In a previous post, I talked about how startups can out-execute the big guys by applying a lot of hard work moving in the same direction. Doug Park of DYPAdvisors asked in his comment “That leads to the question of how are they going to get there. How is the company going to execute? “
To answer Doug’s question, let’s look at the execution lessons of NetApp, captured in founder Dave Hitz’s great read “How to Castrate a Bull; Unexpected Lessons on Risk, Growth and Success in Business”. NetApp is a data storage and management company that is a classic Silicon Valley tale. Founded in 1992, NetApp raised angel money, a couple venture rounds, and had a successful IPO in 1995. It rode the internet boom to over $1B in annual revenue in 2001, took a hit when the bubble burst, recovered, and today is an industry leader with over $3B in revenue.
NetApp’s founding team included a visionary CEO. He came up with the idea of a networked storage appliance; he raised $1.5M from 24 angels; he raised the venture rounds. But somewhere between the founding team of three and employee number 25, the CEO’s skill set went from being a huge asset to being a huge liability. He was gone shortly after the second VC round. What happened?
Dave writes “Good CEOs have magic pixie dust that they can sprinkle on problems to make them go away.” According to Dave, NetApp’s founding CEO didn’t have that magic pixie dust. The founding CEO “was most effective as a leader when he wasn’t around too much and when the whole company could fit around a table. We had disagreements but we could work though them as a group.”
All startups begin this way, sitting around the metaphorical table, making things happen. With hard work and luck, a company quickly grows beyond this stage. Most don’t think about the consequences of becoming a larger group. They continue to operate with the same old mechanism: get together, make a decision, get it done. But with a bigger group, the “getting together” process creates competition for the CEO’s time and mindshare, and rival plans. At NetApp, the words “the new plan is…” began to strike fear in the heart of the co-founders and the employees. The CEO “was always changing the plan based on the most recent information from his most recent visitor.” A leadership style that worked fine with eight employees became “dysfunctional at 25 and a disaster at 50.“
Dan Warmenhoven, who replaced the founding CEO, had the magic pixie dust. Writes a 2005 BusinessWeek article “Warmenhoven may be one of the most respected tech CEOs you’ve never heard of. He has earned the trust of Wall Street, not only for NetApp’s 34-fold share appreciation since its 1995 IPO, but for his tell-it-like-it-is credibility. He’s also a hit with employees, given his good-natured personality and inclusive management style.”
Dan was brought in as CEO after the second VC round. The company was less than two years old, but a culture of fear and mistrust had already taken hold. Dan set out to change that. He set a Plan of Record. He made his decision making process clear. He started a discussion about company values. “It was a breath of fresh air. People could go back to work, safe in the knowledge that the plan would not change out from under them just because they were busy working instead of politicking.”
Values were harder. Dan’s first attempt to create a set of company values, shortly after joining, was met with mistrust. The initial reaction was summed up by one employee who said “How will these values be used against us?” Dan was patient and, after a year at the helm, approached his staff again about creating a list of company values – explaining why it was important to him and sharing his aspirations for NetApp. “He sort of eased us into assembling a list of values,” explains Dave. What’s more, added Dave, “company values only work if the leaders say, ‘These are things that I really do believe. If I violate them, please call me on it.’”
Dan Warmenhoven’s magic pixie dust is creating an execution culture. “Dan defines culture as values plus behavior. Values should remain constant, but behavior will change as a company grows.” Dan’s magic pixie dust married behaviors like a Plan of Record and a focus on the way decisions were made with a set of company values that created trust and alignment in a growing organization. Under Dan’s leadership, NetApp went through a period of hypergrowth, survived the dotcom bust, and is today what Dave calls a grown-up company. The culture has evolved as the company has grown. But the values Dan created with his staff are still there. “Culture should change. It needs to be different depending on the size of the company, its growth rate, the challenges it faces – but always you want the culture and the behaviors to reflect the core values. “
You too can have that magic pixie dust. But don’t wait until your company starts melting down, when you have to unstitch a toxic environment. Work with your team from day one to define who you are as a company, to create your company values. Be mindful of what behaviors make sense at the different stages your company will travel through. Create a successful execution culture and you will have laid the foundation for a successful company.
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