Small Business

To Fix a Business, Change the Culture


By Thomas Charlton Every so often, Busineweek Online's Small Business channel invites an entrepreneur or manager to explain how he or she built a new business or transformed an old one.

Thomas Charlton, president and CEO of software outfit TIDAL, fits the latter category. As he tells it, the company was going nowhere when he stepped up from his former job as vice-president for sales to helm the entire business, which is based in Mountain View, Calif., and produces job-scheduling software that manages business processes in large corporate data systems.

What follows is an edited excerpt of a recent speech in which Charlton described the challenges he faced, the steps he took to meet them, and the end result: the fastest-growing independent software vendor in the job-scheduling market.

The date was May 15, 2000. I was the 33-year-old vice-president of sales for a privately held software company in Silicon Valley. The company had received an initial round of funding and I'd been hired to substantially increase revenues after 17 years of flat growth, and expand the sales organization from a staff of four tele-salespeople. Within 18 months of overhauling sales, our team had grown to almost two-dozen presales and account executives, and five regional offices. Revenues for the company more than doubled.

While my task had been accomplished I saw significant challenges ahead for TIDAL Software. The marketing department erroneously positioned the core product for a niche market, eliminating a huge source of prospects. The vice-president of development was reluctant to make simple changes to the product, even though it would result in winning large competitive deals. The CEO was not providing direction, and TIDAL's board of directors had lost confidence in the management team. And, although revenues had doubled, the infrastructure was growing faster than product sales. TIDAL was losing approximately $800,000 per quarter. We were in desperate need of cash to survive.

STAY OR GO? Moreover, the dot-com explosion was in full swing and sales-executive positions were plentiful. I was left with a few options: resign, grab one of the dot-com "dangling carrots" and retire within six months -- or remain at TIDAL and watch a sinking ship.

The third choice was to make a radical proposal to the board that, if they turned control of the company over to me, we would grow revenues in record time. My recommendation came with one proviso: jettison the executive staff.

By my observation, TIDAL employees had a tremendous commitment to see the company succeed: Our flagship product could easily compete among the larger vendors. Our developers were capable of programming new features in record time and expanding the product line. The intrepid sales reps were unwilling to take "no" for an answer. Senior management, however, wasn't providing the proper mentoring to train and mobilize their teams and sustain the company's growth.

The problem was overwhelmingly a cultural one.

HEADS ROLL. So, on that Monday in May, after receiving board support for taking operational control of the company and initiating a growth plan, the management team was removed...all managers in every department, with the exception of sales.

That afternoon, I faced the 40 remaining employees, who had invested a lot of time and energy in the company. I told them that it was up to us as a group of individuals to pull together as a team if we wanted to enjoy some of the Silicon Valley dream. I asked for their commitment over the next 12 months, with the option of evaluating my performance every 30 days. Except for one unplanned turnover no one left the entire year.

Once the foundation was laid, I chose an employee from each department to represent the company and meet with me to create and execute a turn-around plan. Together we engendered a renewed sense of pride for TIDAL. As the new president and CEO, I established the following rules of engagement for fostering a new culture and growing the company:

Build trust upon reorganizing the company.

Enlist the support and alignment of remaining employees, and prove my ability to lead.

Establish a new performance-based culture.

Instill in each employee that their value to the company is measured by their individual contribution to the organization. Personal relationships are secondary to the needs of the team's objective.

Get employees very busy with projects that focus on the future and don't give them time to bemoan the past.

Pick team leaders from each department and get them engaged with their teams in the success and growth of TIDAL.

Have each employee set individual goals and objectives for his or her department that contributes to the overall revenue goals.

Make sure each and every employee knows what the quarterly revenue goals are and knows what his or her specific role is in achieving those goals.

Instill the belief that the entire company closes the sale -- in other words, deals get done because every employee contributes his or her specific, measurable value to the sales process. Even tech-support personnel bring in sales leads.

Learn more from direct interactions, rather than through hearsay, by inviting people to communicate openly and honestly with their managers and the executive team.

Get employees to focus on the big picture by creating a safe structure where they have permission to communicate grievances, suggestions, etc. to their managers, with impunity.

Encourage employees to take risks.

Be a student and a teacher. Accept the wisdom of others, including frontline staff.

Treat every employee as a solid contributor and encourage feedback, knowing they can see what the CEO can't always see. They may know what the CEO doesn't.

Challenge employees and give them the opportunity to show conviction and commitment to the company's success. Test their mettle and turn employees into warriors who fight for the company.

Understand how management style affects the bottom line.

Put managers through rigorous training with quarterly training updates and evaluations.

As employees helped TIDAL grow and become successful, they developed and grew themselves.

By establishing a culture where people are encouraged to take risks in support of the company's success they experience their own personal growth and development.

Find out why you're struggling. Don't just look to your own brain for the answer.

Speak to Board members, employees and managers, and read the words of successful business leaders, don't just rely on your own intuition.

As the new culture supplanted the old, we set and achieved our business goals and were able to generate a second round of funding. Some of the results below include:

TIDAL went from losing $800,000 per quarter to breaking even in three quarters. Instead of raising capital at a low valuation, the company sold its way out of debt.

revenues grew from $9.6 million to $14.7 million in the year following the restructuring, an increase of 67%.

Overall, TIDAL revenues have increased 400% over the last three years.

TIDAL raised $12 million in second-round funding from JP Morgan Partners.

TIDAL moved from ranking one of 29 vendors to being a "Visionary" in [tech research outfit] Gartner's Magic Quadrant. It was also ranked the fastest-growing independent software vendor, and fourth by Gartner behind industry behemoths IBM, Computer Associates, and BMC.

TIDAL is one of the only vendors to innovate in this space, with a whole-product strategy built around a new automation paradigm -- event-driven scheduling.

These results were made possible by the 100 employees at TIDAL who embraced the new vision, direction, and culture, which they brought forth as a team. As CEO, I set the stage for them to perform. Thomas Charlton is the president and CEO of TIDAL Software


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