Once upon a time, Amazon Web Services (AWS) was seen as a cheap web hosting service for startups. Established hosting companies turned up their noses; enterprise clients would never switch to AWS.

Until they did.

"The groundswell around the public cloud started coming to a head around 2011," says Ken Ziegler, CEO of Logicworks, a managed cloud automation company that provides software bots to run best practices in the cloud. "But most people didn't see it. We were a hosting company for bigger customers and complex environments, and our customers were saying they wanted to try AWS even though they felt the cloud wasn't reliable. We knew it was a real threat to our business. Either we could try to compete with Amazon or partner with them."

Competing created huge problems, though. Hosting companies must buy hardware, switches, acquire data center space -- the cost of capital is huge. It's hard to compete against deep pockets when hardware is such a big part of your business.

"We made the decision strategically," Ken says, "and from a balance sheet standpoint, to leverage the core asset of our business: engineering talent. We couldn't compete on hardware, but we knew we could compete on employee knowledge and skill."

Of course, switching the focus of the company meant employee focus needed to change, too.

"For our engineers," Ken says, "it presented a challenge, because they had become experts on the classic building blocks. Now they had a choice: Become highly relevant in the future or become irrelevant. We don't click together the pieces; we integrate the pieces and wrap expertise around it. We needed our company to be highly relevant, so our employees need to be highly relevant."

Logicworks also had to convince its board that the new direction made sense.

"From a board perspective," Ken says, "Seaport Capital had a lot of experience in hosting, and they recognized the market was consolidating. So the decision was: Do you want to get your money back, or do you really want to go for it? Given everything that was going on in the market, they had to trust our team's vision. We were so energized, and the opportunity was something we were so inspired by, that it actually inspired them. They gave us tremendous support as we worked to conquer the AWS universe."

One of the most difficult shifts in focus was the need to stop defending the company's installed base. That required courage -- and belief.

"It took two years of me sounding crazy in multi-page memos about how this was going to work, how our business would come around ... and then in August 2014 we had that hockey stick moment: We were bombarded with business and had to build software to keep up with the growth, and we became a software-enabled company simply because we had to in order to satisfy all the demand."

Weathering the difficult years required a deft leadership touch. I asked him for a few basic principles any leader can follow.

Ken credits his overall approach to something he learned from a professor in business school. "People first, then process, then facts," he says. "If you have the wrong people, nothing else matters. We hire the best people we can, treat each other decently, and treat our customers as people. The reality is, if we don't do our job well, our customers -- other people -- are in a world of pain. It really is people."

Next, be empathetic. "You don't know what other people are going through," he says. "The company was empathetic to me when I had to take care of my family. I want you to work as hard as you can, as smart as you can ... but if you need to take care of something, we need to respect that. We respect the fact that people have complex lives. Sometimes they'll work like mad, other times they should have the freedom to re-center themselves and get reenergized."

Then, understand that mistakes are part of any business. "The nature of business is that there will be mistakes," Ken says. "People fat-finger things. Human error affects outcomes. With customers, if you own up to the mistake and do the right thing in response, that's what matters most. The same thing is true internally. Say you messed up. Own it, move forward, and move on."

On the flip side, doing more should also be part of any business. "Doing good is good for business," Ken says. "We often do things that are above and beyond what the contract requires. Sometimes it's a courtesy credit, sometimes there are extra things we provide. We sometimes go beyond our service level agreement. Again, it's people first, process second, facts third. The fact of the contract may say one thing, but if you can keep people happy...."

Finally, understand that a people-first approach means accepting that people work differently. "We may look like controlled chaos, but there are people contributing around the clock in their own ways. When you create constraints around behavior, you remove innovation, creativity, and empowerment. That's why people stay here. They feel empowered to do things their way, instead of how the company has defined that everyone must do things."

The result is an overnight success story that was 23 years in the making -- and a company that is less expensive to run and more profitable than it was before it shifted away from hosting. In 2016, capital expenditures dropped from 25 percent of revenue to less than 6 percent of revenue, and EBITDA went from flat to several million dollars.

"The company took 20 years to get to $12 million, and three years later we're approaching $50 million," Ken says. "Most of that growth is around AWS."

Why try to beat them when you can join them?

Published on: Jul 27, 2017
Like this column? Sign up to subscribe to email alerts and you'll never miss a post.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.