The 9-to-5 Start-up
Who ever heard of a start-up team working a 40-hour week? At Chip Wolfe's company, that wasn't just a goal, it was a bedrock principle. Nice concept, but watch what happens when you try to grow a business that way
As Chip Wolfe strolled from the West Lynn Cafe, in Austin, Tex., an idea began to crystallize in his mind. Wolfe had traveled to his favorite haunt one sunny January day in 1995 with his trusted colleague Dan Thibodeau, hoping to answer a nagging question: How could he free some of his cash from Sterling Information Group Inc., the then $3.5-million software-consulting business he had launched 10 years earlier? After mulling over the options, from employee ownership to a public offering, Wolfe was still stumped. But he tacitly agreed with Thibodeau, who owned a minority stake in Sterling, on one point: selling to a large company was strictly out of bounds. "We took it off the table pretty quickly," recalls Wolfe.
From the company's earliest hours, the cofounders had preached the benefits of an even-keeled life. In a fast-paced industry known for long days and grueling travel schedules, Wolfe and Thibodeau expected just 40 hours a week from employees--any more than that was actively discouraged. "We had never heard of a company with our unique policies and culture," says Thibodeau, "so we assumed that an acquisition would surely destroy what we had built."
That night Wolfe slept restlessly. This wasn't the first gut-wrenching business quandary he'd faced. Not by a long shot. But it was the most agonizing--a final decision that he would conceal until the moment he was prepared to act. How could he cash out and still position his company for further growth, while preserving the 9-to-5 culture he had struggled to create?
For many, the 40-hour workweek is considered to be an ideal standard, something akin to absolute zero: we know it exists, but we can never reach it. Still, more and more company owners are wrestling with the question of how to create a balanced life for themselves and their employees while maintaining a satisfying professional life. Wolfe had started with a novel working hypothesis: a healthy, growing company should retain satisfied employees who have ample time for their families, hobbies, and communities.
But it wasn't simple. At virtually every corner there were sacrifices, headaches, and hidden barriers to growth for Wolfe and his company. Which begs the question, Is it even possible to build and maintain a thriving company on just 40 hours a week?
"If I Ran the Zoo..."
Wolfe didn't start out with the specific goal of creating a 9-to-5 start-up. Things just developed that way. He first set up shop as a sole consultant in 1985, after a stint in a research-and-development arm of Datapoint Corp., a computer-data design and integration company. "I always wanted to make a living," says Wolfe, "but I also wanted to build something different from the traditional sorts of companies I had worked for." After a year on his own, he hooked up with Thibodeau, a computer enthusiast and fellow University of Texas graduate, who had been working at the Austin office of Digital Research, based in Monterey, Calif., until the company closed its doors in Austin, in 1985.
In spite of his background, Thibodeau wasn't inclined to grab the typical fast-paced high-tech job. He was more concerned with life at home. Since his first son had been born with cerebral palsy, in January 1985, Thibodeau had dedicated the better part of his time to helping to care for his child. "We were the perfect fit," explains Wolfe. "Dan couldn't work very much, and I didn't have very much work to give him."
But just a year later, Wolfe turned a corner when he landed the heavyweight Motorola as a client. Suddenly, there was enough cash in the till to fuel growth, and by the end of 1989 Sterling had 12 employees. It didn't take a lot of money; by this time Wolfe was a fairly proficient bootstrapper. He had no secretarial staff or bookkeeper, and he managed the payroll on his own.
Neither Wolfe nor Thibodeau wanted to devote his entire life to work, and as the company expanded the two sought ways to infuse the organization with that sentiment. "The goal was to maximize people's quality of life and at the same time create a growing business," Wolfe says. He attributes his maverick attitude to the wisdom found in If I Ran the Zoo, by Dr. Seuss. "'But if I ran the zoo,' said young Gerald McGrew, 'I'd make a few changes. That's just what I'd do," says Wolfe, gleefully quoting a few lines of verse. "We finally had our own zoo, and we weren't about to take the old ways for granted."
The trouble was that even though the 9-to-5 culture might keep employees happy, Wolfe recognized that it could also be perceived as a liability in attracting customers. From his vantage point, Sterling consultants could satisfactorily serve any customer on the company's 9-to-5 schedule, but he feared that some might perceive Sterling to be a "slacker" company. So he avoided mentioning the 40-hour workweek to prospective clients, instead talking generally about Sterling's family-friendly culture. "If it did come up, I assured them that I would place more people on a project to get the hours needed if there was a problem," says Wolfe, who admits that some clients may have been turned off by that alternative.
But enough customers apparently either didn't know or didn't care--at least as long as the job was done to their satisfaction. Carl Morris has worked with Sterling since the company's earliest days, first when he was at Motorola and now at Whole Foods Market Inc., based in Austin, where he's the chief information officer. For him, the Sterling hours have been "totally unnoticeable." He adds, "As long as a consultant lives up to the commitment, you don't really care if they're working 32 hours or 50 hours."
"Sterling's work hours have been transparent to us," says longtime customer William Haskell, who himself often puts in 60 hours a week as the manufacturing manager for one of Motorola's Austin facilities, where semiconductor packaging is produced. "I ask for something to get done and I know that it will get done right." But Haskell admits that other customers may not necessarily share his view. "I could see in some old-world hierarchical structures where people are fighting fires all the time that they might have a problem with a company that encouraged the 40-hour workweek," he says.
"Live and Breathe the Culture"
In Wolfe's book, the 9-to-5 policy didn't just keep employees happy; it also made good business sense. "If you work someone until 1 a.m., they tend to spend the next morning undoing their mistakes," he says.
By paying his technical consultants a straight hourly fee instead of simply paying them an annual salary, and then billing the customer about two times above that, Wolfe effectively neutralized the management's incentive to overwork employees. (Having to pay a consultant overtime would reduce the profit margin on that employee's time.) Full-time consultants typically worked an average of up to 40 hours a week for 47 weeks a year, leaving five weeks for vacation and holiday time. In addition, consultants were allowed to work on a flextime schedule that suited them. And Wolfe included full benefits, such as health and dental insurance and a profit-sharing plan.
The hourly pay system helped keep costs down, but there was a pretty big catch--one that in hindsight was bound to limit Sterling's potential for long-term growth. Wolfe didn't have the option of improving profitability (or revenues, for that matter) by squeezing more billable hours out of salaried employees. Instead he focused on improving profits by monitoring the company's expenses, including capital costs (for computers and office space, for example) and administrative costs (such as office support, recruiting, and bookkeeping). And he gave his consultants plenty of incentive to help keep costs down: he offered a generous 50% portion of Sterling's profits to be divided among the entire staff at the end of the year in the form of discretionary bonuses. If the profit pool was high because expenses had been kept in check, everyone benefited.
Even with the company's overt message that overtime was bad, Wolfe worried that some employees might think long hours would translate into a big bonus--which was not the case. So he and Thibodeau went to great lengths to lead by example. Wolfe would try to set the pace by sticking close to his own 40-hour schedule, even if it meant taking work home every so often. But Sterling also had other, more defined policies. For example, travel was not mandatory, and Wolfe confined his marketing efforts mainly to the metro area, making travel virtually a nonissue for the company. For his part, Thibodeau became a self-appointed ombudsman, a confidant for consultants who needed to air grievances. If a consultant was racking up more than 40 hours a week, Thibodeau would check in to make sure that the overtime was voluntary. Wolfe insists, however, that policies and procedures ring hollow unless you have "water carriers" who "live and breathe the culture." Wolfe adds, "These employees help to define the culture and ensure that it gets passed along to newcomers."
Janet Gilmore has carried water at Sterling for nearly nine years, playing the role of project manager, technical consultant, and software developer. In addition to her regular job, she also serves as one of the company's ombudspeople, making sure that communication between the workers and the management is clear.
Before joining Wolfe, Gilmore had been a project manager for the Texas General Land Office, a state agency that oversees all state-owned land and collects royalties from mineral rights. At that office she routinely clocked more than 50 hours a week. "I was skeptical when I first came to Sterling," she recalls. "I just expected that I'd have to work overtime to impress people." But she remembers Wolfe's constantly stressing the need for a balanced life, a message that slowly sank in.
Thanks to her flexible work schedule, Gilmore is able to travel with her husband, who is a musician. She also appreciates her annual bonus, which can equal up to one month's salary. In part, that's why Gilmore does her best each year to maximize the company's profits. For example, she typically seeks ways to pass her training and professional-development tab along to the client, rather than ask Sterling to pay. "If it's not getting billed to the customer, you really think twice about spending time or money on something," explains Gilmore.
With costs battened down and the company growing, Wolfe eased up enough to splurge on managerial talent. In August 1991 he hired Mike Haney as a technical consultant who would be positioned to run the company. The day-to-day grind of managing a business was already growing old for Wolfe, who wished to focus his attention only on the corners of the company he enjoyed most, such as recruiting and strategic planning.
Haney hailed from Baton Rouge, where he had been the vice-president of information systems for a software-development company. Wolfe offered Haney a long-sought-after opportunity: a chance to meld his high-tech know-how with his managerial expertise. "I was attracted to the culture and the business model," recalls Haney, who also makes note of Wolfe's "emphasis on quality of life."
Haney had placed his chips on the right number. In the frenzied high-tech environment that is Austin, growth came fast and furious for Sterling. "There was no lack of customers for us," says Wolfe. Sterling's revenues hit $1.9 million in 1992, having shot up 594% from 1988, just enough for the company to make #463 on the 1993 Inc. 500.
The Strain Begins to Show
But even with the obvious success of Sterling, Wolfe's 9-to-5 business model was already feeling the strain of the increasingly competitive consulting marketplace. Suddenly, it was more costly to attract new customers and recruit talent. At the same time, technology was advancing at a mind-boggling pace, heightening the already-strained imperative to train consultants on a constant basis rather than rely on finding ways to charge training to customers. "It was just getting more expensive to play," explains Haney.
Slowly, the pressure began to mount on Wolfe: the company's needs demanded that he open his tight fists. Some employees clamored for a formal professional-development program, and others complained that internal computer systems were due for an upgrade.
But it was recruiting that was most critical to sustaining growth. In computer consulting, you either recruit or perish. As Austin had developed into a high-tech mecca the stakes were raised to sniff out topflight high-tech talent. Nevertheless, Wolfe resisted hiring a full-time recruiter, opting instead to save the money and oversee the task himself with the help of his existing staff.
By this time, the Sterling spending habits--or lack thereof--had become a major point of contention. "You've got to spend something to get something," says Leslie Martinich, who joined the company as director of team resources in October 1994. "Chip was just way too risk averse."
Martinich, who now works for Compaq, says she actually found the company's policies less than ideal for her. Because most of her job as director of team resources involved work that was not billable to clients, she felt pressured to keep her hours to a minimum. "Since I wasn't billing to a client, they would have been happy if I could have finished my job in 20 hours," she says. Even Gilmore admits that the company had probably become "overly cautious" with its money.
But Wolfe simply didn't have the dollars to burn. Lopping off 50% of the company's profits for the bonus pool didn't leave much for reinvestment. Whether he wanted to or not, Wolfe had to begin revising his business strategy. The question was how to do it without disturbing the unique work schedules that had become a staple of the organization.
So in 1994, Wolfe reluctantly recalibrated the bonus and profit-sharing plan, creating a tiered system that favored longer-term employees. Other decisions, however, would call for more radical changes.
Sterling had identified new and potentially highly lucrative markets, particularly in computer-integrated manufacturing. Unfortunately, much of that work couldn't be found in Austin. If Wolfe wanted a piece of the action, he would put his commitment to the optional-travel clause--and a significant part of the 9-to-5 culture--to the test.
After long consideration, discussion, and companywide meetings, Wolfe began to commit to out-of-town engagements. He took it upon himself to make sure that the staff was comfortable with the move, but it wasn't necessarily an easy transition.
"Travel was not mandatory," says Wolfe, "but I was often trying to make deals with people to get them to go on the road."
"We Were Not Able to Take on New Projects..."
The increased travel that became necessary in the competitive environment not only strained Sterling's 9-to-5 culture but also underscored a need for new offices and new recruits outside Austin. Expansion, Wolfe knew, was not without risk. "I actually had access to capital through my bank," says Wolfe, "but I was fearful that if the economy hit a bumpy stretch and I had spent my reserves, then I could be in trouble."
Wolfe's fear of expansion hovered over the company's strategic planning, creating ripples in its new-business development. "We were painfully and regretfully informing some clients that we were not able to take on new projects," he recalls.
In spite of his concerns, Wolfe knew that Sterling needed to identify new avenues of growth, pronto. Austin was growing more competitive by the minute, and the cost to stay competitive was rising just as fast. Given the company's reputation, its low turnover, and its low internal costs, Wolfe was fairly confident that he could lure outside investors. But he was loath to give up equity to a group of outsiders whose only objective would be to maximize profits. So instead he noodled around with another idea: to diversify the company into software products, such as sophisticated logistics systems. "If you win in product, you win big," explains Wolfe.
He began to sketch out ways to accommodate the typically arduous product cycles. For example, he imagined that product-side employees might be required to take a one-month sabbatical after particularly long cycles. "I'm convinced my model can work with any business," says Wolfe.
But his idea was greeted with some strong objections from the ranks. Patricia Yockey, a technical consultant who had been recruited from IBM, where she developed software products, questioned whether Sterling was inviting trouble into the company. "Product development can introduce a frenzied sort of work ethic," says Yockey, who feared that the round-the-clock ethos would infiltrate Sterling's culture. In the end, Wolfe abandoned the idea.
Just when it seemed as if the conflicts couldn't grow any worse, Wolfe's mental and physical health suddenly began to deteriorate. He developed a nagging cough and felt perpetually exhausted--a tremendous irony for a man who had set up a company specifically to alleviate the work-and-life stress that comes from working long hours. "It was as if I couldn't recharge my batteries," says Wolfe, who was later diagnosed with chronic-fatigue syndrome. The onus to conjure up a scheme to grow the company and still maintain the 9-to-5 culture was more than he could take. Wolfe wanted out, and he couldn't hold on for much longer.
Although he had largely turned over the reins to Haney, who had become president in 1993, Wolfe's net worth was almost entirely tied to Sterling. And he began to obsess over ways to extract his wealth, endlessly enumerating the pros and cons of each avenue on scrap paper and seeking the advice of colleagues, friends, and family.
But nothing seemed to satisfy all his demands: employee stock ownership involved risks he wasn't prepared to take, a public offering would have taken at least four more years of hard work, and a leveraged buyout was out of reach for his consultants. (Wolfe went so far as to E-mail all the company's staff members, asking them what they would be willing to spend on the company: the answer came back at about $1 million. "A million is nice," says Wolfe, "but it wasn't going to change my life, and I still would have had most of my assets tied up in Sterling.")
In spite of the fact that selling out seemed contradictory to all Sterling represented, it consistently emerged as Wolfe's best choice. Austin was hot, his company was hot, and acquisitions in the industry were reaching a fever pitch. "All the factors said go," recalls Wolfe, who had managed to keep his decision from everyone, including Thibodeau. ("Shock, surprise, and concern. That was my reaction," recalls Thibodeau. But since Thibodeau possessed only 10% of the stock, the decision was clearly Wolfe's to make.)
On December 13, 1996, the Sterling Information Group became a wholly owned subsidiary of Renaissance World Wide, a $600-million information-technology consulting firm based in Newton, Mass. (Under its former name, the Registry, it made the Inc. 500 three times.) Wolfe sold Sterling for $8 million--$7.5 million in cash and a $500,000 "earn-out" if the company met certain defined milestones. Although nearly everyone at the company worried that a merger would crush Sterling's unique culture, "it was a relief in some ways," recalls Janet Gilmore. "Now we wouldn't need to constantly deal with the overhead issues, and we would be able to grow faster."
In hindsight, Wolfe's struggle to create a truly 9-to-5 company is a telling example of the inherent difficulties in the task. But for all the head scratching, agonizing, and frustrating decisions, and for all the conflicts caused by a desire to balance growth against the Sterling corporate culture, Wolfe believes he made the right decision. And he still believes it's less of a challenge to run a 9-to-5 company than one in which employees work round the clock--and inevitably burn out and move on. "It's far easier to be fair and generous to employees than to deal with 20% to 30% turnover," says Wolfe. "In the Sterling model, everybody wins. I didn't work 80 hours a week, and my net worth still grew dramatically. My employees had time for their families. The community had people with time to volunteer and give back. And the clients received excellent work. All the stakeholders in the corporation came out looking pretty good, in my mind."
Under Haney's continued leadership--and with Renaissance's much-needed capital injections--Sterling has grown from about 70 employees to more than 100 since the acquisition and now supports new offices in Dallas and Denver.
Drew Conway, Renaissance's CEO, continues to offer Sterling employees an hourly wage, a practice radically different from any other branch of his organization; however, Conway wasted little time dismantling Wolfe's bonus plan. "Before, the incentive was to save," says Conway. "Now the incentive is to grow." Today, Sterling's consultants receive a bonus that's directly tied to the growth of the company's profits.
Like most of the consultants, Gilmore had her doubts and concerns at the time of the sale, fearing that Sterling would no longer be, well, Sterling. But she has maintained her 40-hour workweek quota and continues to see her musician husband on the road. "We are still working to keep people at 40 hours a week," says Gilmore, who keeps her finger on the pulse of the company through her role as ombudsperson. Whether Sterling's prized culture can survive the tumult of hypergrowth remains a question. If not, it might be remembered just as a noble experiment.
Joshua Macht is an associate editor at Inc.
From Compaq to 9-to-5 start-up?
Nine-to-five fever isn't just a service-economy phenomenon. After nine years as a rising-star vice-president at Compaq Computer, Doug Johns was fatigued and burned out, so he chucked it all--including millions in future options--only to plunge back into business in 1995 with an ambitious start-up: Monorail Computer Corp., an Atlanta-area computer manufacturer. Johns desired a company that did more than pay lip service to the idea of family values. "We don't want to be a company that tolerates family values," says Johns. "We celebrate them."
To keep his life and his employees' lives under control, Johns devised a business structure built on a far-reaching outsourcing strategy. Virtually the entire operation depends on outside vendors. The computers are manufactured by several contractors and shipped by Federal Express. SunTrust bank takes care of all the billing, and Sykes Enterprises handles all the customer-service phone calls. Johns and his team focus on design, sales and marketing, and strategic planning.
Johns rarely stays at work past 6:30 p.m., and he strongly suggests that his employees follow suit. He also closes the doors early for more than just the standard evening before Christmas and Thanksgiving. Last Halloween, for example, when the Atlanta highways were jammed with cars, Johns dismissed his 50-odd employees so they could get home to their families. And he constantly encourages his top executives to put their families first, work efficiently, and stick to regular hours.
Though it's still too early to tell whether Monorail will be successful with its formula, Johns and his team say they're trying to hold fast to their priorities--even though the turbulent, fast-changing computer industry has greatly tested their resolve. The company is currently in a bloody battle for shelf space in the $999-to-$1,799-computer market against Johns's old friends at Compaq, and he admits that it's hard not to regress back to his old work habits: "I'm a recovering workaholic, and sometimes I fall off the wagon."