Grown-Up Startup

At Calico Commerce Inc., you will find a staff of Silicon Valley veterans — a little older and a lot wiser — building a company that's determined not to make the same old startup mistakes.

After a stint on the sidelines as a consultant, Beverly Powell decided to get back in the startup game. Her specialty was strategic alliances, and she missed the exhilaration of helping young companies realize their potential. But not just any startup would do. Powell, now 45, had worked at or consulted for several startups, yet she had no interest in joining the business equivalent of MTV's Real World — a cast of brilliant but clueless techies who make things up as they go along, who try to navigate the turbulent waters of the Internet economy with a business plan that is as sustainable as a raft made of Popsicle sticks. "So many startups have great technology but no plan and no vision," says Powell. "They think, 'We've got this cool product, so we can't fail.' But it takes a lot more than a cool product to build a company."

That's why, in 1998, Powell joined Calico Commerce Inc. The company, based in San Jose, California, provides e-commerce software and solutions that help giant organizations like Cisco Systems, Dell Computer, Gateway, and General Electric to conduct complex transactions on the Web. At one level, Calico is very hard to distinguish from the thousands of other startups that dot that dotcom landscape. It is the brainchild of an MIT-educated entrepreneur, and it's based in Silicon Valley. It's small, with sales that came to $21.4 million last year, but it's growing at lightning speed. It's public, of course, and its shares have soared from an IPO price of $14 last October to a high of $75, minting 100 millionaires out of a staff of 300.

But that wasn't what spurred Powell to come on board as vice president of business development. This was: Calico is a young company with grown-up ideas about how to do business. And, in large part, that's because grown-ups run the operation. Calico's senior team consists of Silicon Valley veterans who played key roles in building Cadence Design, Netscape, Oracle, Siebel Systems, and Sun Microsystems. "You see a lot more management experience here than you see in many companies at this stage," says Bill Unger, 50, a Calico board member and a partner of Mayfield Fund, which (along with Kleiner Perkins) is a longtime investor in Calico.

Calico is also a company whose leaders resolved early on to reckon with the growth-driven challenges that sink so many promising organizations. How do you get bigger without losing the speed, the focus, and the energy of a startup? How do you serve more and more customers and release more and more products — without sacrificing quality? How do you act like an established company before you've become truly established — or, indeed, before you've become much of a company? How do you integrate lots of new employees from lots of different backgrounds and still maintain a distinctive culture? How do you plan for the future when the present is constantly in flux?

At Calico, the answers to almost all of those questions hinge on a single word: "leadership." Not know-it-all leadership from the CEO but grassroots leadership, in which people from all ranks of the company make decisions fast and act on them even faster. "Out here," says Alan Naumann, 40, CEO and president, "there used to be a sign along Highway 101 that said, 'Speed Kills.' In this business, lack of speed kills."

That's why Calico spends so much time, energy, and money teaching members of its fast-growing staff how to become better leaders. Its three-day leadership-development course implores people to make their fair share of decisions — and gives them a set of eight core values by which to do so. Those values include accountability, innovation, quality, and speed. A complete list is posted outside Naumann's office.

"We give people a way to interact with one another as leaders, not as participants," says Naumann (pronounced "newman"). "I have a really short fuse about people who point to a problem and say, 'I just wanted to let you know about that.' If you see a problem, either you should decide that it's not worth worrying about, or you should do something about it. Taking the initiative is the essence of leadership."

"Taking the initiative" is what Stanford intern Kelly Bayer did when she started what eventually became Calico's internal knowledge base. Seizing on an unfulfilled need, she helped create a site where engineers could share customized code, so that they could reuse it on similar projects. Bayer, now 23, went on to become the company's manager of corporate development. That take-the-initiative approach also explains how Matt DiMaria, 39, VP of marketing, managed to get Calico eSales.com, a new product suite, launched in just 30 days. In November 1999, DiMaria and a team of 10 coconspirators decided on their own to go after a new market: fellow Internet startups (as opposed to the giant companies that make up Calico's customer base). By the end of the year, Calico had added more than 10 new dotcom customers — a time-to-market that Naumann calls "phenomenal."

Or consider the case of Lynn Corsiglia, 41, VP of human resources, whose proposal to donate pre-IPO shares to charity resulted in contributions both to Habitat for Humanity and to the Entrepreneurs' Foundation, a nonprofit organization based in Menlo Park. Those shares, initially worth $100,000, are now worth around $1 million. "If you have a great idea, you just get a few people behind you, and then you go off and get it done," Corsiglia says.

Fast Focus

Before joining Calico three years ago, Alan Naumann was a vice president at Cadence Design Systems, a much-admired software company with annual sales of more than $1 billion. At Cadence, Naumann learned what it takes to build a successful operation: The foundation of success is to act fast but to stay focused — to make lots of tactical adjustments but to remain grounded both in a well-understood market opportunity and in a set of core values.

One way to maintain focus, he concluded, is to set unreasonable expectations — and then meet them. For example, after a couple of years of making incremental improvements to existing products, Calico needed a radical makeover. Naumann took 30 top developers and formed a special project team (code name: "Lightning"). Team members were given four months to come up with a breakthrough. With so few people and so little time, they were forced to work in new ways. The result was a release that was 50 times faster than its predecessor. "If you look at the history of innovation, you'll see one proven recipe for breakthroughs," Naumann says. "Take a small, intensely focused team and impose an unreasonable time frame on it."

Although the pace at Calico is intense, the company strives hard not to overdo it, for fear of causing valuable employees to burn out. "It's a balancing act," says DiMaria, who came to Calico from Symantec Corp. "We're asking for a lot, maybe more than people can really do, but at the same time, we know that we can accomplish only so much. After all, we're not machines. And we're not making life-or-death decisions."

Still, the decisions that Calico does make need to be made fast. To ensure that Calico makes decisions faster than its competition, Naumann dramatically shortens deadlines whenever possible. "If we're taking more than a week to decide something, I'll tell people, 'Come into my office, and we'll decide this together.' " The results are impressive: One recent decision — whether to acquire a startup called ConnectInc.com — took just 18 days to unfold.

The key to making speedy decisions is accepting that they won't always be right — and knowing how to respond when they prove to be wrong. A few years ago, Calico learned a million-dollar lesson after customers complained about bugs in its latest release. The problem was eventually traced back to Calico's development process. When the company started out, its lack of infrastructure enabled it to beat larger competitors to market. Instead of relying on heavy-duty software-development tools, its engineers worked closely with one another, engaging in an informal process of developing and testing code. "There was a lot of shorthand," says Dave Cardinal, 40, a Sun alumnus who serves as Calico's chief technology officer. Informality worked well — up to a point. But as the company grew, and as teams of engineers found themselves working together for the first time, that cozy communication loop broke down.

Calico spent four months fixing bugs, and as a result, it fell behind during its next product cycle. Since then, the company has gone to great lengths to avoid a similar mishap. It has beefed up its quality-assurance team from 2 employees to 25, and it has spent millions of dollars on hardware for testing labs and on software that tracks every step of the development process. Now, thanks to Calico's intranet site, everyone involved in the development of a product knows what has been done and what remains to be done.

"That's a significant investment for a company of our size," says Naumann. "But I've seen so many companies hit a wall because their development process starts to hold them back." Because it provides mission-critical e-commerce applications, Calico has little room for error: Either it offers quality, or it doesn't. Regardless of a company's size and experience, says Dave Cardinal, "customers only want to buy from someone whose stuff works."

Long-Range Vision

The flip side to being fast is knowing when it's prudent to slow down. Naumann wants Calico to grow quickly — but not at the expense of quality. That's especially true in the realm of talent. Unlike companies that do perfunctory reference and background checks, for example, Calico takes the time to be thorough with its prospective hires. Naumann tells his people to spend as much time as they need on researching a candidate's ability to produce results, or to work well on a team. In the case of Bayer, who is originally from South Africa, Calico waited three months for her to get permission to work in the United States. Naumann was willing to wait because he knew that Bayer, the top-ranked student in Stanford's industrial-engineering master's program, was a future star. "Being slow pays off in this area," he says. "You're bringing in people you expect to contribute for years to come."

Naumann wants Calico to be the last place where his employees work. He is adamant about preserving the qualities that attract employees to Calico in the first place. Cardinal frames the Calico approach this way: "Recruit your people every single day, because they have their pick of 50 jobs elsewhere." The company strives to offer its employees what its e-commerce applications offer its clients: customized solutions. As a result, employees feel that they can do their best work at Calico — that the company enables them to develop not just professionally but also personally. "Wherever possible, we try to get wildly creative," says Lynn Corsiglia. "That way, employees feel like the company is tailored somewhat to their needs."

If Calico is to continue attracting and retaining top performers, it needs to be flexible about telecommuting and other work arrangements. That's why it allows one top developer to work from his home in Oregon, and why, for engineers based in downtown San Jose, Tuesday and Thursday are telecommuting days. Unlike the stereotypical startup, Calico doesn't have a staff of single twentysomethings who are eager to pull all-nighters. Most employees are in their thirties, with spouses, children, and other obligations outside the office, so they want to work for a company that gives them lots of options. "Bright, educated, experienced people who want balance in their lives are the kind of people we don't want to be excluding," Corsiglia says.

For Calico, one key to accommodating alternative work arrangements is providing staffers with state-of-the-art technology. Employees stay connected through the iWeb, an intranet that contains material such as hr forms, lists of key objectives for the quarter, and product notebooks that trace the development of each application. The iWeb began with little structure and grew organically, says Doug Stein, 36, IT manager. Various departments simply posted content that was important to them. To drum up traffic on their sites, some departments even awarded prizes. The result is an intranet that reflects the professional and personal sides of company life. Employees can view digital photos taken last year during the company's IPO road show, or listen to a sound file of a colleague's piano recital. To facilitate navigation of the service, Stein is working to standardize its various sections, and he also plans to add a customization feature. Other technology-enabled solutions have emerged as well: Using Calico Loyalty Builder, for example, employees can arrange to receive content of their choosing, including price-change alerts and schedule updates.

When a startup doubles in size in one year, as Calico did last year, communication becomes an ongoing challenge. At a recent executive staff meeting, Naumann went to a whiteboard and mapped out his latest view of the industry. When someone said that he had never seen the sketch before, Naumann was floored: Hadn't everyone seen it by now? Naumann was already doing a lot to promote communication — through email, voice mail, bimonthly companywide meetings, and iWeb postings. But he now sees that he needs to do more. "I can't say that I know everyone by name anymore, and that bugs me," says Naumann. Taking a cue from executives at Cisco, he has begun hosting monthly breakfasts with employees whose birthdays fall in that month. These informal gatherings put him in contact with a cross section of the company. Instead of making a standard presentation, he listens to what is on people's minds. At the February breakfast, someone suggested a new approach to mergers and acquisitions. "It's a very cool idea," Naumann says. "And it reminded me that we may think that we have our ears to the ground, but we have to keep tapping into our employees' ideas."

One sign of Calico's maturity as a company is that its people aren't likely to forget that lesson. "It's not like we have the attitude 'We're so smart that we don't have to worry,' " says Bill Unger. "We're on a journey, and we have a long way to go. We recognize that sometimes it'll rain, sometimes it'll snow, and sometimes the road conditions will be against us. But we've planned for those things. We've built this company to travel a long way."

Chuck Salter (csalter@fastcompany.com), a Fast Company senior writer, is based in Baltimore. Contact Alan Naumann by email (anaumann@calico.com), or visit Calico Commerce Inc. on the Web (www.calico.com).

Sidebar: Starter Kit

Maybe you work for a startup that's trying to grow up fast. Or maybe you work for a grown-up company that's trying to move as fast as a startup. Either way, Calico Commerce offers valuable lessons on how to build an enduring business.

Get off to a fast start.

New Calico employees enroll in "Fast Track," a crash course on the company: its industry, its products, its competitors. They are also assigned to a colleague who helps them get acclimated to the company on an informal basis.

Use a cheat sheet.

Calico employees in marketing and sales don't waste a lot of time figuring out what a new product can do for their customers. Instead, they visit the "is/is not" area of the iWeb, the company intranet. It gets straight to the point: Here's what this application is and what it isn't, what it does and what it doesn't do.

Focus on helping your customers succeed.

Calico's success depends on its customers' success. So winning praise from its customers — such as being named one of Cisco's "Vendors of the Year," in 1996 — is something that Calico takes very seriously.

Remember that there's strength in numbers.

No startup can develop all of its weapons internally. That's why Calico's strategic partnerships with companies like Andersen Consulting and KPMG are so crucial. They add instant credibility, create a pipeline of customer leads, and help Calico to perform like a large organization.

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