Silicon Gold Rush The Next Generation of High-Tech Stars Rewrites the Rules of Business

by Southwick, Karen

• ISBN13: 9780471246466
• ISBN10: 0471246468
• Edition: 1st
• Format: Hardcover
• Copyright: 1999-02-16
• Publisher: Wiley
• More Book Details

Summary

A one-of-a-kind book that delves into the management ideas and strategies of high-tech leaders who are "rewriting the rules of business," Silicon Gold Rush is essential reading for anyone-in any industry-seeking the inside track on contemporary business transformations.

Author Biography

KAREN SOUTHWICK is a veteran journalist who has covered the high-tech industry extensively. Formerly executive editor of Upside Magazine, she is currently editor of Upside’s book division.

Table of Contents

Foreword	v
Geoffrey Moore
Introduction The New Gold Rush	1	(5)
Chapter 1: A Star Is Born	6	(22)
Chapter 2: Leading a High-Tech Juggernaut	28	(20)
Chapter 3: The Soul of a New Company: The Value of Being Small	48	(22)
Chapter 4: Bigger Can Be Better: Maintaining Equilibrium	70	(26)
Chapter 5: Staking Your Claim: Finding and Keeping New Markets	96	(25)
Chapter 6: Mind Share Is a Terrible Thing to Waste	121	(20)
Chapter 7: Dance with Your Customer	141	(22)
Chapter 8: Brainpower, Inc.	163	(19)
Chapter 9: Mergers and Alliances: Picking the Right Partner	182	(20)
Chapter 10: The Party's Over	202	(23)
Conclusion At the End of the Day	225	(4)
Appendix A Profiles of Companies Featured in this Book	229	(6)
Appendix B CEO Characteristics	235	(4)
Appendix C Compensation Trends	239	(4)
Index	243

Excerpts

Chapter One

A Star Is Born

The best way to understand the power and potential of Silicon Valley technology companies today is to examine how they are conceived and born. It used to be that new companies were founded by scrappy entrepreneurs--often with little or no business experience--in a garage or warehouse, with little or no capital. Some new companies still emerge that way, but it is no longer the most common or desirable way to get started.

    Consider the "launch" party of CrossWorlds Software, a technology start-up based in Burlingame, California, a community on the northern edge of Silicon Valley. The lavish party takes place in June 1997, and its cost probably exceeds the entire seed capital of many an earlier start-up. It is held not in a garage or a warehouse, but on the 15th floor of the Merchants Exchange Building in San Francisco's financial district. The event has been planned and is being coordinated by a production firm hired by CrossWorlds. A four-piece jazz band plays. Scores of hostesses scurry about, greeting distinguished guests, pinning on name tags, and escorting people to the bar.

    The party has succeeded in attracting an audience of industry heavyweights and influencers--the men and women who have helped turn many a silicon dream into reality. The well-known executives from the high-profile technology companies arrive later than most of the other guests. The first of the executives to enter the room is Andy Ludwick, who has managed two major technology companies, Bay Networks and SynOptics. Others include Dave Stamm, John Luongo, and Joe Liemandt, all software company presidents; and financial mogul Frank Quattrone of DMG Technology Group, whose pronouncements can sink a company or raise it to new heights. The energy in the room is palpable. Casual conversations, both business and social, pulsate with the intensity of an industry whose wealth, power, and the potential for expansion and explosive growth are seemingly unlimited. The guests have come to listen and learn, to schmooze, and to size up CrossWorlds as a potential partner or investment.

    CrossWorlds' tagline for the event is simple and prodigious: "We're entering the promised land." The promised land it refers to, of course, is the territory staked out by the likes of Microsoft, Netscape, and Cisco Systems--companies that have developed powerful technologies, opened up new markets, generated billions of dollars in market value and revenues, created thousands of jobs, turned hundreds of employees and investors into millionaires, and even changed the way business is conducted. Every day, in the technology capitals of Silicon Valley, Seattle, Boston, and Austin, entrepreneurs and investors get together to hatch the big idea that they hope will eventually become the next Microsoft or Intel.

    At 5:00 P.M., the hostesses finish seating the hundreds of guests in a presentation room adjoining the reception area. The lights dim on the elaborate stage. The chatter dies and a video appears on the center screen. It features prominent technology leaders and opinion shapers, including Peter Kastner from Aberdeen Group, as well as executives like Dave Duffield and Heinz Roggen-Kemper from respected behemoths PeopleSoft and SAP AG, respectively. Their role is to describe and praise CrossWorlds' technology.

    Part of the video features an interview with CrossWorlds' founder and chief executive, Katrina Garnett, conducted by local TV host Brian Banmiller. Garnett is polished, attractive, and articulate, and exudes an air of confidence, experience, and knowledge. Garnett spent 10 years with Oracle and Sybase, two important players in the hotly competitive database industry. When she left Sybase to found CrossWorlds, she was a general manager/ vice president. Garnett and her husband, Terry, have committed $5.5 million of their own money to the development and founding of CrossWorlds. They have also raised funds from several prestigious investors, including Venrock Associates--the Rockefeller family's venture fund--and the accounting powerhouse Ernst & Young, along with companies such as Compaq, SAP, and Intel. In all, CrossWorlds has amassed more than $46.6 million in capital, which puts it in the top tier of private financing. The average amount raised by a software start-up in 1997 was only $4.9 million, according to VentureOne Corporation of San Francisco.

    Garnett explains to Banmiller that she wants to build a major software company to serve what she believes is a new and important market niche, which she calls "processware." As Garnett describes it, Fortune 1000 corporations have been spending billions installing "front-end" systems that run solutions for customer support, payment, and sales. They also have invested heavily in "back-end" systems that handle human resources, manufacturing, and accounting applications. But the front end and back end don't always connect or communicate smoothly with each other, she says, and this can prove troublesome--even disastrous--for companies that need to operate as seamlessly as possible. CrossWorlds' products make communication between these systems not only possible, but relatively effortless.

    Garnett outlines the potential market value of CrossWorlds' products by describing the success of the first processware release with test clients such as Hewlett-Packard and Bay Networks. These industry titans were so pleased with the performance of early "beta" versions of CrossWorlds' product that they helped the company further develop and prepare it for general release. Garnett closes the interview with the kind of hyperbole that flows in Silicon Valley like wine flows in the Napa Valley. "We're going to go where no one has gone before," she declares.

    After Garnett's appearance, DMG Technology Group analyst George Gilbert talks numbers. According to his estimate, the $13 billion market for front-end and back-end application software will grow to the $40 to $50 billion range in the next five years. Processware, Gilbert predicts, could capture as much as 10 percent of that market. That's $4 billion!

    The presentation ends to thunderous applause. The guests drift back to the bar to analyze, imagine, connive, and consider the promise of CrossWorlds.

* DRIVING AT BREAKNECK SPEED

CrossWorlds' initial product could, as predicted, achieve enormous sales. But as successful as the launch appeared to be, it provides no guarantee that the company will live a long and happy life. The founders might have guessed wrong about the importance of the envisioned niche, or about its size. Or the company may suffer problems with manufacturing or product performance. Or its technology could be copied by a rival or a partner, who will outmarket and outsell CrossWorlds and demolish it. But the birth and early childhood of the company reflect how the high-tech industry operates. Technological innovation drives explosive growth that fuels greater competition, thereby creating a need for more advanced technology. And so it goes. This pattern can be attributed to any global business operating in a competitive industry.

    The continual emergence of new products as well as new companies accelerates the frantically spinning treadmill that the technology industry is on. Like the Red Queen in Alice in Wonderland, even mature, well-established companies such as Microsoft have to run ever faster just to maintain their position. The unbridled growth and fierce competitive nature of the high-tech industry demands that management respond immediately to every new turn and development with a variety of strategies, all the while assuring employees and investors that the company has a long-term goal. "High-tech companies operate like they're on a CNN floor, with breaking news every ten minutes," says Ann Winblad, a partner with Hummer Winblad Venture Partners of San Francisco, a leading investor in software start-ups. A former entrepreneur herself, Winblad is one of the most highly regarded venture capitalists in the high-tech industry and is widely known for her ability to pick winners, including Arbor Software and Wind River Systems.

    In business, winners are largely recognized by strong leadership, flexible organizational structure, and egalitarian management style. Successful high-tech companies, like those profiled in this book, cultivate their own innovative spirit to create award-winning products, open new markets, advance innovation, and effectively manage the organization--and they do this in the midst of a frenetic, hypercompetitive environment. The technology industry is largely the result of innovations and approaches introduced only recently. Gary Hamel is chairman of Strategos, a consulting company in Woodside, California, and coauthor of Competing for the Future, which describes ways that companies and industries can reshape themselves to compete more effectively. "The future is not created by prophets, it's created by heretics, people who have a different industrial model," proclaims Hamel. "In the sense that a lot of the future is driven by what becomes possible technically, people who are able to reconfigure an industry in some new way will be successful." It is the heretics who are willing to tear down the status quo, to eliminate the hierarchical management and command-and-control mentality in favor of a new, still-emerging model.

* LEVELING THE PLAYING FIELD

Technology has the unique ability to eliminate barriers to better business, whether they be related to costs, logistics, productivity, or the market. High-technology companies are particularly adept at tearing down the boundaries found in conventional businesses. "Traditionally, you built your company around some sustainable advantage--proximity to the market or a regulated monopoly or patents," says Joe K. Carter, office managing partner in technology for Andersen Consulting LLP in Palo Alto, California. "Technology is in the process of eliminating all of those." Powerful networking technology allows experts from all corners of the globe to collaborate on a specific project, obliterating proximity barriers. With technological innovation moving ahead at warp speed and savvy entrepreneurs creating new markets, the barriers to financial support have diminished. In fact, the industry is awash in money as never before. In 1996, venture capital firms invested $5.4 billion in 962 information technology start-ups, double what they had invested just two years earlier, according to VentureOne. And 1997 saw $7.1 billion flowing to 1,095 deals. Money from these sources is joined by largesse from the previous generation of technology entrepreneurs, people like Bill Gates and Steve Jobs who, as "angel" investors, push portions of their huge hoards of personal wealth back into the industry they know best.

    High-tech companies are among the first to take advantage of technology solutions, enabling them to focus more intently on their products and how these products serve customers. With the playing field somewhat leveled given the availability of technology, what can a company do to reach the top of the pack? "You have to innovate faster than the other guys and you have to execute even more quickly," says Carter. The primary sustainable advantage, then, is speed of execution, which technology companies have elevated to cult status in their efforts to run farther and faster than anyone else. Boasts Gideon Gartner, chairman and chief executive of Giga Information Group in Norwell, Massachusetts: "In our industry segment--information services--it's possible to invent a new service, announce it, and start delivering it within 24 hours. We would like to be able to change something as quickly as you can put it on the Web."

* READY, FIRE, AIM!

Speed and competitiveness are closely intertwined. Regis McKenna, legendary technology marketing strategist and founder of The McKenna Group in Palo Alto, refers to this interconnection as "the continual cauldron of competitive pressure." This means that the companies that are fastest to market with viable products have the best chance of survival. One management model equates this cauldron-like environment to a living ecosystem where the competitive pressure acts as a Darwinian imperative, forcing companies to make evolutionary leaps at a much faster pace than would otherwise occur. For a technology company, this means that the business must not only keep pace with change, but find a way to anticipate it. "You have to understand trends, how enabling technologies are advancing, and what other complementary technologies might create customer value," says Jim Moore, chief executive of GeoPartners Research in Cambridge, Massachusetts, and author of The Death of Competition, which expands on the business-as-biology framework.

    To stand still in this new world is death. Digital Equipment is a perfect example of this axiom. A highly regarded innovator of minicomputers (think "mainframe light") during the 1970s and 1980s, the company faltered when its management could not cope with the evolutionary leap to the personal computer. Today, Digital has become part of PC-maker Compaq Computer Corporation. Digital's experience proves that moving forward is vital, even if, like the one-celled creature that first lifted itself out of the primordial soup, you don't quite know where you're moving. "Previously, you wanted to develop a detailed business plan or blueprint," notes John Hagel III, a principal with consultant McKinsey & Company in Palo Alto and coauthor of Net Gain . "Now," he adds, "you draw on outside disciplines, like complex adaptive systems or genetic algorithms. Instead of thinking about strategy as a detailed blueprint, you define a set of basic and limited rules that will drive your actions. Then you rapidly act upon those rules and discard the ones that don't have a lot of success." Instead of ready, aim, fire!, it's ready, fire, aim!

    As a result, the technology industry, like any frontier, has attracted a new type of executive and a new type of employee--indeed, the two are almost indistinguishable. The key attributes of both include a tolerance for chaos, disdain for hierarchy and politicking, willingness to fail, elevation of talent and brilliance, passion for technology, and naivete about limits. Thanks to a booming job market and the financial freedom created by equity participation and generous salaries and bonuses, the traditional managerial structure in high-tech companies has been turned upside down.

* EMPLOYEES RULE THE ROOST

Consultant, writer, and high-tech philosopher Michael Rothschild is also an advocate of the business-as-biology model. He has pursued this approach through his work at the Bionomics Institute in San Francisco and is implementing the framework as president and chief executive of Maxager Technology in nearby San Rafael. Rothschild believes that economic power has always rested in the hands of those who control leverageable assets. It used to be rent, then it was machinery. Today it's information and knowledge--which are no longer the exclusive provinces of management. "People who have the brainpower and skills get to call their own shots," says Rothschild. "They can live where they want and with the lifestyle they want. It's damn close to full personal freedom. If I piss off my employees, within an hour they've got six job offers. If I tell them to stop playing computer games, they would say, `f--- you,' and leave."

    Realizing this, savvy managers engage these take-me-or-leave-me employees personally by binding them to the company's success through stock options and other incentives, which act as a means of sharing both the risk and reward. Technology companies founded in the 1970s and 1980s, like Intel, Microsoft, Oracle, and Cisco, have made millionaires of thousands of their employees--and not just the executives, but also receptionists, assistants, marketing managers, and human resource directors. "The secret of Microsoft is that everybody becomes a millionaire after a certain period of time," says Robert Reid, a principal at 21st Century Internet Venture Partners in San Francisco. Equity--participation in the company through stock options--is now ground zero for hiring at technology companies. It's proven to be a curse for companies as well as a blessing. "As the bidding for talent goes up, everyone has to offer more," says Reid. "The alternative is to focus on the work environment to a greater extent."

    The concept of employee ownership has become the foundation of technology companies. It is the way in which companies compete for the knowledge worker, who is seeking not just the weekly paycheck, food-on-the-table job security of the past but the skill-expanding job security of the future. Famed psychologist Abraham Maslow would find proof of his theories within high-tech companies. Maslow's hierarchy of needs sets up humanity's requirements as a pyramid, starting with physiological needs at the base and proceeding to higher needs, such as esteem and self-actualization. In the high-technology arena, as well as other knowledge-based industries, the basic needs have been satisfied; only the higher ones remain to be fulfilled. These include involvement in satisfying work, influence over the end-product, and a sense that what you do has some impact on your company, your customers, and your industry.

    Walk into almost any high-tech company and you typically will find employees in casual dress; foosball tables sharing space with the refrigerator (well-stocked with Cokes) in the kitchen; prominently placed containers of free candy (all that sugar gives you a short-term rush); knots of people engaged in seemingly random, animated discussions; walls bearing photos of pets, family members, and coworkers; cubicle workspaces marked with interchangeable nameplates; and cutely titled conference rooms, sometimes named after theme parks or biblical plagues, available on a first-come, first-serve basis. Employees and executives are indistinguishable: The 25-year-old pounding away at a computer is as likely to be the chief executive as the 40-year-old hunched over a spreadsheet. The guy who picks up the ringing phone that no one else answered could be the chief financial officer, the one carrying in pizza the vice president of human resources. What you will not see are executive suites, preferred parking spaces, personal secretaries, and fancy office furniture.

    The fluidity of knowledge transfer has contributed to blurring the boundaries between executive and employee in other ways as well. In the past, the person who had access to the most information sat at the top of the heap. But now, in the age of the Internet, information has become so abundant and accessible that everyone swims in it. The hallmark of the successful high-tech executive is not withholding information, but making sense of it, and then ensuring that everyone in the company has the information that he or she needs to work at maximum productivity.

    Such a business exemplifies the truly "flattened" organization, where the concept of employee ownership is taken seriously and given equal weight within the organization. But when companies attempt to apply the principles of employee ownership without fully understanding the sensibilities underlying the approach, that attempt falls short. In such a case, the end result may be a company where functional jobs have become so blurred that it is difficult for employees to understand their role and thereby take responsibility for it.

(Continues...)

Copyright © 1999 Upside Magazine. All rights reserved.