How do you stay committed to your plans — and energized about the future — when the economic climate goes from “the sky’s the limit” to “the sky is falling”? Running a young public company, even a healthy one, is a different game now that so many other young public companies are toast. Launching a new service (even one that passes every test for price, performance, and features) can be a brutal challenge if your industry is haunted by failures. Being an Internet evangelist inside a big company used to be the fast track to stardom. Now it can feel like a road to career suicide — even if your business plan is rock solid.
People and companies who think big don’t want to scale back on their aspirations. They do, however, have to rethink their strategies, tactics, and timetables. What happens when the going gets tough? Tough-minded leaders keep going, because they understand that most of their rivals will give up — leaving them bigger opportunities down the road. “Now is the best time to innovate,” declares Steven Berglas, a psychologist, consultant, and business professor at UCLA’s Anderson School. “Companies should give their best performers the same latitude in bad times as they do in good times. Conservatism in business is the kiss of death.”
What follows, then, are insights from and case studies of leaders who are responding to tough times by reaffirming their faith in their strategies — and who are managing to stay on the move, even as the rest of the world is slowing down.
Keep Your Eyes on the Road — Not on the Accidents
AvantGo Inc. is headquartered in a spiffy office complex in Hayward, California, on the eastern edge of San Francisco Bay. Immediately across the highway from AvantGo is another office complex where, on the day that I was visiting CEO Richard Owen and his team, auctioneers were going through the headquarters of another technology company, AllAdvantage.com, assaying its servers, desks, and cell phones as a prelude to a bankruptcy sale.
AvantGo and AllAdvantage have little in common. AvantGo develops software that helps companies make their enterprise applications work on such mobile devices as PalmPilots and BlackBerries. AvantGo’s neighbor had pursued a dubious business plan: paying people to surf the Net and showing them ads while they did it. While AvantGo has a much more solid model (the company licenses its software by the seat to customers like Ford, where 20,000 users can track data on the company’s operational performance via their handhelds), its employees weren’t unaware of their neighbor’s fate.
“There’s a lot of negativity outside these walls,” says Owen, 36. “Employees here don’t feel that we’re in the same business as a Pets.com or an AllAdvantage. But there’s a lot of virtual rubbernecking that happens. People talk to each other; they have friends who worked at these companies.”
A significant part of Owen’s job since he joined the company last year to help take it public has been to keep AvantGo’s 300 employees focused on the opportunities before them, rather than on the misery that surrounds them. It has been an enlightening experience for Owen, who ran Dell Computer’s online business before joining AvantGo. “I went through eight years at Dell without listening to one earnings call,” he says. “Now every employee in this building listens to our earnings calls. I have to be aware of everything they’re hearing that might get them concerned and be able to address it.”
That’s why Owen considers himself to be the company’s chief communicator. “I spend a lot of time talking about the company’s prospects. But lately, I’ve started to speak less and do more Q&A.” All-hands meetings take place monthly on AvantBeach, the outdoor deck built in the parking lot behind the company’s headquarters. The company fires up its own barbecue grills, and Owen takes questions from all comers.
AvantGo employees aren’t shy. They’ve asked Owen whether the company has enough cash on hand to get to profitability (it does) and whether the company’s path to profitability is fast enough. But they’ve also asked questions such as whether the company ought to take advantage of declining rents in San Francisco and open an office there. Owen says that early in his tenure at AvantGo, he was reluctant to send out broadcast emails to address rumors that were circulating around the company. Now he doesn’t hesitate if he feels the rumor might be distracting enough. “A lot of times, they’re related to the stock price, the ups and downs. I’ve explained to people that we’re a small-cap company with a small float. It will be bumpy for a while.”
If Owen can quash the rumors and assuage the worries, AvantGo’s employees can focus on the company’s objectives: Support all of the new handheld computers being introduced, run pilot programs for prospective customers, and double revenue from $16.3 million last year to just less than $33 million in 2001. But it’s important not to ignore the challenges or gloss over the problems, Owen says. “The number-one question that people ask me is how we’re doing as a company, and if I were to tell them, ‘Wow, we’re landing men on the moon. We’re going to be the first $10-trillion-cap company,’ people would think that I was totally delusional. You have to be candid and honest.”
Both Owen and Felix Lin, AvantGo’s cofounder and vice chairman, also take care to convey to employees that fretting over the business environment or tracking the decline of other tech companies isn’t the most productive use of time. “The biggest message that I try to get people to internalize is to make things happen here, not to watch things happen or to ask people what happened,” says Lin, 37. “We think that we’re solving a problem that no one else is solving.” Owen backs up Lin: “You’ve got to remind people that we’re not victims of circumstance. Our destinies are in our own hands.”
Lin, Owen, and other AvantGo executives speak about their corporate goal of becoming a software heavyweight in the universe of mobile computing. They don’t seem overly occupied with the bankruptcy of the week. And they benchmark themselves against such companies as Dell, Microsoft, and Oracle, rather than startups in their own weight class — many of which didn’t manage to go public and are now not only scrambling to find customers but also hunting for additional funding.
“I tell a lot of stories about the early days of Dell, when it was 3,000 employees and not 40,000,” Owen says. “We also have guys at AvantGo who were at Oracle in the early days. What we’re trying to do isn’t unusually difficult, and it isn’t unusually easy. This is what every company faces.”
Fly High After a Crash
Walking the halls of the Washington Convention Center, I can’t help but notice the satiny, orange-and-black Iridium banners that hang overhead. Satellite 2001, one of the satellite industry’s largest conferences, has descended on the nation’s capital for the week, and inside the exhibition hall, Iridium Satellite LLC, which I had assumed was defunct, occupies a large booth. On display are phones, antennas, and pagers that work with the 66-satellite network, along with stacks of glossy brochures.
For Jerry Farrell, the 65-year-old cofounder and CEO of AssureSat Inc., Iridium is the failure that won’t go away. When I mention the booth and the banners to Farrell, sitting in his hotel suite across the street from the convention center, he replies with a frown, “All they did was poison the market.” While Motorola shut down its Iridium venture last year for lack of customer interest (after spending more than $5 billion to develop it), Farrell tells me that a new group of backers has jump-started Iridium after buying it for just $25 million.
Farrell isn’t exactly thrilled that Iridium is hanging in there. “It reminds investors about the $15 billion they spent on the low-earth-orbit networks like Iridium, Globalstar, ICO Global Communications, and Orbcomm,” he says. “That’s money they’ll never see again.” Farrell had nothing to do with Iridium; if anything, in his prior job as president of Hughes Electronics Corp., operator of the world’s largest private fleet of satellites, he was one of its earliest skeptics. But now, as Farrell pounds the pavement to raise the $540 million he needs to get AssureSat off the ground, Iridium — the industry’s highest-profile flameout — has everything to do with him.
AssureSat proposes to be “the Hertz Rent A Car of the satellite industry,” as Farrell explains it. A satellite operator can buy insurance to guard against the possibility of a launchpad explosion or a 22,300-mile-high malfunction. But while an insurance check is nice, it doesn’t help the satellite operator serve its customers — which include TV networks, Internet-service providers, and newspapers. Until a replacement can be built and launched, operators who pay a monthly fee for coverage would get to use one of AssureSat’s three satellites in the interim. By having three large, versatile satellites that would be able to play the role of utility infielder, AssureSat hopes to fill in for nearly any other kind of satellite.
Running a fleet of substitute satellites isn’t an idea that anyone has pursued before, but Farrell says that with about 200 geostationary satellites currently in orbit (that number doesn’t include the 100 or so low-earth-orbit satellites, or LEOs, launched by companies such as Iridium and Globalstar), AssureSat will find a reliable source of revenue among their mishaps and malfunctions.
The challenge: Persuade investors to commit $540 million to the idea as the resuscitated Iridium struggles to attract customers, as Globalstar and Orbcomm try to stay solvent, and as Craig McCaw works to retool ICO Global Communications by combining it with his own LEO company, Teledesic LLC. “A lot of the investors we’ve talked to had money in one of those companies, and they don’t have much hope of recouping it,” Farrell says. “Either that or they know someone who invested. And most of the nonsatellite investors we talk to lump us in with Iridium and the other LEO systems.”
From 1984 to 1997, Farrell was responsible for Hughes’s Galaxy Satellite System, which would eventually merge with PanAmSat Corp. to create the world’s largest satellite-operating company. He was semiretired, doing some consulting in the industry in early 1998, when he began brainstorming with both Mark Fowler, a former chairman of the Federal Communications Commission, and with Bruce Lederman, an attorney who had been outside counsel for Hughes when Farrell was president.
The trio refined the idea for AssureSat, and after garnering some seed capital, they set out to raise $540 million. “It has been quite a learning process for me,” Farrell says. “We totally missed how long it would take to raise money, even though we have a business plan that is rational, that earns money, and that is as solid as anything I’ve done before.”
But Farrell has become a pro at addressing investors’ concerns. “You need to find out what worries them and then walk them through it. You can’t wipe away the risk, but you can explain, in plenty of detail, why and how this will work.”
Farrell can deliver an oral dissertation on how AssureSat is different from Iridium and Globalstar: “We plan to have only 3 satellites, not 60-some. We have 40 potential customers, not 40 million, like Iridium.” And while the startup capital is high, the organization that AssureSat is building is remarkably lean: 25 employees, at most. “The simplicity is attractive,” he says. “You’ve got five marketing guys, and each one of them takes 8 of those 40 customers. It’s an easily manageable business.”
Assembling the company, Farrell says, has been gratifying. He has had the chance to handpick onetime colleagues whom he most enjoyed working with, and he says that “it’s incredibly fun to do something new.” The not-so-fun part has been convincing investors of AssureSat’s viability — and persuading satellite operators to sign up for the service before he has the money in hand to begin actual work on the satellites.
As of April, Farrell, Fowler, and Lederman had secured commitments for $420 million of the $540 million they need, but they were still sweating the final $120 million. “We’ve made a commitment to the people who work for us that we’re going to see this through,” Farrell says. “So we’re not going to get frustrated and go home. I have faith in their ability to do this, and they have faith in me. I have no intention of quitting.”
From Superstar to Fallen Star to What?
E-commerce teams inside big companies enjoyed a stretch of stardom in the late 1990s. Chief executives didn’t want to be “Amazon.commed” out of existence, and it was up to the members of the Internet team to be the first line of defense against startups. In many cases, those teams worked with loose budget guidelines, reported to the top of the company, and could brush off any strictures that didn’t suit them. They were, after all, inventing the future.
But as the pure-play dotcoms began to falter and online marketplaces failed to attract sufficient transaction volume, the blaze of the Internet team’s star began to dim. What happens when the hotshot becomes just another department competing with everyone else for resources and management attention — and facing the same expectations for short-term performance and tangible return on investment?
Barb Claitman, 48, director of e-business within Boeing’s commercial-aircraft group, and Cathy David, 37, general manager of Target.com, both stress the importance of having a clear message about the real work of e-commerce change agents: Learn from the travails of others. E-business can really pay off. You can’t build for the future by scaling back your commitment to the Internet.
At Boeing, experiments in e-commerce were conducted as far back as 1996, when the company began selling spare parts online. Last year, the company built a customizable portal for its customers called MyBoeingFleet.com, which enables airlines to view reports on the reliability, flight hours, and landings of their Boeing aircraft; to analyze fleet trends; and to access a database of flight manuals and engineering drawings.
“When we created this organization, my job was mostly about the three Es: educating people about e-business, enticing them into trying things, and engaging them in our work,” says Claitman. She initially put her efforts into brainstorming with colleagues about what Boeing might want to offer its customers online, rather than into building a fiefdom of her own. “One thing that I didn’t talk about was forming committees and councils, and getting budgets.”
In fact, Claitman had no budget at all for the first two releases of the MyBoeingFleet portal. “Our original budget wasn’t approved,” Claitman recalls, “so we begged, borrowed, and stole resources. We rolled out the first two releases of the site last year without a formal budget. I believed we needed to get the product out there in order to start seeing the impact.”
Once MyBoeingFleet.com began attracting users — and once Claitman had a chance to educate, entice, and engage nearly everyone within the commercial-aircraft group as a whole — she finally got a budget approved. But the onus was on her to show that the site would not only make customers happy by giving them unprecedented access to information about Boeing’s products, but also that it would bring in revenue.
“It’s incumbent on us to add more and more capabilities on the revenue side of the equation,” Claitman says. “We’re adding the ability to request quotes for maintenance-and-modification services, and we’re beginning to sell navigation maps and charts from Jeppesen, one of our subsidiaries. Soon, you’ll be able to buy a Portable Maintenance Aid (PMA) through MyBoeingFleet.” (PMA is software with maintenance data for specific models of airplanes, which can be loaded into a laptop.) Claitman says that the e-business team is concentrating on three sources of revenue: products like spare parts, information services like manuals or engineering drawings, and maintenance-and-modification services.
As the emphasis within Claitman’s group has shifted from experimentation to revenue generation, Claitman has introduced more structure and more-formal procedures. She now chairs an e-business council made up of business leaders from several divisions of Commercial Aviation Services. “When you present an idea to the council, you have to stand up and explain how it can help reduce costs, grow revenue, or improve satisfaction,” she says. “You have to do one of those three.”
Similarly, at Minneapolis-based Target Corp., Cathy David dedicates plenty of energy to banging the gong about Target.com’s successes. “I’m in a state of perpetual evangelism, trying to capture people’s attention,” she says. It’s important to her that, as other e-tailers fade away, her peers at Target don’t begin to feel complacent about the company’s Web strategy or curtail their support of e-commerce.
Target’s entrance into e-commerce was slow and cautious. Vice chairman Jerry Storch recalls being chided throughout the late 1990s by journalists and analysts, who told him, “You just don’t seem to get the Internet.” Storch’s reply was, “We believe in it, and we think that it’s one of the most important developments of our generation. We just don’t believe that it’s going to take over everything tomorrow morning.”
David watched the death spirals of many of the pure-play Internet retailers and tried to conduct a mental postmortem on each of them. “Some of them were clever sites, and they offered unique products,” she says. “But consumers want a brand that they know and trust. And the markets won’t tolerate years and years of making no money.” Target had just begun ramping up its Web store as competitors like Boo.com, eToys, Fogdog.com, and Furniture.com started winding down. And as Target has increased the resources that it dedicates to its online channel, more dotcoms have disappeared. Though neither Storch nor David is very explicit about this, they hope to attract customers who want to buy from a trusted brand, from a retailer that will still exist in a month’s time. David says she has crafted Target’s e-commerce strategy in part by learning from the missteps of the pure-play e-tailers. “We were happy to move along methodically, slowly, even if we had to take our licks for it,” she says. “We needed to make sure we had a business model that would work.”
Part of the learning was about merchandising. Though Target sells groceries in many of its 1,000 or so stores, David watched as companies like NetGrocer.com and Webvan struggled with the low margins, perishability, and logistical complexity of selling food online, and she decided “that it would be hard to do it profitably.” She also decided to avoid fashion apparel and commodities like shampoo, detergent, and toilet paper. “They’re not really crucial to the brand,” she says. “We opted to focus on the stuff that makes Target Target. Stuff like the Michael Graves collection, which is exclusive to us, or like camping equipment from Eddie Bauer, which Eddie Bauer doesn’t even carry in its own stores.”
The company also tried to avoid the blanket free-shipping policies that cost many e-tailers millions. “We’d see other sites where customers would go in and cherry-pick the cheapest products, and the sites would wrap them up and ship them out for free,” David says. “We decided that it would be very hard to build a business and cover our costs that way, which is what we had been chartered to do. So we offer free shipping if people order more than $100 — to get customers to put together a bigger shopping basket. We’ve also offered a flexible return program, which allows returns to be made by mail or to a store and which helps people worry less about making a purchase. And flexible returns mean less of a margin hit than free shipping.”
The Target.com group and the executives who oversee it don’t seem at all downcast about the disappearance of so many startup e-tailers (and maybe this shouldn’t be surprising). “All the stupid stuff had to burn away,” says David. “Now you have the makings of a stronger fire. At our last meeting with our chairman, his message was, ‘Don’t slow down at all.’ “
You (Don’t) Say You Want a Revolution
Like a teenager reminiscing about prom night, Mike McCue revels in the stories of his chow-down at the Internet-venture-capital banquet. Those were brilliant times. “You could walk into John Doerr’s office at Kleiner Perkins and say, ‘I’m going to change the way people use telephones,’ ” recalls McCue, 33. “And he’d say, ‘That’s great. Let’s do it.’ “
Investors, customers, and employees all seemed more willing to enlist in revolutions back then. “There was a sense of optimism and possibility two years ago,” McCue says. His company, Tellme Networks Inc., of Mountain View, California, raised $238 million before the optimism evaporated. McCue has kicked off a crusade to change the world. He wants to reinvent the corporate call center and help Tellme’s clients deliver services and information through a sophisticated, speech-driven telephone system. But he’s discovering that the world around him, which until recently couldn’t get enough of change, has suddenly turned change-phobic. But he’s not willing to put his cause on pause. “You have to keep the drumbeat going,” McCue says. “Momentum is everything. Before, companies could use hype and buzz to disguise a lack of momentum. Now it’s all about deals that generate revenue. Your mistakes show more now, and lack of momentum is more apparent to everyone. You can’t stagnate.”
But there’s a flip side. “One thing we learned very fast is that a revolution for revolution’s sake is nothing,” concedes McCue, who cofounded Tellme after selling an earlier company that he’d founded, Paper Software Inc., to Netscape. “We honestly believe that what we’re doing is converging the Net, telecom, and voice recognition to create the next-generation dial tone. You might call that a revolution, but we’ve tried to avoid calling it that. Rhetoric doesn’t get you anywhere. You have to focus on the benefits that you can deliver to customers.”
Call 800-555-TELL, and you can sample Tellme’s technology, which enables you to navigate information services like weather forecasts, traffic reports, and news headlines by using voice-prompted commands. The service is based on what Tellme calls “Voice XML,” a programming language that makes Web content available over the phone. Selling advertising on the 800-number is just a tiny piece of Tellme’s anticipated revenue stream, though. The company also wants to develop speech-driven services for clients (such as rental-car companies, brokerages, and utilities) that provide automated, user-friendly account information, reservations, and customer services. Already, for example, Jiffy Lube has a Tellme-powered system that allows customers to schedule appointments.
Tellme also provides hosting services, which offer customers the use of services by any of Tellme’s other client companies. For example, someone calling in for a weather report might be enticed into checking prices for a trip to Hawaii or perhaps into buying a new raincoat from Lands’ End. Originally, Tellme had focused on providing its automated phone services to dotcoms such as eBay and priceline.com. Callers would have been able to bid on auctions or to name their own price (by phone) for hotel rooms or airline tickets. “For much of last year, we were thinking that the perfect customers for us were the Amazons and eBays of the world, so we had big deals cooking with all of the major Internet companies,” McCue says. Those deals stayed unannounced. “We looked at our business and said, ‘These dotcoms are going to have trouble. This is scary. It’s not going to work,’ ” he recalls.
Under pressure to start generating revenue from business customers, McCue quickly reoriented the company’s small sales force to start concentrating on Global 1,000 prospects. And as he hired more salespeople, he sought those who had experience in selling software and call-center solutions to large corporations. McCue says that one of his biggest challenges, in addition to redirecting the sales force to larger companies, has been recalibrating the expectations of Tellme’s employees. “When I speak with people here, I explain that the great businesses were in it for the long term,” he says. “It took AOL nearly 20 years to get to where it is now. It’s like climbing Mount Everest. To me, the ultimate vision is when we’re able to have a large collection of businesses and consumers in a community that we’ve built on the phone. That’s the summit. Companies that get up there are worth a lot.
“But you have to zigzag your way up the mountain — you can’t just helicopter up to the top,” McCue warns. “And you have to weather storms, like this storm that we’re weathering right now in the stock market. You just have to say, ‘We’re on a journey, and eventually, we’re going to reach the summit.’ It may take longer than you expected, but all of us have to keep our eyes on the summit.”
Scott Kirsner (email@example.com) is a Fast Company contributing editor based in Boston. He’s always on the move.
Sidebar: Fast Forward
How do people with big ambitions respond to an era of downsizing? “You can worry, you can pray, or you can do something,” says Steven Berglas, a clinical psychologist who until June was on the staffs of Harvard’s McLean Hospital and the Harvard Medical School Department of Psychiatry. Berglas now teaches a course at UCLA’s Anderson School called “The Psychology of the Entrepreneurial Spirit.” His latest book, published earlier this year, is Reclaiming the Fire: How Successful People Can Overcome Burnout (Random House). Here’s his advice for staying fast in slower times.
Cut big fast. If you take the free Cokes away, and then you take away the BlackBerry pagers, it becomes Chinese water torture. A lot of companies nickel-and-dime their cost cutting, which, along with external bad news, imposes upon everybody a depressogenic state of mind. The best thing to do is make a one-shot, one-time-only cut. Then it’s over, and you’ve let everyone who is left know that they have ownership and control, psychologically speaking.
Conserve resources, but don’t stop taking risks. In difficult times, companies tend to develop a circle-the-wagons mentality. But that mind-set leaves all kinds of opportunities for competitors to exploit when economic growth gets started again. The best time to innovate is now. The tendency to become conservative in the face of economic threat only means that a year later, some startup is going to eat your lunch.
Look on the bright side, but don’t be blind to reality. You can be optimistic in tough times. For example, you may have less competition when you’re hiring employees in this environment. An unwillingness to be deterred is a positive. But if it’s done with the notion that “there’s nothing wrong with the economy,” that’s denial. Optimism means being like Andy Grove or Lance Armstrong, who fought their cancer and were completely single-minded about it. Denial means being like the alcoholic with an ulcer who toasts the fact that he doesn’t also have a brain tumor.
Bad news isn’t always bad news. The paradox of the entrepreneur is that he can take bad news better than he can take good news. If you tell an entrepreneur, “You have another fight on your hands that’s necessary in order to realize your dream” — that’s like throwing down the gauntlet. It was really disconcerting when the venture capitalists had their signs up saying, “Open House — Easy Money Available.” There was no challenge. It was odd.