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Updating the Agenda: MicroStrategy Inc.

“If I had had more experience, if I was more careful, if I was more competent, maybe this wouldn’t have happened.” — Michael Saylor, MicroStrategy

Read the sidebar: The Reeducation of an Internet CEO

Recognized last year for: People and technology
Home base: Vienna, Virginia
Year founded: 1989

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A day after receiving the best news he’s heard in months, Michael Saylor isn’t exactly ready to celebrate. Too much work remains to be done. The 36-year-old cofounder, CEO, and chairman of MicroStrategy Inc. is sitting in a small conference room adjacent to his corner office on the 14th floor of an office building in Vienna, Virginia. He looks worn and subdued — like someone who just woke up from a long nightmare and can’t quite believe that it’s over. Who can blame him? The day before, the U.S. Securities and Exchange Commission announced that it had completed its nine-month investigation into bookkeeping irregularities at MicroStrategy. The investigation ended, as these matters often do, with a settlement. Saylor, along with cofounder and COO Sanju Bansal, 35, and former CFO Mark Lynch, 38, agreed to pay fines and penalties totaling $11 million, without admitting or denying that they did anything wrong.

The ongoing investigation cast an ominous cloud over the company, driving its stock price down more than 90%. The long-awaited settlement is a milestone on the road to recovery. Finally, Saylor hopes, the organization can move beyond the strategic uncertainty, the barrage of negative articles, and the sense of crisis, all of which tested the loyalty of the company’s employees and customers — and made him one of the more infamous ex-billionaires of the Internet meltdown. “You have to get the bullet out in order to get well,” he says.

When Fast Company last visited MicroStrategy headquarters a little over a year ago, it was to write an in-depth story for our “Best of the Best” 2000 issue. Saylor and his company seemed to be, as we put it then, “a new kind of company in a new era of business — the Web era.” Sales were booming, the company’s data-mining software was winning rave reviews, and the stock was flying unbelievably high on Wall Street.

More important, Saylor himself was a charismatic Internet visionary. Young, smart, wealthy, and unabashedly grandiose, he made national headlines when he announced plans to donate $100 million to create a free online university. MicroStrategy’s ultimate mission, he declared, was to build a wireless “personal-intelligence network,” an effort he likened to the Roman Empire spreading civilization, because both missions were “timeless, ethical, and imperative.”

What a difference a year makes. Saylor is still young, but it seems as though he’s aged 10 years in 12 months. His dark hair has started to turn gray. He says that he’s much more cautious as a result of MicroStrategy’s meteoric rise and fall — and more humble. While he still answers questions in long, eloquent passages, they sound less like a lecture and more like a confession. “If I was a better manager, if I had had more experience, if I was more careful, if I was more competent, maybe this wouldn’t have happened,” he concedes. “It’s like being a parent whose children were playing in the front yard, and one of the kids got struck by lightning, and now he’s dead. You didn’t have a lightning rod on your roof, because you were planning to take care of doing that next year. Now people walk by your house, point, and say, ‘Look, that’s where the kid got struck by lightning.’ It’s an awful feeling.”

The dramatic reversal of fortune began on March 20, 2000, when MicroStrategy announced that it was restating its 1998 and 1999 revenues. Instead of earning $12.6 million in fiscal year 1999, the company had lost nearly three times that much. The reaction on Wall Street was immediate. By the time the market closed, the stock had plummeted 62%, from $226.75 a share to $86.75 a share. Just like that, the company was worth $11 billion less than it had been the day before, and Saylor, its largest shareholder, had personally lost $6.1 billion in paper wealth.

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In a matter of months, the company went from symbolizing everything that was new and exhilarating about business in the Internet Age to symbolizing everything that had gone wrong with young companies that had grown too big too fast, without paying careful attention to the fundamentals. But that breathtaking fall from grace was also an opportunity, a chance for Saylor and his colleagues to learn from their mistakes without losing everything that they had worked so hard to build since 1989. “The company is like a wild 20-year-old who gets married at 30 and has a life-changing experience,” says Rob Tholemeier, a senior analyst for Wells Fargo Van Kasper who has studied MicroStrategy for 10 years. “The new company has put all of the energy — and what was perceived as arrogance — that went into promotionalism into operational excellence.”

Indeed, out of necessity, MicroStrategy has made widespread reforms that other Internet companies are now struggling to make to survive the economic downturn. Yes, the company has toughened its accounting practices and scaled back its notoriously lavish spending habits (no more Super Bowl TV ads or all-expenses-paid, company-wide Caribbean cruise every year). But it has also changed its growth strategy, prices, products, management, and leadership style.

Not that the changes were easy, admits Sanju Bansal: “When your stock is at 300 and rising 20 points a day, people think that you’re infallible, whether you’re making great moves or foolish moves. But when your stock is dropping, people tend to question every reform, even when you’re making great moves.” (Of course, Bansal adds, “You look at the highfliers, and they’re all down 90%. So we no longer stick out like a sore thumb the way we did that first month.”)

What Had to Change: Strategy and Selling

MicroStrategy, like all companies that aspire to greatness, was built on a revolutionary idea: that it could convert all different types of information into intelligence, and then distribute that intelligence — anytime, anywhere — through wireless personal devices. “We live in an ignorant world,” Saylor told Fast Company last year. “Our mission is to purge that ignorance.”

But as the world around him got more and more exuberant, the speed with which Saylor pursued his mission started to outstrip the company’s capacity to execute. “There was no problem that we thought we couldn’t tackle,” he says.

Saylor is now content for his company to focus on its forte: making software that analyzes a company’s database and identifies trends that can cut costs and increase revenue.

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To boost its own revenue, MicroStrategy has also broadened its customer base. Rather than catering almost exclusively to large organizations, as it had in the past, MicroStrategy now wants to sell its data-mining software to virtually any business with a database. But to reach more customers, the company has had to change how it sells its products and how it educates customers. For example, it built a new Internet store where companies can order free copies of the software to evaluate for 30 days before they make a purchase.

Moreover, because data mining involves complicated technologies, particularly for companies that have limited experience in the field, MicroStrategy had relied on in-depth, on-site demonstrations to explain what each application does. But on-site visits aren’t economical for smaller clients. The solution? Create online demos that allow customers to do their own learning at their own pace. The installation process had to be simplified as well, so that all customers — not just those with enough money to hire MicroStrategy consultants — could get started quickly. Developers have managed to streamline the daylong installation process down to seven minutes.

But perhaps the biggest change concerned pricing, which was at the heart of MicroStrategy’s accounting problems with the SEC. The price of the software varied, depending on the number of employees who were using it and on the training or consulting needs. Hoping to get a better deal, companies tended to wait until the last few days of a quarter to negotiate these multimillion-dollar contracts, knowing that MicroStrategy would be eager to make its quarterly estimates.

In its findings, the SEC alleged that Saylor, Bansal, and Lynch had overstated revenue by counting fees for consulting and for other services that are required to be distributed over the term of the contract. In other cases, the SEC reported that the executives had included contracts that hadn’t actually been signed within the quarter. Under its new procedure, MicroStrategy sells its software and services separately, eliminating much of the time-consuming negotiation and accounting confusion. The company also catalogs on its Web site how much every application costs, and it includes a standard contract — something that’s uncommon in the industry, according to MicroStrategy. The only deals that require negotiation are those that are worth more than $500,000.

What Doesn’t Change: Values and Culture

Nearly every element of MicroStrategy’s business model has been subjected to scrutiny and forced to change. But amidst these deep-seated strategic reforms, one element of the organization has remained intact so far: its equally deep-seated culture and values.

Saylor did make some brutal organizational moves after the share-price collapse. First, the company rescinded 236 job offers and laid off 234 employees, or 10% of its staff. Several months later, in April of this year, when first-quarter losses were higher than expected, he announced a second round of layoffs, trimming one third of the MicroStrategy staff.

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Throughout the course of the SEC’s investigation, MicroStrategy executives issued a steady stream of staff emails and conducted company-wide conference calls. Saylor and the other leaders explained what had happened and what they were doing about it, and they dispelled the latest rumors. (According to one rumor, Saylor was planning to sell the company. He wasn’t.) Remarkably, the remainder of the organization hung together reasonably well. The attrition rate doubled from 10% to 20%, but it was not nearly as high as outside doomsayers might have predicted it would be, and not nearly as high as Vince Gabriele, 38, director of global staffing, had feared. “It was so demoralizing to pick up the newspaper in the morning,” he says.

In general, the employees who quit were more recent hires who weren’t as invested in the company. Those who remained were firm believers in MicroStrategy, its products, and Saylor himself. It helped that, last June, despite all of its problems, the company released a complete rewrite of its software (four years in the making) that is easier to use, more scalable, and more precise. “Nobody can touch them,” says Tholemeier.

The recent and much larger round of layoffs is the latest test for MicroStrategy. While it’s still too early to say what effect the cuts will have, if the past year is any indication, the organization will persevere. The fact that most employees were able to keep their heads, even as some heads were rolling, confirmed for Saylor that for all of his mistakes, he and his senior colleagues had done one important thing right. Their obsession with building a sense of shared purpose, their commitment to schooling all of their people in the big-picture vision behind the company’s business, and their willingness to spend millions of dollars and hundreds of hours of CEO time to create a sense of shared responsibility, had become the glue that held things together.

“The past 12 months have really shown that culture is by far the most important thing in a company,” Saylor says. “If we had constructed a culture that was based solely on stock price or on prestige, there wouldn’t be a reason to be here now. At the end of the day, the thing that drives people through all of this pain and turmoil is the belief that the world is a better place because of what they do.”

Chuck Salter (csalter@fastcompany.com) is a Fast Company senior writer based in Baltimore. Contact Michael Saylor by email (saylor@microstrategy.com) .

Read the sidebar: The Reeducation of an Internet CEO

About the author

Chuck Salter is a senior editor at Fast Company and a longtime award-winning feature writer for the magazine. In addition to his print, online and video stories, he performs live reported narratives at various conferences, and he edited the Fast Company anthologies Breakthrough Leadership, Hacking Hollywood, and #Unplug.

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