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AUGUST 6, 2001
BUSINESSWEEK E.BIZ -- COVER STORY
Lessons from Critical Path's Woes
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| TAKE YOUR LUMPS. Critical Path (CPTH
) didn't own up to a rotten fourth quarter, even though some execs believed it would fall $5 million to $8 million below its revenue target of $55 million. By not warning Wall Street, the company was discredited when it missed its numbers on Jan. 18. The stock price dropped 64%, to $9 a share, and 10 analysts issued downgrades.
SET REALISTIC GOALS. Critical Path CEO Doug Hickey set lofty goals and refused to let his lieutenants come up short. That helped build sales from $16.2 million in 1999 to $135.7 million in 2000. But when the economy slowed late last year, under-the-gun sales execs began doing improper things to boost revenues--including backdating contracts.
GO EASY ON ACQUISITIONS. Ten acquisitions in 16 months is just too many. Critical Path's bid to build a super-platform of Net communications tools fell on its face because few of the products gathered through acquisitions could work together. Instead, Critical Path was left with 40 stand-alone products.
KEEP THE BOARD PLUGGED IN. The five outside directors were too hands-off. True, Hickey and his managers rarely sought out the board's advice. But these five, including venture capitalists and corporate executives, didn't ask the tough questions born of their combined 48 years of high-tech experience.
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Copyright 2001, Bloomberg L.P.
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