Losing the Signal: The Spectacular Rise and Fall of BlackBerry (5 page)

Within five years after Motorola launched its bulky brick phone in 1983, Finland’s Nokia, Germany’s Siemens, and Korea’s Samsung joined the cellular phone race. Ericsson followed, but its engineering-driven culture struggled in a Madison Avenue world of slogans and product branding. Early Ericsson phones were lightweight marvels, but their dull brown and gray covers and plain female names, “Jane” and “Sandra,” doomed what were then some of the more advanced cellphones on the market.

Like Motorola, Ericsson spotted a lasting opportunity in wireless plumbing. There was good money to be made selling expensive infrastructure that relayed and directed data traffic along radio channels. Ericsson had collaborated with Sweden’s government-owned phone company Televerket in designing the Mobitex network, allowing ambulances and emergency response vehicles to send and receive data messages. Eyeing a bigger market outside its small home country, Ericsson launched a campaign to sell Mobitex globally. If customers bought the network, they would have to invest in Ericsson’s expensive line of base stations, relay equipment, and portable terminals. The first set of Mobitex components sold in North America went to New Jersey–based RAM Mobile Data. The second was housed in the boxes Lazaridis examined in Rogers’ offices.

The basement ballroom of Toronto’s King Edward Hotel was transformed into corporate Neverland. A dozen weeping fig trees had been stationed around the room, covered in small delicate lights to create just the look David Neale wanted: an enchanted forest for an enchanted radio team. On this late afternoon in May 1990, he had invited dozens of communications executives, journalists, and consultants to attend a presentation by Rogers on the new future in state-of–the-art wireless communications.

Guests were not disappointed. A short multiscreen slide presentation featured men in construction hats staring, eyes narrowed, at a glowing horizon, as 1s and 0s symbolizing binary code flew across a luminous rising moon. The wireless data revolution had arrived, a Rogers executive declared, and it was going to save businesses lots of money. Information would travel over radio waves to terminals in courier and service trucks, speeding the delivery of work orders, invoices, and payments. This was all possible because Rogers had
Mobitex. The Swedish network connected computers to mobile terminals that traveled wherever business went. Mobile data was no longer the stuff of science fiction. The future was here. To reinforce the point, tables were loaded with portable Mobitex terminals displaying test text messages dispatched from a distant location.

“What we were showing was very futuristic,” Neale says. So futuristic no one visiting the enchanted forest realized the display was still a fantasy. None of the machines actually worked on Mobitex yet. The terminals were wired into a computer simulating radio transmissions. Lazaridis and his team at RIM had been making progress with the Mobitex network, but they were still months from designing software and components that would allow North American computers to communicate with the Swedish network. Neale couldn’t afford to wait any longer. His enchanted radio team was in danger of being shut down if he couldn’t convince his bosses and potential customers that there was a market for Mobitex’s wireless network. “Everyone had a most pleasant time,” recalls Neale. “We just didn’t sell much.” Five months later, Rogers began losing patience with the radio dream and transferred many of the group’s staff to its rapidly expanding pager division. Neale left shortly after to join a telephone company, and RIM was left with contract scraps from Rogers and Ericsson.

Rick Brock sped up as he exited Cambridge, Ontario, steering his car east onto Highway 401. Next to him sat Jim Balsillie. The men were going on a hunting weekend. Not the takeover variety, although there would be talk of that. Even though Brock’s company, Sutherland-Schultz, was about to be swallowed whole by a Dutch acquirer, Stork MV, what he had lined up that fine fall day in 1991 was one of the most exclusive pastimes available to wealthy businessmen. They were going pheasant hunting on Nicholson Island, a secret escape in Lake Ontario, two hours east of Toronto. The island’s clipped fields and tangled scrub were the property of a private hunting club. Only members, guests, staff, pointer dogs, and well-fed pheasants were allowed. Bing Crosby visited regularly in the 1960s and a who’s who of Canadian, U.S., and European corporate chiefs made it their business to bag birds, fish, and deals in its fields and streams.

Balsillie and Brock had lots to discuss on the ride. It had been two years since the Harvard grad had joined Sutherland-Schultz and he was running
much of the company. Balsillie’s first assignment had been a corporate makeover. Sutherland-Schultz was spread too thin, with a mixed bag of technology, construction, and manufacturing contracts and assets. Some projects made money; a lot didn’t. By his own admission Brock, an engineer, says his talent for solving technical problems did not come with “the ability to take it to market.” Balsillie spent his first years identifying what assets and contracts to sell and renegotiate. When it came time to sell rights for a new gas compressor process, Balsillie found a buyer with deep pockets. A company owned by legendary Texas oilman T. Boone Pickens paid $2 million for the system. The young recruit was aggressive with suppliers and customers, pushing hard to renegotiate more favorable terms on signed contracts. His leverage? If terms weren’t improved, Sutherland-Schultz would drag its feet with payments and orders.

“He was a unique great talent,” says Brock. “He opened up the world of marketing opportunities to me—how to negotiate; how to do things.”

Balsillie shaped Sutherland-Schultz into a more modern, focused business by capitalizing on innovations in construction and manufacturing sectors. He also relied on something else. At Trinity College he’d become intrigued by an ancient military manifesto. Sun Tzu wrote
The Art of War
around 500
BCE
to document his successful military strategies in China during a time of marauding, warring rulers. In the 1980s, the slim treatise resonated with business leaders confronting an influx of foreign competition.

Balsillie revered
The Art of War
as a kind of spiritual guidebook for a small Ontario company facing ruthless global competitors. Forget about Peter Newman’s
The Canadian Establishment
; the working-class kid from Peterborough was now following a different bible. “It is not a friendly world out there,” says Balsillie. Sun Tzu, he says, taught him that “you can’t panic. You have to stay focused. You go into a state. Emotionally you become formidable. You go into a warrior state.”

Balsillie followed two Sun Tzu tactics religiously: appear strong no matter how weak your hand; and move to uneven terrain if an aggressor is overwhelming. For Balsillie, rugged ground meant keeping competitors, suppliers, and customers off balance. “Bung them up in wool and play obfuscation; promise them this and then do that,” he says. “I am very good at that. I can send very uneven signals. Give them nothing to be certain with. Let them think they are getting what they want, but don’t be overly provocative. I can do that forever.”

Balsillie’s warrior pose served him well in the short-term deals and negotiations. In the broader, more nuanced world of customer relations and employee management, however, he soon became a divisive figure. Many of Sutherland-Schultz’s seven hundred employees bristled at Balsillie’s impatience. Under Brock’s leadership, no one had titles and employees pitched in to solve problems. In return Brock sent flowers to wives when husbands worked weekends; hired babysitters if a parent employee was needed after hours. When Balsillie arrived, he asked for the title executive vice president and made it his business to tell other managers how to do a better job. He was pushy and he didn’t send flowers.

“I had trouble with him and other people. Jim made them feel like they worked for him,” says Brock. “He’d piss people off and I would go patch it up.”

Despite the flare-ups, Brock enjoyed Balsillie’s company, treating him like a younger brother. Hence, the two-guy hunting trip. Sutherland-Schultz was about to be acquired and Brock wanted to talk to his young protégé. He was negotiating a side deal to buy a small Sutherland-Schultz division that specialized in simulation systems to test new factory equipment. The new company came with thirty-five employees, debt, and no budget. Brock was encouraging Balsillie to stay with Sutherland-Schultz and look after the new enterprise. Ride it out for a year, maybe two, earn some money, and, when Brock had a handle on the new company, they could acquire other businesses. Balsillie had no options. Unless you were interested in insurance, automotive, or small technology companies, there weren’t many senior jobs for aspiring executives in southern Ontario. Moving was out, too. Balsillie had married his girlfriend, Heidi, and they were expecting their first child. Both had deep ties to the community.

As the two men talked, Brock’s car phone rang. Set on speakerphone, it boomed with the voice of Dermot Coughlan, chairman of Derlan Industries and Brock’s investment partner in Sutherland-Schultz. Coughlan had an update on the acquisition talks. The Dutch company had agreed to most major terms, but there were a few objections. Unaware that Brock was traveling with someone, Coughlan explained the issues.

“Stork doesn’t want Balsillie. They are not going to hire him.”

As the executive rattled off other items, Brock stole a glance at his passenger. Balsillie was staring vacantly at the phone. Blood drained from his face. He said nothing for a long time. “It just hit him in the car when they said they didn’t want him. That was hard,” says Brock. In retrospect, Brock
says he should have seen the rejection coming. The Dutch executives negotiating the takeover ran their businesses like a bureaucracy, with layers of management, rules, and systems. In that world Balsillie, the restless corporate warrior, was an outlier. “They couldn’t manage him. They knew it,” says Brock.

Over the next few days Brock and Balsillie shot pheasant and swapped ideas. The best course, the pair agreed, was a small acquisition. Balsillie would get a healthy severance, enough to invest in a business. Brock suggested RIM, a Sutherland-Schultz supplier. Brock knew RIM was struggling because Lazaridis had recently approached him to invest. He was too busy to get involved, but he was impressed enough with Lazaridis’s technical skills to recommend that Balsillie take a look.

Balsillie had met Lazaridis years earlier, shortly after joining Sutherland-Schultz. RIM designed circuit boards that Sutherland-Schultz sold with other equipment to manufacturers for controlling shop-floor production. Arriving in a jacket and tie, sporting his gold Harvard MBA class ring, Balsillie wondered if he had taken a wrong turn when he arrived in the space above the bagel store crammed with overflowing boxes of wires and equipment and unkempt staff hunched over computers. Lazaridis, wearing sweatpants, white socks, and sneakers, was resting his feet on his desk in front of a poster of a Porsche. Balsillie’s first thought was “these guys are geeks”—a word Lazaridis hated, he would later learn. His second reaction, after listening to Lazaridis’s confident projections of RIM’s prosperous future in wireless innovations, was that he’d never met anyone who could be so mesmerizing about technology. “Mike had a gift,” he says.

Balsillie had not come that day to talk shop. He had come in Sun Tzu mode to squeeze a lower price from a small supplier. His leverage, he warned Lazaridis, was that Sutherland-Schultz would end its business with RIM if it didn’t capitulate. Balsillie came away from his first encounter with Lazaridis with two impressions. He was surprised the engineer acquiesced so quickly to what he calls his “tough guy” move. A bigger shock was Lazaridis’s ambition, which Balsillie says was “audacious” for the ringleader of such a motley crew. RIM was going to be a leader in wireless communication. It was going to reinvent how people communicated. One day it would be a corporate giant, he told Balsillie.

When Balsillie later returned to visit Lazaridis in the spring of 1992, RIM’s chief feared Basillie wanted to take over his company. Contrary to his earlier
rosy forecasts about RIM’s future, the company was perilously short of cash, in part because its biggest customers, including Sutherland-Schultz, were behind in their payments. Despite the setbacks, Lazaridis and Fregin were in no mood to sell. They had bailed the company out before; they’d do it again.

Rather than say yes or no to what they believed was a takeover overture from Balsillie, Lazaridis decided to stall, surprising his suitor. That was his game. “There was no way I’m going to negotiate with this guy because I know I’m not going to win,” Lazaridis explains. As Balsillie persisted, however, Lazaridis came to view the would-be acquirer more favorably. He saw a driven, confident executive who understood banking, finance, deal making, and, best of all, how to sell a product. In other words, he had everything Lazaridis didn’t. RIM’s founder quickly realized: “I want this guy to work with me…. It was like meeting your future wife. You just know.”

The courtship was a rocky one. Every time Balsillie pushed to close the deal, Lazaridis demurred. He was afraid of losing control of his eight-year-old company. In Balsillie’s mind, however, control wasn’t the end game. He was leaving Sutherland-Schultz, but his severance payment was not big enough to finance a takeover of RIM. Instead, he was angling for a partnership that would give him a stake in the company in exchange for cash that he would bring from his severance check and a mortgage on his home.

Lazaridis agreed in the spring of 1992 to have lunch with Balsillie at the Knotty Pine, a popular restaurant in nearby Cambridge. As Lazaridis recalls the lunch, Balsillie pushed again for a majority stake in RIM. Lazaridis said no, but offered instead to make his lunch guest a partner. In exchange for a $125,000 investment, he could buy a 33 percent stake in RIM, slightly less than the 40 percent share owned by Lazaridis but bigger than stakes owned by Fregin and Barnstijn. Balsillie rebuked his luncheon companion for leading him along. He threw his napkin on the table and bolted from the Knotty Pine.