Pacific Edge Projects Itself

CEO Lisa Hjorten and her colleagues make software that helps project teams run on time and on budget, with attention to detail and with a crisp sense of discipline -- which is an awful lot like how Pacific Edge runs itself: "We practice what we preach."

It's six days before Pacific Edge Software Inc. releases version 3.0 of its flagship product, Project Office. This should be a tense time for cofounder, CTO, and vice president of development Scott Fuller, 40, and his team of engineers.

Their software is used by high-powered customers -- from the U.S. Department of Housing and Urban Development (HUD) to a division of Starbucks -- and version 3.0 is a major upgrade. But what's remarkable about the atmosphere here at the young company's Kirkland, Washington headquarters is what's not happening. There are no arguments about cost overruns, no debates about whether to pull yet another all-nighter, no profanity-laced groans about something that's been forgotten or that's been left unfinished.

Indeed, at Pacific Edge, things are rarely overlooked. Its software is designed to help project teams communicate clearly, track progress closely, identify problems quickly, and stay on budget. The company prizes these same attributes in itself. Although it's easy to compromise order and discipline for superfast growth and hypercharged creativity, Pacific Edge isn't prepared to make that compromise. In two and a half years, the company has attracted 160 customers and has hired more than 100 people. It's expected to more than double its revenues this year. But through all of its growth, the company has managed to maintain a feeling of deliberate progress, a careful use of money, and a clear sense of priorities.

"This is definitely the most organized company that I've ever invested in," says Tom Simpson, 40, managing partner at Spokane, Washington-based Northwest Venture Associates, who was one of Pacific Edge's first round of investors. "Everything is on time and on budget. They've exceeded my expectations."

Paul Koontz, 40, a general partner at Foundation Capital and another Pacific Edge investor, feels that the company "creates a standard for human interaction with customers." Koontz says that he was impressed by a conversation that he had with Fuller, right before the CTO went on a customer visit. "I asked him if he was visiting a big account, and Scott said, 'The size of the sale has nothing to do with it. What's important is that the client challenge me.' It's golden to have that level of commitment."

Lisa Hjorten, 38, who is the company's CEO and who is also Fuller's wife, might be flattered by the accolades. But for her, it's just part of doing business. "We practice what we preach," she says matter-of-factly.

A "Careful" Culture

Scott Fuller and Lisa Hjorten built Pacific Edge around a simple insight about the future of competition and work. They met in Seattle in 1989 while they were working in sales for Artemis Management Systems, a project-management software group that sold big-ticket applications to large companies. But as they came to understand the market, they began to see a new opportunity. Smaller, fast-growing companies were going to be the next driving force of the economy, and the work that these companies were going to do would be primarily project-oriented. Yet most project-management software was cumbersome and expensive, which explains why 70% of the projects in these kinds of companies weren't being managed with software. More important, planning for the future -- not analyzing data to understand the past -- was the main challenge for project teams. Companies needed to have software that would help teams who operated across departments, instead of teams that maneuvered functionally in hierarchies that were already well established. "We wanted to change the way that people worked," says Hjorten.

Fuller fiddled around, and, in 1996, he started working on several prototypes for an application suite that he called "Project Office." The new software was simple to understand and could be installed within days or weeks, rather than within months. The software package featured plenty of functionality -- enabling everything from expense reporting, to budgets, to personal to-do lists -- but it offered the features in discrete modules, so that the software's power could grow as the business did.

Fuller and Hjorten wanted to get their new product out fast. They thought about building it within another company. They even considered offering it to Artemis. But in the end, they stayed on their own, relying on their knowledge of the market and a high credit-card limit. "The company was built on fumes," Hjorten says.

It was also built on Project Office. From the outset, Fuller and Hjorten used their own software to organize their time, to chart their customers, and to make sure that they had enough staff working on their highest-priority projects. Project Office implanted a culture of detail and control from the company's start. Today, meetings at Pacific Edge begin and end on time -- to the minute. If people think that they'll be even a few minutes late, they know to call ahead. And nobody is in the dark about what other people are working on, because everyone's work is tracked by the Project Office suite -- whether it's on the Web or on the desktop. Such a degree of focus and clarity means that the Pacific Edge staff has remarkably few late nights. The parking lot is generally empty by 6:30 PM. Fuller pushes those who stay later than that to go home, but he doesn't have to press hard.

Of course, there's more to Pacific Edge's culture than software. The company has made it a point to recruit industry veterans (with an average age of 34), many of whom have years of experience in the project-management field. Some of them came en masse from outfits such as Seagate and Microsoft's Visio. Some were friends with Pacific Edge's founders (like the company's first employee, Terri Inglis, 38, who has been friends with Hjorten since the eighth grade). But nearly everyone has the same type of personality: They are all sticklers for detail.

"This mentality reflects care and control, just as the product does," says Hjorten, a self-described psychoneatnick. But the culture isn't uptight, she insists. It's careful.

Sometimes, being careful means being slow. Given Hjorten's passion for marketing, she believes that the vice president of marketing position is the most important job in the company. So she took the unusual step of filling that post last, with someone who didn't need to take the job. Thanks to his Microsoft stock options, Jim Dunnigan, 42, a former product manager of marketing for Microsoft Project, knew that he never had to work again. In fact, he left his high-profile Microsoft job in September 1993 to be a teacher and an IT administrator in a school district. Then, at a Microsoft alumni party in December 1999, he met some other veterans who were working at Pacific Edge -- and raving about the company. (The Microsoft campus is just four miles away from Pacific Edge's headquarters.) Intrigued by Pacific Edge's vision to change the concept of what the workplace was all about, he joined the company in January. "If this place were just about selling project-management software, I wouldn't be here," he says.

Not that selling project-management software comes without challenges. The billion-dollar industry is dominated at the low end by Microsoft Project, which claims about $400 million in annual revenues. The high end is carved up among a number of software vendors, such as ABT Corp. (which was recently acquired by Niku Corp.), Artemis Management Systems, and Primavera Systems, that sell expensive applications. (An enterprise-wide sale for Project Office is worth about $50,000, compared with the roughly $300,000 that competing solutions are worth per sale.)

Dunnigan faces the challenge of convincing investors and customers that Pacific Edge is creating an entirely new arena for project-management software -- products that are designed for ease of use and for fast installation, and that are intended to help users collaborate more effectively. "In a world where employees are scarce, you need to have products like this to keep people moving smoothly from one project to the next," says Andrew Goloboy, a senior analyst at IDC, in Framingham, Massachusetts. "But there's a lot of competition from companies that are trying to provide the same features. The real test lies in who Pacific Edge's customers are and in whether the company's product is easy enough for more mainstream companies to use."

Keeping the product usable and on the leading edge is the charge of Colby Africa, 26, another Microsoft alumnus who did not expect to find himself at Pacific Edge. A child prodigy who was programming computers at the age of 8, Africa dropped out of a college astronomy program and made his way to Microsoft. At 21, he was one of the youngest product managers in the company. But he was doing marketing, a far cry from programming, his real passion. Africa wanted to create a product that could work the way that people do. And he didn't want to confine users to a platform like Microsoft Project.

So now he's Pacific Edge's chief software architect. For version 3.0 of Project Office, Africa wrote 30,000 lines of code and created 27 different components. At the same time, he built a team of programmers. "The features we offer in our product depend on how we manage Pacific Edge," he says.

The Customer Connection

It is a cardinal principle of life at Pacific Edge: Figure out how to do more with less. This principle doesn't just determine how the company runs its office or how it writes its code; it also applies to how Pacific Edge sells the product itself. Just because Hjorten is passionate about marketing doesn't mean that she lavishes money on her projects. The company often does a virtual demonstration of its product to customers on the Web. That approach saves time and travel expenses, and it reaches more customers in less time.

Pacific Edge doesn't expect customers to buy everything at once. Because Project Office is designed to integrate with the widely distributed Microsoft Project, and because customers can access the software on the Internet, buyers can dabble at first and then purchase more later. For example, customers can pay for the full-featured Project Office package for one division of their company and then roll the product out across the rest of the company gradually. Pacific Edge reports that within six months, roughly 80% of such customers upgrade to a new version of the product or expand it beyond that initial division.

Scott Fuller keeps what he calls a "stress board" in his office. It's a corkboard to which he tacks competitors' ads, so that he can remind himself of what Pacific Edge is not about and of how the company can better serve its customers. If users have problems with the software, Fuller often visits them without charging a consulting fee. "You can more than recoup the cost of a fire drill by making the customer happy," he says. And Fuller takes developers with him on sales calls so that they can see what type of problems and advantages customers encounter with the product. "The magic isn't in the software but in what customers do with it," says Fuller. Meanwhile, customer-care manager Terri Inglis drills the technical staff to make sure that the company is delivering changes to the product on time. She makes random calls to customers to ensure that they're still happy with the company.

About 70% of Pacific Edge's sales are uncontested, a sure sign that the company is tapping an underserved market. Even customers like agribusiness-powerhouse Cargill Inc., which tried to build its own project-management tools, scrapped their work once they discovered Project Office. Business Logic Corp., an online financial provider in Chicago, abandoned a long-standing development project in favor of Project Office. Pacific Edge installed its product in two days, and it took another two days to train Business Logic's staff. The software gave the company a better idea of how much time workers actually spent on a project. And as new employees joined (Business Logic grew from 35 to about 75 people in a year), the company used the software to help them become as efficient as its veterans were. "Even as we expand in the future, we won't outgrow the value of this product," says Amy Weaver, a former Business Logic Corp. project manager.

Big Plans, Small Budgets

Who says that you can't think big and spend modestly? Who says that you can't grow fast and stay frugal?

Talk about a bootstrap operation. Hjorten and Fuller went without salaries for the project's first year and financed the company by mortgaging their property and by taking on credit-card debt. They always planned six weeks ahead to cover their payroll and their rent. If they were low on cash, Hjorten and her small team would sell to yet another customer. From the beginning, the company was committed to the old-fashioned idea that revenues should cover expenses. Indeed, to counter the excesses of Seattle's boom times, the company's CFO and vice president of finance, Nikki Adams, started meeting with Hjorten on a regular basis to discuss Pacific Edge's spending philosophy.

That philosophy paid off last spring, when Hjorten and Adams went on a road show to raise a second round of funding. The trip happened to intersect with the dotcom collapse on April 14 -- NASDAQ's worst single-day point decline in history. High-flying startups were suddenly taking nosedives. Investors were getting jittery; some were downright panicky. So when Hjorten showed slides to venture capitalists, revealing that Pacific Edge had suffered minimal losses for the previous year, investors were positively giddy. And the growing stream of marquee customers, such as Boeing Co., HUD, and Roche Pharmaceuticals, helped too.

"Before the market corrected, it was tempting to follow the advice of people who told us to spend more," Hjorten says. "But having a storehouse of money helped us decide who we wanted our investors to be, rather than jumping at the first firm that offered us money."

That interest in security doesn't mean that the company hasn't taken some risks. Hjorten decided to lease a new 15,000-square-foot floor of an office building when the company's then-current 15,000-square-foot building was only half full. But such a move showed investors that Hjorten had confidence and a defined growth plan.

Pacific Edge managed to maintain the industry standard for 80% gross margins, and the company has reinvested its profits to stay ahead of the curve. And, once the company secured its second round of a $26.4 million funding from brand-name firms such as Foundation Capital and Sequoia Capital, there were no billboards or staff parties -- just a higher commitment to listening to customers and the addition of some necessary features.

All of this discipline has obviously paid off. Pacific Edge is more in control of its destiny than are the fast-growing, money-losing startups that have to beg for their next round of funding. But the payoff is also personal. This is a company in which even the most senior executives insist on being in control of their own lives.

For example: Director of account development Chris Broyles took four weeks to climb Mount McKinley, thanks to an agreement he struck with Hjorten before he joined the company; Hjorten and nearly half of the staff are training for a 10-K; and many employees go fishing and boating.

For Fuller and Hjorten, the payoff is getting home in time to be with their 6-year-old twin daughters, Karina and Lavina, whom they adopted from Romania four years ago. Unlike most new CEOs, Hjorten rarely hops a plane. She maintains a simple lifestyle. She runs six miles a day, snacks on fruit and oatmeal, and works in her garden.

Foundation Capital's Paul Koontz says that he has never invested in a company that was backed by a husband-and-wife team before; the personal dynamic creates too much potential risk. "But at Pacific Edge, that concern is just not an issue," he says, because Fuller and Hjorten are not in competition with each other, and they don't report to each other. "It's a good balance."

Rekha Balu (rbalu@fastcompany.com) is a Fast Company senior writer. Contact Lisa Hjorten by email (lisah@pacificedge.com), or learn more about Pacific Edge on the Web (www.pacificedge.com).

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