Hands On

Everyone's a CEO

You might think that you give your employees a lot. But would you give them your title?

By Anne Marie Borrego

If Gilbert van Cutsem's customers mistakenly assume that he's the CEO of Pervasive Software Inc., he isn't going to correct them. Then again, neither will Pervasive Software's official CEO, Ron Harris. In fact, Harris would rather watch multiple "chief executives" take charge of the $59-million Web-development and database company than have to shoulder the entire responsibility himself.

Even though van Cutsem isn't actually a CEO, he functions very much like one. At Pervasive, Harris taps a number of employees to become "CEOs" of individual projects and products. Designated CEOs are responsible for everything from crafting annual business plans to overseeing all the daily activities for their projects or business areas.

For example, van Cutsem is the appointed CEO of Pervasive's northern European division. His responsibilities include developing the company's northern European sales projections, business-development plans, and marketing strategies, as well as the resources -- namely, the cash and the people -- necessary to meet those goals. Harris appoints the internal CEOs on an as-needed basis, according to employees' leadership abilities. He also expects his CEOs to take big risks in their departments -- without seeking his approval or that of other top executives. Harris does, of course, expect results and accountability from his charges.

"When we started the company, we wanted to have a progressive culture that went further than 'empowering' people," he says. "That word is tired and overused. We wanted to go beyond that." So he gives his CEOs the ability to act autonomously. He believes the internal CEOs inspire the rest of the staff to take initiative in their own roles and therefore make the whole company more productive.

Harris appoints CEOs not only for geographic divisions but also for key projects and even product launches. When Pervasive outgrew its original Austin headquarters, he appointed Sandy Rios, then the director of operations, CEO of the move and trusted her to handle everything -- from the $21-million cost of operations over a 10-year lease period to IT connections and possible moving days. When Rios presented her plan to move to a larger space in Austin, Harris and the board accepted it right away. "Because Sandy was the CEO, I don't think I spent five minutes on the plan," Harris says.

He admits that handing over the reins isn't always easy. "But I'm sharp enough to know what I don't know, and I have to surround myself with people who are better at certain things than I am," he says. He believes that once he's selected the right people, all that's needed is a little fine-tuning -- like tailoring compensation incentives to the individual CEOs -- before setting those employees out on their own.

Van Cutsem was such a success as the northern European division's CEO that Harris awarded him with the company's 1999 Entrepreneur of the Year award. Not every internal CEO achieves that level of merit, but Harris still thinks delegating is worth the risk. And with more responsibility distributed throughout the company, individual snafus carry less weight. "There's nothing any one person could do that would result in the catastrophic failure of the company -- that's pretty far-fetched," Harris says.

The program appears to be a success -- at least for employee retention. "That's the main reason why I'm still at the company," van Cutsem says. "This is how I like to operate. You can do anything you like as long as you bring in the results."

David + David + David = Goliath

Small companies are now banding together on the Web for volume discounts on everything from pencils to office chairs to phone service. Here's a sampling of some Web-based aggregate-buying services that can stretch your company's dollar.

Where: www.essential.com
The Goods: Qwest, $0.047 a minute, plus $4.95 a month
The Good News: That's cheaper than the standard Qwest deal of $0.052 a minute, plus $4.95 a month
Secret Weapon: Negotiated discounts

What: 401(K) PLANS
Where: www.demandline.com
The Goods: T. Rowe Price, setup fee of $2,500, plus $20 per employee; $28 per employee annually
The Good News: Demandline customers save as much as 15% on annual administrative costs
Secret Weapon: Reverse auction

Where: www.shop2gether.com
The Goods: Dodge Caravan, $25,986
The Good News: The same car lists for $28,105
Secret Weapon: Negotiated discounts

Where: www.bcentral.com
The Goods: Major-site banner ads ranging from $50 to $2,000
The Good News: Major sites usually require a minimum purchase of $2,000
Secret Weapon: Bulk buying

Note: These sample prices and products are based on March 2000 listings. Prices will vary.

--Jill Hecht Maxwell

Hot Tips

If your company sells on the Web or even has a bare-bones Web presence, you should consider trademarking your corporate names and symbols in other countries. Canada might be first on your list, but a more thorough approach would include all English-speaking countries. "With the growth of the Web, it's becoming critical to have an international trademarking strategy," says associate Robert O'Connell of law firm Goodwin, Procter & Hoar LLP, in Boston. For companies with a limited budget, O'Connell suggests waiting until your sales are strong enough to justify registration costs. "It's more a business decision than a legal one," O'Connell says. --Ilan Mochari

Margaret Johnsson employs just six salespeople, but you'd never know it by reading one of her sales-success memos. That's because at the Johnsson Group Inc., a $4.7-million financial-consulting company in Chicago, everyone is part of the sales process. All 40 Johnsson employees compete for ink in the twice-monthly memos that detail even the smallest acts of salesmanship and good customer service. "I look at the little hits," says CEO Johnsson. "I expect everyone to be selling." Apparently, employees get the message. "I get people calling me the night before to see if they're in the memo," Johnsson says. --Susan Greco

Web Expertise in Novel Locales

Now that the Internet has established itself as a must-have component of every business, brick-and-mortar companies are rushing en masse to get online. That's great news for Web-design shops that can jack up their prices. It's not so great for companies that want to maintain the faintest notion of profitability. But the landscape isn't entirely bleak, especially for companies that are willing to search for Web developers in unconventional places.

Wayne Carrig, marketing manager of Sealing Devices Inc., found his developer at the poetry and rare-books collection at the State University of New York at Buffalo. Carrig says his company -- which manufactures seals for the automotive, aviation, and electronics industries -- was looking for an economical way to update its existing site.

Carrig had used the collection's tech-savvy services previously to develop a CD-ROM. And when he recontacted Robert Bertholf, its curator, Carrig was delighted to learn that the department also excelled at Web design -- and the $50-an-hour price tag was hard to beat. "Most people were charging at least $100 an hour, some as much as $200 an hour," Carrig says.

Even retailers in search of high-end bells and whistles can cut costs by looking for developers who want to break into the consumer space. Bruce Fernie, founder and chairman of Tealuxe Inc., found massive disparities in price when he started shopping for developers late in 1998. Looking to add a Web component to his Boston-based chain of teahouses, he called a number of design shops and tech companies but discovered little that differentiated one from the next.

Fernie finally went with Worldmachine Technologies Corp., a local Web-engineering shop that specialized in sites for hospitals and biotech companies. Even though the shop didn't have much experience in the retail market, it was looking to diversify, and Fernie felt that it was a good fit. "They wanted to work with us as much as we wanted to work with them," he says. Tealuxe used Worldmachine Technologies for all its technical work but stuck with its own design firm for graphics and logos.

Both sides are pleased with the results. Worldmachine Technologies took the first step toward a more diversified client base, while Tealuxe was able to keep its development costs down to about $100,000. --A.M.B.

Sign of the Times: Culture Gets Benched

When college dropouts Andrew Perlman and Mark Land founded Cignal Global Communications, a fiber-optic data-communications company, five years ago, they ran it out of a low-rent apartment in Cambridge, Mass. In the fall of 1997, the then-five-person business received $23 million from venture-capital firm Spencer Trask & Co., in New York City. One of the first things that the twentysomething founders did was look for new office space. And when they found it, they indulged in one fantasy: they installed a small glass-enclosed basketball court just beyond the reception area. Price tag: about $2,000.

"It had been a conference room, but we thought it was too big and cold, so we had the room insulated and put in a parquet floor and a backboard," explains Perlman. "The building management almost kicked us out."

The "mini gym" was an instant hit. "It was a fun thing that attracted people," says Perlman. "We used to shoot hoops during lunch or on Friday afternoons. Our bankers loved it."

But as Cignal grew to $25 million in sales -- and a staff of 140 employees -- the court went from sacred corporate cultural ground to badly needed office space. The company's offices are located in a start-up hotbed near the Massachusetts Institute of Technology, where commercial vacancies are rare and good space is expensive. Plus, the cost of relocating a computer network as sophisticated as Cignal's would have been prohibitive. So in came the cubes.

Eight people now have offices below the still-present basketball hoop, and the parquet is covered with temporary carpet and crisscrossing wires. Cignal plans to remove the parquet floor and backboard shortly, when it moves its network operations center (and an operations staff of eight) into the room. "We're still fun people, but our employees know we're all here to build a successful company," Perlman says. "And we can do other stuff to build camaraderie." --Mike Hofman

George Zimmer: My Biggest Mistake

Founder and CEO of the Men's Wearhouse, a $1.2-billion retailer of men's apparel based in Houston

It has been said that "pride goeth before a fall." In my case, it went before a failed negotiation. Four or five years ago, I started talking to Martin Prosserman, the founder of a chain called Moores the Suit People, which seemed like a great acquisition for us. With more than 100 stores, it was the largest retailer of men's tailored clothing in Canada. It also had a profitable factory in Montreal, which would have offered us the opportunity to become vertically integrated. Moores looked like a great fit.

Even though we were negotiating in good faith, the talks quickly changed from making a deal to butting egos. I had the hubris to think that offering Prosserman $100 million would make it impossible for him to walk away, especially because he had all his net worth concentrated in one business. I just felt that I had the upper hand and that he would accept the offer because of its size. When he was reluctant, I figured that he was just holding out for a higher price. I didn't believe that he was serious until the very end. And then he very courageously declined our offer.

We put our plans for Canada on the back burner. But when the time came to analyze the Canadian market again, our research only confirmed what we'd known four or five years before: Moores was the best-run business in that market, and we didn't want to compete against it. And a little more than a year ago, our president, Dave Edwab, came to me and strongly suggested that we buy Moores. And we did -- for about $25 million more than what we would have paid if we had bought it three years earlier.

I learned that you have to look at an acquisition strictly in terms of what it means to your company -- and not in terms of whether the other fellow is getting a good deal. The first time around, I got confused between the incredible opportunity the deal presented us with and what I thought was a holdout play on Prosserman's part. I had to learn to separate myself from the financial transaction and to realize that the ultimate price tag on a deal is not a reflection of my worth as a human being. --Written with Ilan Mochari

The Quotable Entrepreneur

"I don't think of myself as one of those serial entrepreneurs going from one company to the next. Sure, I start fires, but I kind of think I ought to be around to fight them."
--Justin Kitch, CEO of Homestead.com, a Web site that allows consumers and businesses to build their own free sites

Frat Mixers and Stock Options

Like many fast-growing companies looking for help, VarsityBooks.com has not been shy about tapping students for part-time positions. In fact, VarsityBooks.com, an online college-textbook retailer based in Washington, D.C., relies heavily on a network of student sales reps to spread the word on campuses around the country. But it is no ordinary part-time job. The VarsityBooks.com hiring package includes an hourly wage, sales commissions, bonuses, a PalmPilot, and training to help create a campus-specific marketing plan. Several times a year, VarsityBooks.com even flies the student reps to attend two-day conferences akin to corporate sales meetings.

But to really make the grade, VarsityBooks.com felt that it had to offer more. In a surprise move last summer, president and CEO Eric Kuhn announced to a gathering of 250 lead campus reps that they would also receive company stock options. The students promptly gave the CEO a standing ovation.

"It was a big surprise," says Igor Frenkel, a junior at Rice University, who was present at the announcement. "It's really awesome. We're part owners of the company." Frenkel had signed on as a lead campus rep for VarsityBooks.com last spring and now has a team of three student reps working for him.

Jon Kaplan, vice-president of strategic planning, believes options are crucial to recruiting and motivating even the youngest members of the workforce. And stock options are an inexpensive perk -- at least for now -- for a company trying to reduce its already sky-high costs. (In 1998, VarsityBooks.com lost $2 million on $100,000 in sales.) So far, VarsityBooks.com has granted 627 student reps options to purchase 100 shares each at an exercise price of $5 a share. The options vest in one year.

The tactic clearly isn't for every company. Full-time employees could resent the move to give equity to part-timers who are not even through school. And at VarsityBooks.com, the options ultimately could receive a failing grade as a recruitment tool. When the company went public, in February, the stock opened at $12 but ended its first day of trading two points down and remained there through the first month of trading. At that rate, the stock proceeds would pay only for a semester's worth of books. Kaplan concedes that the options "will be hard to retire on." And yet students like Frenkel are still upbeat. "It will take a few semesters of results to see the stock go up," he says.

CEO Kuhn is also undaunted. He says VarsityBooks.com will continue offering stock options. Just 18 months ago the company had a smattering of student employees. Today there are now more than 500 lead reps and a total of 2,000 students promoting the company on campuses in all 50 states. Kuhn says, "Having 2,000 student reps is a very cost-efficient way to market." --S.G.

In a Former Life: Mitch Kapor


Present life: Currently a partner at Accel Partners, a prominent venture-capital firm in Palo Alto, Calif., Kapor is best known as the founder of Lotus Development Corp. and the co-creator of Lotus 1-2-3.

Former life: After graduating from Yale, in 1971, Kapor was a disc jockey for WHCN-FM in Hartford for two years.

Lessons learned: The disc-jockey experience had some practical payoffs in communication skills. "I had no fear of speaking to large audiences. It came in especially handy at staff meetings as Lotus got larger. I had also done stand-up at a comedy club one summer, so when it came to holding a crowd's attention and getting people fired up, I knew how to do it," says Kapor.

"As a DJ, I knew people were out there listening. And the idea that there was an audience and that people were paying attention helped -- especially when Lotus really took off.

"Knowing how to address large groups was also helpful in serving on panels, at trade shows, or at other speaking events. Just having the verbal acuity that being on the radio gives you -- having a quick comeback or being able to say something offbeat to get a crowd's attention -- can go a long way with your audience because panels at the big industry shows like Comdex can be really boring."

Kapor also relished getting a real-world perspective before embarking on his software career. "Today, in the Internet gold rush, so many people go into dot-com jobs right from school or even before finishing," he says. "Their motivation is understandable, but sometimes they just lack experience. In my case, having knocked around at different jobs helped me get a sense of what the world is actually like and also helped me get out of a cocoon." --I.M.

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Published on: Jun 1, 2000