.
There’s absolutely no information about what we did. It’s like we didn’t exist, it’s erased. And I wish there was a way, for our employees who are looking for jobs and as a service to ex-employees who want to stay in touch with each other or whatever… I think we should have thought that through a little bit better.
Are you glad you sold?
Sue Oh, yeah. Yeah, I was done. It was time. There’s no question for me.
We were in our sixties when we sold the business. When we were approached the first time we were in our forties and we were not ready for it. We had the energy to keep going. But it was really an easy decision for us the second time because we both wanted to retire. We were in our sixties, so that’s a huge, huge part of the equation for me.
I like having a happy end to the story. It’s nice to feel like I did something, that I set out to do something and we achieved it.
Alan I think it’s important to state that it’s commonly accepted wisdom that you cannot sell a service company. Obviously service companies sell, but I think that the odds are against selling a service company. I think that also the odds are against a successful sale of a small company to a big company. Because the entrepreneurial mindset is very different from the corporate mindset. And so deals get made. We made a deal, you made a deal. And if you can make a deal, if you can sell your modestly sized consulting company, you are fucking awesome.
And you need to understand just how difficult that is, just how fraught that challenge is, and to understand that you’ve climbed the Everest of business accomplishment to do that. And you need to pat yourself on the back.
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